Accounting The Basis for Business Decisions 1 1 1 1 1.

Accounting The Basis for Business Decisions 1 1 1 1 1

Accounting and the Business Environment
Chapter 1 Accounting and the Business Environment

Use accounting vocabulary
Objective 1 Use accounting vocabulary 1.1 What is Accounting

Key words Financial statements 财务报表 Investors 投资者 Creditors 债权人
Entity 实体 Financial accounting 财务会计 Management accounting 管理会计 FASB 财务会计准则委员会 CPAs 注册会计师 CMAs 注册管理师 AICPA 美国注册会计师协会 IMA 管理会计师协会 GAAP 公认会计原则

1.Definition of Accounting
is an information system that… Measures Processes Communicates….. Financial information to decision makers Accounting is an information system.

is called the language of business.
Accounting... is called the language of business.

2.Users of Accounting Information
External users make decisions about the entity. Internal users make decisions for the entity.

Users of Accounting Information
External Users Lenders Shareholders Governments Consumer Groups External Auditors Customers Internal Users Managers Officers/Directors Internal Auditors Sales Staff Budget Officers Controllers Accountants prepare reports for both external and internal users. Managers of the business need information to help direct and control operations of a business. The sales/marketing department needs information about customers and products. Officers of the company need information to develop strategic plans.

External vs. Internal Users
External Users Decision making by: Investors Creditors Internal Users Decision Making by: Management Employees

Management Accounting
3. Fields of Accounting Provides information for people outside the company. Financial Accounting Focuses on information for internal decision makers Management Accounting

1.2 Regulating Accounting
Let’s look at the governing organizations

The Dow Jones Industrial Unregulated marketplace
October 29, 1929 The Dow Jones Industrial Average The Dow Jones Industrial Average Unregulated marketplace Down the tubes! The stock market crash of 1929 lead to federal regulation of the securities market. The Securities and Exchange Commission (SEC) adopted strict regulations for companies issuing stock. Companies are required to file and disclose extensive financial information to protect investors.

1.Governing Organizations
(SEC) Securities and Exchange Commission (AICPA) American Institute of Certified Public Accountants (FASB) Financial Accounting Standards Board (IMA) Institute of Management Accountant A governmental agency with oversight powers. The private professional organization of practicing CPAs. Private sector agency that formulate accounting standards

The Authority Underlying Accounting in the U.S
Public Sector (SEC) Private Sector (AICPA) (IMA) Private Sector (FASB) GAAP

International Accounting Standards
U.S standards determined by the Financial Accounting Standards Board (FASB); international accounting standards under development by the International Accounting Standards Committee (IASC). The International Accounting Standards Committee (IASC) was formed in 1973 and recently renamed International Accounting Standards Board (IASB) The objective is to narrow divergence in international financial reporting.

Accounting Professionals
Public Accountants Work in public accounting CPA’s specialize in tax preparation, consultation, auditing, and management Private Accountants Work for businesses/corporations Prepare financial statements, internal audits, and management reports

Accounting Jobs by Area
About twenty-five percent of accountants work in public accounting. Public accounting firms offer accounting, tax, and consulting services to a wide variety of clients. About sixty percent of accountants work for businesses/corporations, and fifteen percent work for governmental, not-for-profit, and educational organizations.

Key words Proprietorship 独资 Partnership 合伙 Corporation 公司 Liability 负债
The going-concern concept 持续经营概念

1.3Types of Business Organizations
C 5 Sole Proprietorship Partnership Corporation There are three general forms of business operations. A sole proprietorship is a business owned by just one individual. A partnership is owned by two or more individuals. Some partnerships have several thousand partners. A corporation is owned by individuals who normally are not active in the day-to-day operations of that business. For example, you may become an owner of IBM by purchasing shares of stock on the New York Stock Exchange. While you are a part owner, you do not necessarily work for IBM nor are active in the operations of the company.

1. Sole Proprietorship 2. Partnership
A business is owned by a single individual. 2. Partnership A business is owned by two or more owners.

Corporation A business is owned by stockholders
entity that legally functions separate and apart from its owners. Owners’ liability is limited to the amount of their investment in the firm. Owners hold common stock certificates, and ownership can be transferred by selling the certificates.

