1. Introduction to Accounting & Business CPA, MBA By Rachelle Agatha, CPA, MBA Slides by Rachelle Agatha, CPA, with excerpts from Warren, Reeve, Duchac

2. 2 2. Summarize the development of accounting principles and relate them to practice. 3. State the accounting equation and define each element of the equation. After studying this lecture material, you should be able to: 1. Describe the nature of a business and the role of ethics and accounting in business.

3. 3 4. Describe and illustrate how business transactions can be recorded in terms of the resulting change in the basic elements of the accounting equation. 5. Describe the financial statements of a proprietorship and explain how they interrelate.

4. 4 Describe the nature of a business and the role of ethics and accounting in business. Objective 1

5. 5 Proprietorship Partnership Corporation Limited liability company Common Forms of Business Organizations

6. 6 Service Merchandiser Manufacturing Types of Businesses

7. 7  Comprises 70% of business organizations in the United States.  Requires low cost of organizing.  Is limited to financial resources of the owner.  Is used by small businesses. A proprietorship is owned by one individual and—

8. 8  Comprises 10% of business organizations in the United States.  Combines the skills and resources of more than one person. A partnership is similar to a proprietorship except that it is owned by two or more individuals and—

9. 9  Generates 90% of the total dollars of business receipts received.  Comprises 20% of the businesses. A corporation is organized under state or federal statues as a separate legal taxable entity and— Continued

10. 10  Includes ownership divided into shares of stock, sold to shareholders (stockholders).  Is able to obtain large amounts of resources by issuing stock.  Is used by large businesses.

11. 11  Is a popular alternative to a partnership.  Has tax and liability advantages to the owners. A limited liability company (LLC) combines attributes of a partnership and a corporation in that it is organized as a corporation. However, a limited liability corporation can elect to be taxed as a partnership and—

12. 12 A business stakeholder is a person or entity having an interest in the economic performance and well- being of a business.

13. 13 Capital market stakeholders provide the major financing for the business in order for the business to begin and continue its operations.

14. 14 Product or service market stakeholders include customers who purchase the business’s products or services as well as the vendors who supply inputs to the business.

15. 15 Government stakeholders have an interest in the economic performance of a business. City, county, state, and federal governments collect taxes from businesses within their jurisdiction.

16. 16 Internal stakeholders include individuals employed by the business. Managers have an incentive to maximize the economic value of the business. Employees have an interest because their jobs depend on it.

17. 17 The moral principles that guide the conduct of individuals are called ethics. 1.Individual character 2.Firm culture 3.Laws and enforcement 1.Individual character 2.Firm culture 3.Laws and enforcement

18. 18 Accounting can be defined as an information system that provides reports to stakeholders about the economic activities and condition of a business. 1-1

19. 19 The process by which accounting provides information to business stakeholders is as follows:  Identify stakeholders.  Assess stakeholders’ information needs.  Design the accounting information system to meet stakeholders’ needs.  Record economic data about business activities and events.  Prepare accounting reports for stakeholders.

20. 20

21. 21 Financial accounting is primarily concerned with the recording and reporting of economic data and activities for a business. Managerial accounting uses both financial accounting and estimated data to aid management in running day-to-day operations and in planning future operations.

22. 22 Accountants employed by a business firm or a not-for-profit organization are said to be employed in private accounting. Accountants and their staff who provide services on a fee basis are said to be employed in public accounting.

23. 23 Summarize the development of accounting principles and relate them to practice. Objective 2

24. 24 The limits the economic data in the accounting system to data related directly to the activities of the business. The business entity concept or principle limits the economic data in the accounting system to data related directly to the activities of the business.

25. 25 The cost concept or principle is the basis for entering the exchange price, or cost of an acquisition in the accounting records.

26. 26 The objectivity concept or principle requires that the accounting records and reports be based upon objective evidence.

27. 27 The unit of measure concept or principle requires that economic data be recorded in dollars.

28. 28

29. 29 State the accounting equation and define each element of the equation. Objective 3

30. ASSETS = LIABILITIES + OWNERS EQUITY Slide by Rachelle Agatha, CPA

31. 31 Assets = Liabilities + Owner’s Equity The resources owned by a business The Accounting Equation 1-3

32. 32 The rights of the creditors, which represent debts of the business Assets = Liabilities + Owner’s Equity The Accounting Equation 1-3

33. 33 The rights of the owners Assets = Liabilities + Owner’s Equity The Accounting Equation 1-3

34. 34 Assets = Liabilities + Owner’s Equity 1-3

35. 35 Describe and illustrate how business transactions can be recorded in terms of the resulting change in the basic elements of the accounting equation. Objective 4 1-4

36. 36 A business transaction is an economic event or condition that directly changes an entity’s financial condition or directly affects its results of operations. 1-4

37. 37. 1-4 Slide by Rachelle Agatha, CPA

38. 38. 1-4 Slide by Rachelle Agatha, CPA

39. 39 Owner’s withdrawals Expenses Decreased by Owner’s Equity Increased by Owner’s investments Revenues 55 1-4

40. 40 On January 1, 2008, Chris Smith begins a business that will be known as Smith’s Repair Service

41. 41 Chris Smith invests $25,000 into the business Assets Owner’s Equity = = Chris Clark, Capital 25,000Investment by Chris Clark Cash 25,000

42. 42 Describe the financial statements of a proprietorship and explain how they interrelate. Objective 5 1-5

43. 43 Accounting reports, called financial statements, provide summarized information to the owner. 1-5

44. 44 The income statement is a summary of the revenue and expenses for a specific period of time, such as a month or a year.

45. 45 A statement of owner’s equity is a summary of the changes in the owner’s equity that have occurred during a specific period of time. 1-5

46. 46 1-5

47. 47 A balance sheet is a list of the assets, liabilities, and owner’s equity as of a specific date. 1-5

48. 48 1-5

49. 49 A statement of cash flows is a summary of the cash receipts and payments for a specific period of time. 1-5

50. 50 The income statement reports the revenues and expenses for a period of time based on the matching concept. This concept is applied by matching the expenses with the revenue generated during a period by those expenses. 1-5 Income Statement

51. 51 The excess of revenue over the expenses is called net income or net profit. If the expenses exceed the revenue, the excess is a net loss. 1-5

52. 52 The statement of owner’s equity reports the changes in the owner’s equity for a period of time. It is prepared after the income statement. 1-5 Statement of Owner’s Equity

53. 53 The balance sheet reports the amounts of a firm’s assets, liabilities, and owner’s equity at the end of a specific period. 1-5 Balance Sheet

54. 54  The income statement and the statement of owner’s equity are interrelated. Net income or net loss appears on both statements. 1-5 Interrelationships Among Financial Statements

55. 55  The statement of owner’s equity and the balance sheet are interrelated. The owner’s capital at the end of the period on the statement of owner’s equity also appears on the balance sheet as owner’s capital. 1-5

56. 56  The balance sheet and the statement of cash flows are interrelated. The cash on the balance sheet also appears as the end-of- period cash on the statement of cash flows. 1-5