1. Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition © 2009 John Wiley & Sons Canada, Ltd. Adapted from PowerPoint prepared by: Debbie Musil Kwantlen University College Chapter 1 Accounting in Action

2. Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition © 2009 John Wiley & Sons Canada, Ltd. Accounting & Ethics Ethics Standards of conduct used to judge actions Standards of conduct used to judge actions Ethics - “The Language of Business” Ethics - “The Language of Business” Must be understandable, useful, truthful Must be understandable, useful, truthful To Solve Ethical Dilemmas 1.Recognize situation and ethical issues involved 2.Identify and analyse elements 3.Identify alternatives and weigh effects on stakeholders  Select the most ethical alternative

3. Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition © 2009 John Wiley & Sons Canada, Ltd. Users of Accounting Information Internal Users Internal Users Includes Marketing, Human Resources, Production, Senior ManagementIncludes Marketing, Human Resources, Production, Senior Management Used for planning, organizing and running the businessUsed for planning, organizing and running the business External Users External Users Investors, Creditors, Labour Unions, Customers, Regulators and other authoritiesInvestors, Creditors, Labour Unions, Customers, Regulators and other authorities Used for decisions of ownership, credit, lending, assess compliance, performanceUsed for decisions of ownership, credit, lending, assess compliance, performance

4. Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition © 2009 John Wiley & Sons Canada, Ltd. GAAP “Generally Accepted Accounting Principles” Common set of accounting standardsCommon set of accounting standards Developed by the Canadian Institute of Chartered Accountants (“CICA”)Developed by the Canadian Institute of Chartered Accountants (“CICA”) Consult with organizations and individualsConsult with organizations and individuals Authority through Canadian and provincial business and securities statutesAuthority through Canadian and provincial business and securities statutes

5. Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition © 2009 John Wiley & Sons Canada, Ltd. GAAPS Cost Principle – assets are recorded at original cost Cost Principle – assets are recorded at original cost Going concern – organization will continue to operate in the foreseeable future Going concern – organization will continue to operate in the foreseeable future Monetary unit – only include transactions that can be expressed as an amount of money Monetary unit – only include transactions that can be expressed as an amount of money Economic entity – activities of a unit or organization in society are kept separate and distinct from other entities and owner Economic entity – activities of a unit or organization in society are kept separate and distinct from other entities and owner

6. Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition © 2009 John Wiley & Sons Canada, Ltd. GAAP - Assumptions Going concern – organization will continue to operate in the foreseeable future Going concern – organization will continue to operate in the foreseeable future Monetary unit – only include transactions that can be expressed as an amount of money Monetary unit – only include transactions that can be expressed as an amount of money Economic entity – activities of a unit or organization in society are kept separate and distinct from other entities and owner Economic entity – activities of a unit or organization in society are kept separate and distinct from other entities and owner

7. Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition © 2009 John Wiley & Sons Canada, Ltd. Assets & Liabilities Assets Assets Resources owned by the organizationResources owned by the organization Liabilities Liabilities Claims against assetsClaims against assets Existing debts and obligationsExisting debts and obligations

8. Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition © 2009 John Wiley & Sons Canada, Ltd. Owner’s Equity Equals total assets less total liabilities Equals total assets less total liabilities Represents ownership claim on assets Represents ownership claim on assets Components of owner’s equity: Components of owner’s equity: Investments – assets put into business by ownerInvestments – assets put into business by owner Drawings – cash or other assets withdrawn by owner for personal useDrawings – cash or other assets withdrawn by owner for personal use Net income (loss) – revenues less expensesNet income (loss) – revenues less expenses

9. Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition © 2009 John Wiley & Sons Canada, Ltd. Revenues & Expenses Revenues Revenues Result from business activities that are performed to earn incomeResult from business activities that are performed to earn income Result in an increase in an asset and in owner’s equityResult in an increase in an asset and in owner’s equity Expenses Expenses The cost of assets consumed or services used in order to earn revenueThe cost of assets consumed or services used in order to earn revenue Result in an decrease in an asset and in owner’s equityResult in an decrease in an asset and in owner’s equity

10. Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition © 2009 John Wiley & Sons Canada, Ltd. Assets = Liabilities + Owner’s Equity Assets = Liabilities + Owner’s Equity Accounting Equation Revisited Investments - Drawings +/- Net Income (Loss) Investments - Drawings +/- Net Income (Loss) Revenues - Expenses Revenues - Expenses

11. Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition © 2009 John Wiley & Sons Canada, Ltd. Accounting Equation Distinctions by Type of Organization Sole Proprietorship: Sole Proprietorship: Assets = Liabilities + Owner’s EquityAssets = Liabilities + Owner’s Equity Partnership: Partnership: Assets = Liabilities + Partner’s EquityAssets = Liabilities + Partner’s Equity Corporation: Corporation: Assets = Liabilities + Shareholders’ EquityAssets = Liabilities + Shareholders’ Equity

12. Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition © 2009 John Wiley & Sons Canada, Ltd. Financial Statements Prepared after all transactions identified, recorded and summarized: Prepared after all transactions identified, recorded and summarized: Income Statement – presents revenues, expenses and net income (loss) for a specific period of timeIncome Statement – presents revenues, expenses and net income (loss) for a specific period of time Statement of Owner’s Equity – summarizes the changes in owner’s equity for a specific time periodStatement of Owner’s Equity – summarizes the changes in owner’s equity for a specific time period Balance Sheet – reports assets, liabilities and owner’s equity at a specific dateBalance Sheet – reports assets, liabilities and owner’s equity at a specific date Cash Flow Statement – summarizes cash inflows and outflows for a specific period of timeCash Flow Statement – summarizes cash inflows and outflows for a specific period of time

13. Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition © 2009 John Wiley & Sons Canada, Ltd. Income Statement

14. Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition © 2009 John Wiley & Sons Canada, Ltd. Statement of Owner’s Equity

15. Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition © 2009 John Wiley & Sons Canada, Ltd. Balance Sheet Owner’s capital of $16,450 is brought forward from the Statement of Owner’s Equity

16. Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition © 2009 John Wiley & Sons Canada, Ltd. Cash Flow Statement Cash shown on the Balance Sheet equals ending cash on the Cash Flow Statement