Sole Proprietorship Advantages Disadvantages Easiest to start
Least regulated Single owner keeps all the profits Taxed once as personal income Disadvantages Limited to life of owner Equity capital limited to owner’s personal wealth Unlimited liability Difficult to sell ownership interest www: Click on the “web surfer” for more information about sole proprietorships. If you click on the “--Sole Proprietorship” link, you will be taken to an index that will provide a link to information about husband and wife sole proprietorships.

Partnership Advantages Disadvantages Two or more owners
More capital available Relatively easy to start Income taxed once as personal income Disadvantages Unlimited liability General partnership Limited partnership Partnership dissolves when one partner dies or wishes to sell Difficult to transfer ownership www: Click on the “web surfer” for more information about partnerships. If you click on the “—Partnerships” link, you will go to an index that provides links to additional information about limited partnerships, partnership agreements and buy-sell agreements. Note that unlimited liability applies to all partners in a general partnership and only the general partners in a limited partnership Written agreements are essential due to the unlimited liability. Limited partners cannot be involved in the business or else they may be deemed as general partners.

Corporation Disadvantages Advantages
Separation of ownership and management Double taxation (income taxed at the corporate rate and then dividends taxed at personal rate) Advantages Limited liability Unlimited life Separation of ownership and management Transfer of ownership is easy Easier to raise capital www: Click on the “web surfer” to go to a page that discusses corporations. If you click on the “—Corporations” link it will take you back to an index that provides links to additional information on corporations as well as limited liability corporations. Discuss how separation of ownership and management can be both an advantage and a disadvantage: Advantages You can benefit from ownership in several different businesses (diversification) You can take advantage of the expertise of others (comparative advantage) Easier to transfer ownership Disadvantage Agency problems if management goals and owner goals are not aligned The instructors manual provides additional discussion of limited liability companies and S-corporations

Who Are The Decision Makers In A Corporation?
Chief Executive Officer CEO Chief Operations Officer COO Chief Financial Officer CFO Financial manager Treasurer Controller

Organization of the Financial Management Function
VP of Finance Treasurer Capital Budgeting Cash Management Credit Management Dividend Disbursement Fin Analysis/Planning Pension Management Insurance/Risk Mngmt Tax Analysis/Planning Controller Cost Accounting Cost Management Data Processing General Ledger Government Reporting Internal Control Preparing Fin Stmts Preparing Budgets Preparing Forecasts

Basic Business Forms Type of Operations
Merchandising - a business that sells ready made merchandise (typical retailer). Manufacturing - a business that converts raw materials to finished goods to sell to customers. Service - a business that provides a service to customers.

Wal-Mart is a merchandiser; General Motors is a manufacturer; American Express is a service business. PAUSE AND REFLECT Can you think of a business that fits into each of these categories?

concepts and principles
Objective 2 Apply accounting concepts and principles

1.4 Generally Accepted Accounting Principles
What is the primary objective of financial reporting? To provide information useful for making investment and lending decisions

Information must be Relevant Reliable Comparable

GAAP Accounting guidelines that govern how accountants measure, process, and communicate financial information Formulated by FASB G A P

1.The Entity Concept Organization that stands apart as a separate economic unit Although a proprietor is not legally distinct from the business activities of the proprietorship, the Entity Concept requires that the transactions of the business (proprietorship) are accounted for separately from the transactions of the proprietor.

Business Entity Assumption
The economic entity can be identified with a particular unit of accountability. The economic entity assumption is an accounting concept, and not a legal construct.

Business Entity Concept
Accounts are kept for entities, rather than for the persons who own, operate, or otherwise are associated with those entities. Eg. Suppose Green Company is a business entity, and Sue Smith is its owner. Sue Smith withdraws $100 from the business. In preparing financial accounts for Green Company, we should record the effect of this withdrawal on the accounts of [Sue Smith / the entity].

The Entity Concept Example
Assume that John decides to open up a gas station and coffee shop. The gas station made $250,000 in profits, while the coffee shop lost $50,000.

The Entity Concept Example
How much money did John make? At a first glance, we would assume that John made $200,000. However, by applying the entity concept we realize that the gas station made $250,000 while the coffee shop lost $50,000.

2.The Reliability/Objectivity Principle
Accounting information is based on the most reliable data available

3.The Cost Principle Acquired assets and services should be recorded at their actual cost (historical cost)

All transactions are recorded at historical cost.
Historical Cost Principle All transactions are recorded at historical cost. Historical cost is assumed to represent the fair market value of the item at the date of the transaction because it reflects the actual use of resources by independent parties. 21 21 22 22 22 22 22

Eg. The fair value of most assets is known on the date the assets was acquired because the buyer and the seller agreed on the amount.If Garsden Company purchased a plot of land in 2003 for $100000,this land would have been reported on its December 31,2003 balance sheet as $ What was its fair value on December 31,2004? A.$100000 B.More than $100000 C.Gardson doesn’t know.

Eg. The two reasons why accounting focuses on costs,rather than on fair values for some assets are:
1.Fair values are difficult to estimate;that is ,they are ________,whereas costs are_________. [objective/subjective] 2.The __________ concept makes it unnecessary to know the market value of many assets;the assets will be used in future operations rather than being sold immediately.

The foreseeable future
GOING CONCERN CONCEPT The foreseeable future The business at work today

4.The Going Concern Concept
Assumes that the entity will remain in operation for the foreseeable future

Going Concern Assumption
The business is assumed to continue indefinitely unless terminated by owners. The basis of recording financial elements is historical accounting. Liquidation accounting (based on liquidation values) is not followed unless so indicated.

Eg. The ______________ concept states that accounting assumes that an entity will continue to operate indefinitely unless there is evidence to the contrary.

Eg. On December 31,2004,the balance sheet of Hamel Company reported total assets of $ If Hamel Company ceases to operate now, A.its assets could be sold for $ B. its assets could be sold for approximately $ C. its assets could be sold for at least $ D.we don’t know what its assets could be sold for.

5.The Stable-Monetary-Unit Concept
The dollar’s purchasing power is stable.

Monetary Unit Money is the common unit of measure of economic transactions. Use of a monetary unit is relevant, simple to understand and universally available. Price level changes are ignored in accounting, leading to the assumption that the dollar remains relatively stable.

money-measurement Concept
Eg. If a fruit store owned $200 in cash, 100 dozen oranges, and 200 apples, could you add up its total assets from this information? ... [Yes / No]

If you knew that the 100 dozen oranges cost $5 a dozen and the 200 apples cost $0.40 each, you could then add these amounts to the $200 cash, and find the total assets to be $

To add together objects as different as apples, oranges, automobiles, shoes, cash, supplies, etc.;
they must be stated in . . …….. [different / similar] units.

Can you add the amounts of apples and oranges if they are stated in terms of money? . . . [Yes / No]
The money-measurement concept states that accounting reports only those facts that can be stated as m___________ amounts.

The main concepts and principles
The entity concept The reliable principle The cost principle The going-concern concept The stable-monetary-unit concept

Use the accounting equation
Objective 3 Use the accounting equation

Key words Assets 资产 Liabilities 负债 Owner’s equity 所有者权益
Accounts receivable 应收账款 Accounts payable 应付账款 Notes payable 应付票据

1.5 Accounting Elements The key elements of a business balance sheet.
Assets、Liabilities and Owner’s equity The key elements of a business income statement. Revenues and expenses

1. Assets Asset are economic resources owned or controlled by a business that are expected to benefit future operations. Or Something a business owns.

1.It must be ______ed or c_______ed by the entity;
Eg. For an item to be listed as an assets,it must meet three requirements: 1.It must be ______ed or c_______ed by the entity; 2.It must be v_________to the entity; 3.It must have been acquired at a m________ cost. owned ontroll aluable onetary

Cash, inventory,building,
equipments, Accounts receivable… PAUSE AND REFLECT Can you List the assets of your business ?

2. Liability Something a business owes
Economic obligations payable to an individual or organization outside the business Or Something a business owes Accounts payable Notes payable Salary payable

3.Owner’s Equity (capital)
Claim of business owner to the assets of the business the same as net assets

4.Revenues Amounts earned by delivering goods or services to customers
Sales revenue Service revenue Interest revenue Dividend revenue

5. Expenses Decrease in owner’s equity that occurs from using assets or increasing liabilities in the course of delivering goods or services to customers Salary expense Rent expense Utilities expense Interest expense

Expenses Cost of doing business
A firm cannot generate revenue without expenses.

1.6 Accounting Equation balance sheet equation
(basic accounting equation) Assets = Liabilities + Owners’ Equity Slide 2.8

The Accounting Equation
Assets = Liabilities + Owner’s Equity Economic Resources Claims to Economic Resources If assets are 100,000 and liabilities are 70,000, what is the amount of owner’s equity? 30,000 Jeremy is starting a cleaning service. What things does he need to start? (students might say cash, cleaning supplies, vehicle, equipment) write these on the board, explain that these are assets Now…how will Jeremy acquire these assets? (students might say from his own savings and borrow it). Write these on the board, explaining how liabilities are creditors’ claims and owner’s equity represents owner’s claims.

Accounting Equation Assets = Liabilities + Owners’ Equity = +
Resources Sources of Funding Creditors’ claims against resources = + Owners’ Resources to use to generate revenues

Other forms of accounting equation
Assets - Liabilities = Owners’ Equity

Keep in mind the fundamental accounting equation:
___________=__________+____________.

Exercise 1-18 Pep Boys $ ? $60,000 $21,000 Eddie Bauer 72,000 ? 40,000
Assets Liabilities Owner’s Equity Pep Boys $ ? $60,000 $21,000 Eddie Bauer 72,000 ? 40,000 Benbrook Exxon 100,000 79,000 $81,000 32,000 Let’s review the accounting equation. 21,000

buy the equipment, liabilities
Owners’ equity is $150,000. When the business borrows $20,000 to buy the equipment, liabilities also go up by $20,000. is unchanged. PAUSE AND REFLECT If a business has $200,000 in assets and $50,000 in liabilities, what is the total of its owners equity? If the business borrows $20,000 and uses it to purchase a piece of equipment, how does owners’ equity change?

Income statement equation:
Revenues – expenses=net income( net loss)

Transactions that Affect Owner’s Equity
INCREASES OWNER’S EQUITY DECREASES Owner Investments Owner Withdrawals Owner’s Equity So now, Jeremy has put some of his own money into the business. In order to increase his wealth, he has to get some jobs and do some work! Explain revenues and expenses and withdrawals. Revenues Expenses

Capital - owner’s withdrawal + net income +new additional capital

Summary You should remember:
Assets are economic resources owned by a business that are expected to be of benefit in the future. Liabilities are creditor’s claims to the assets Owner’s equity is the owner’s claim to the assets. It’s the amount of assets that remains after subtracting the liabilities.

Summary Owner’s equity is increased by owner investments and revenues
Owner’s equity is decreased by owner withdrawals and expenses.

Analyze business transactions
Objective 4 Analyze business transactions

1.7Accounting for Business Transactions
What is a transaction? An event that affects the financial position of a particular entity and can be recorded reliably

Business Transactions
An economic event Examples of Transactions Investment of cash by owner Purchase of office equipment Purchase of office supplies for cash Payment of a liability Sale of merchandise

Accounting for Business Transactions
Gay Gillen invests $30,000 to begin Gay Gillen eTravel. Gillen purchases an office location, paying $20,000 in cash. She buys office supplies, agreeing to pay $500 in 30 days. She earns and collects $5,500 revenues.

Gillen performs services, and the client agrees to pay $3,000 within one month. During the month, she pays $3,100 for expenses incurred. Gillen pays $300 to the store from which she purchased $500 worth of supplies. What is the effect of these transactions on the accounting equation?

Owner’s Assets = Liabilities Equity 1) Cash + $30, $30,000 2) Cash – 20,000 Land ,000 3) Supplies 4) Cash , ,500 5) Receivable , ,000 6) Cash – 3, – 3,100 7) Cash – – 300 Totals + $35, $35,400

Other transactions that took place were as follows: 8.The business collected $1,000 from the client. 9.She sold some land at cost for $9,000. 10.She withdraw $2,100 from the business.

conclusion Notice that the equation always stays in balance.
Each transaction affects at least two accounts, sometimes more. Some transactions affect only one side of the equation; some affect both sides.

Exercise 1-22 Maria Lange opened a medical practice. During July, the first month of operation, the business, titled Maria Lange, M.D., experienced the following events. July 6 Lange invested $45,000 in the business by opening a bank account in the name of M. Lange, M.D. July 9 Paid $35,000 cash for land. July 12 Purchased medical supplies for $2,000 on account

July During the rest of the month, Lang treated patients and earned service revenue of $7,000, receiving cash. July Paid cash expenses: employees’ salaries, $1,700; office rent, $1,000; utilities, $300. July 28 Sold supplies to another physician for the cost of those supplies, $500. July 31 Paid $1,500 on account.

Exercise 1-22 45,000 6 45,000 Investment Date Assets Liabilities
Owner’s Equity July Cash Medical Supplies Land Accounts Payable M.Lange, Capital Type of Transaction 45,000 6 45,000 Investment Liabilities & Owner’s Equity = $45,000 Assets = $45,000

Exercise 1-22 45,000 6 45,000 Investment -35,000 9 35,000 45,000
Date Assets Liabilities Owner’s Equity July Cash Medical Supplies Land Accounts Payable M.Lange, Capital Type of Transaction 45,000 6 45,000 Investment -35,000 9 35,000 45,000 35,000 10,000 Bal Liabilities & Owner’s Equity = $45,000 Assets = $45,000

Exercise 1-22 Date Assets Liabilities Owner’s Equity July Cash Medical Supplies Land Accounts Payable M.Lange, Capital Type of Transaction 45,000 35,000 10,000 Bal 2,000 12 2,000 45,000 35,000 10,000 Bal 2,000 Liabilities & Owner’s Equity = $47,000 Assets = $47,000

Exercise 1-22 Date Assets Liabilities Owner’s Equity July Cash Medical Supplies Land Accounts Payable M.Lange, Capital Type of Transaction 45,000 35,000 10,000 Bal 2,000 7,000 15-31 7,000 Revenue 52,000 35,000 17,000 Bal 2,000 Liabilities & Owner’s Equity = $54,000 Assets = $54,000

Exercise 1-22 Salaries Exp Rent Exp Utilities Exp 52,000 35,000 17,000
Date Assets Liabilities Owner’s Equity July Cash Medical Supplies Land Accounts Payable M.Lange, Capital Type of Transaction 52,000 35,000 17,000 Bal 2,000 -1,700 15-31 Salaries Exp -1,000 Rent Exp - 300 Utilities Exp 49,000 35,000 14,000 Bal 2,000 Liabilities & Owner’s Equity = $51,000 Assets = $51,000

Exercise 1-22 Date Assets Liabilities Owner’s Equity July Cash Medical Supplies Land Accounts Payable M.Lange, Capital Type of Transaction 49,000 35,000 14,000 Bal 2,000 500 28 -500 49,000 35,000 14,500 Bal 2,000 1,500 Liabilities & Owner’s Equity = $51,000 Assets = $51,000

Exercise 1-22 Date Assets Liabilities Owner’s Equity July Cash Medical Supplies Land Accounts Payable M.Lange, Capital Type of Transaction 49,000 35,000 14,500 Bal 2,000 1,500 -1,500 31 -1,500 49,000 35,000 13,000 Bal 500 1,500 Note: The equation always stays in balance. Each transaction affects at least two accounts, sometimes more. Some transactions affect only one side of the equation; some affect both sides. Liabilities & Owner’s Equity = $49,500 Assets = $49,500

Exercise 1-17 Jake’s Roasted Peanuts, a proprietorship, supplies snack foods. The business experienced the following events. State whether each event (1) increased, (2) decreased, or (3) had no effect on the total assets of the business. Identify any specific asset affected.

Jake’s Roasted Peanuts received a cash investment from the owner.
Cash purchase of land for a building site. Paid cash on accounts payable. Purchased equipment; signed a note payable in payment Performed service for a customer on account. The owner withdrew cash from the business for personal use Received cash from a customer on account receivable. Borrowed money from the bank.

Exercise 1-17 Increased assets (cash) No effect on total assets
Decreased assets (cash) Increased assets (equipment) b. Increase in land offset the decrease in cash.

Exercise 1-17 Increased assets (accounts receivable)
Decreased assets (cash) No effect on total assets Increased assets (cash) g. Increase in cash offset the decrease in accounts receivable.

Objective 5 Prepare the financial statements and evaluate business performance

1.8 Financial Statements Income statement Statement of owner’s equity
Balance sheet Statement of cash flows

Financial Statement Headings
Name of the business Name of the financial statement Date or time period covered by the statement

1.The Income Statement Basic Format: Revenues - Expenses = Net Income
(Net Loss) Shows the results of a company’s operations over a period of time.

Gay Gillen eTravel Income Statement Month ended April 30,20xx
Revenue: Fees earned $8,500 Expenses: Salary expense $1,200 Utilities expense Rental expense ,100 total expense Net income $5,800

2.Statement of Owner’s Equity
Format: Owner’s capital, beginning of the period Add: Investments by owner Net income Less: Withdrawals by owner Net loss Owner’s capital, end of period Changes in owner’s equity during a specific time period.

G. Gillen, capital, April 1, 20xx $ 0 Add ：Investment by owner 30,000
Gay Gillen eTravel Statement of Owner’s Equity Month ended April 30,20xx G. Gillen, capital, April 1, 20xx $ Add ：Investment by owner ,000 Net income $ 5,400 Less ：Withdrawals by owner – 2,100 G. Gillen, capital, April 30, 20xx $33,300

3.The Balance Sheet Basic Format: Assets =liabilities + owner’s equity
Summary of the financial position of a company at a particular date.

What Are Classified and Comparative Balance Sheets?
They distinguish between current and non-current assets. current and long-term liabilities. Listed in decreasing order of liquidity. Financial statement users can identify significant changes over time. They have more than one year on the Balance Sheet. 24

Sample of Balance Sheet
Assets Cash $ 40 Accounts receivable 100 Land 200 Total assets $340 Liabilities Accounts payable $ 50 Notes payable $200 Owners’ Equity Capital stock $100 Retained earnings $140 Total liabilities and owners’ equity $340 Must Equal 23

4.Statement of Cash Flows
Reflect the cash receipts and cash payments during a period (covered in Chapter 16) .

What Are The Three Primary Types Of Activities On A Statement Of Cash Flows?
Operating Activities: A company’s day-to-day activities. Major operating cash inflow—cash receipts from selling goods or from providing services. Major operating cash outflow—payments to purchase inventory and to pay operating expenses. Investing Activities: Buying and selling long-term assets. Financing Activities: Cash is obtained from or repaid to owners and creditors.

Statement of Cash Flows
Financing Activities Operating Activities Investing Activities CASH INFLOWS CASH OUTFLOWS Investing Activities Financing Activities Operating Activities

Sample Statement of Cash Flows
The Example Company Statement of Cash Flows Month Ended December 31, 2003 Cash Flows From Operating Activities: Receipts 48 Payments (43) 5 Cash Flows From Investing Activities: Receipts 0 Payments (4) (4) Cash Flows Used By Financing Activities: Receipts 10 Payments (6) 4 Net Cash Flow 5 37

Relationships Among the Statements: Income Statement
Revenue: Fees earned $8,500 Expenses: Salary expense $1,200 Utilities and telephone expense Equipment rental expense Office rent expense , ,100 Net income $5,400

Relationships Among the Statements: Statement of Owner’s Equity
G. Gillen, capital, April 1, 20xx $ Contribution of capital ,000 Net income $ 5,400 Cash distributions – 2,100 G. Gillen, capital, April 30, 20xx $33,300

Relationships Among the Statements: Balance Sheet
Assets Cash $ 20,000 Accounts receivable ,000 Supplies Land ,000 Total assets $ 33,500 Liabilities Accounts payable $ Owner’s equity, G. Gillen, capital 33,300 Total liabilities and owner’s equity $33,500

Exercise 1-24 The account balances of Allen Samuel Road Service at November 30, 2009, follow. Requirements: Prepare the balance sheet of the business at November 30, 2009. What does the balance sheet report-financial position or operating results? Which financial statement reports the other information?

Equipment $15,500 Service revenue $12,000 Supplies 500 Accounts receivable 6,000 Note payable 5,000 Accounts payable 3,500 Rent expense 800 Allen Samuel, capital ? Cash 2,000 Salary expense

Allen Samuel Road Service
Exercise 1-24 Allen Samuel Road Service Balance Sheet November 30, 2009 Assets Liabilities Cash $2,000 Accounts receivable 6,000 Supplies 500 Equipment 15,500 Total Assets $24,000 Accounts payable $3,500 Note payable 5,000 Total liabilities $8,500 Owner’s Equity A. Samuel, capital 15,500 Total liabilities and owner’s equity $24,000 b. What does a balance sheet report – financial position or operating results? Financial position c. Which financial statement reports the other information? The income statement summarizes revenues and expenses.

Ciliotta Design Studio
Exercise 1-25 Ciliotta Design Studio Income Statement Year Ended December 31, 2006 Service revenue $158,100 Expenses: Salary expense $60,000 Rent expense 24,000 Utilities expense 6,800 Supplies expense 4,000 Property tax expense 1,200 Total expenses 96,000 Net income $62,100

Exercise 1-25 Owner’s withdrawals:
Ciliottas, capital, beginning of year $ Add: Net income 62,100 Investment by owner 15,000 Subtotal $77,100 Less: Owner withdrawal ? Ciliotta, capital, end of year $27,100 50,000

Problems 1-29A Best Foot Forward Income Statement
Month Ended September 30, 2007 Revenues: Service revenue $3,700 Expenses: Rent expense $900 Advertising expense 100 Total expenses 1,000 Net income $2,700

Statement of Owner’s Equity
Continued Req. 3 Best Foot Forward Statement of Owner’s Equity Month Ended September 30, 2007 Marilyn Crone, capital, August 31, 2007 $ 7,700 Add: Investments by owner ($20,000 + $1,000) 21,000 Net income for the month 2,700 31,400 Less: Withdrawals by owner (1,500) Marilyn Crone, capital, September 30, 2007 $29,900

Continued Req. 4 Best Foot Forward Balance Sheet September 30, 2007
ASSETS LIABILITIES Cash $14,500 Accounts payable $ 1,000 Accounts receivable 3,500 Supplies 900 OWNER’S EQUITY Land 12,000 Marilyn Crone, capital 29,900 Total liabilities and Total assets $30,900 owner’s equity

Problems 1-34A Lone Star Landscaping Balance Sheet July 31, 2008
ASSETS LIABILITIES Cash $ 4,000 Accounts payable $ 8,000 Accounts receivable 23,000 Note payable 36,000 Office supplies 1,000 Total liabilities 44,000 Office furniture 16,000 OWNER’S EQUITY Land 50,000 Lynn Woodward, Capital 50,000* Total liabilities and Total assets $94,000 owner’s equity

End of chapter 1 Summary:

Gotcha Covered Security Systems
Income Statement Year Ended December 31, 2007 Revenues: Service revenue $189,000 Expenses: Salary expense $63,000 Rent expense 23,000 Advertising expense 13,000 Interest expense 9,000 Property tax expense 4,000 Insurance expense 2,000 Total expenses 114,000 Net income $ 75,000

Gotcha Covered Security Systems Statement of Owner’s Equity
Year Ended December 31, 2007 Andrew Stryker, capital, December 31, 2006 $150,000 Add: Net income for the year 75,000 225,000 Less: Withdrawals by owner (40,000) Andrew Stryker, capital, December 31, 2007 $185,000

Gotcha Covered Security Systems
Balance Sheet December 31, 2007 ASSETS LIABILITIES Cash $ 14,000 Accounts payable $ 19,000 Accounts receivable 12,000 Salary payable 1,000 Supplies 3,000 Note payable 35,000 Equipment 20,000 Total liabilities 55,000 Building 131,000 OWNER’S EQUITY Land 60,000 Andrew Stryker, capital 185,000* Total liabilities and Total assets $240,000 owner’s equity

Accounting The Basis for Business Decisions 1 1 1 1 1.

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Accounting The Basis for Business Decisions 1 1 1 1 1.

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