1. What is accounting?
Accounting is the art of recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the results thereof

2. Who are the users of Accounting information?
Management.
Users with direct financial interest (investors and creditors).
Users with an indirect financial interests (tax
authorities, Regulatory Agencies and others)

3. Conceptual frame work Basic Principals: Matching Principal.
Continuity.
Historical Cost.
Revenue recognition.
Full Disclosures.
Going Concern.
Periodicity.
Accrual Accounting
Economic Entity.
Monetary Unit.

4. accountant goals
Is to provide (report) the required financial information timely to
the users (Internal users/ external users).
The financial information
Assets. All asset accounts have a debit nature
Liabilities. All liability accounts have a credit nature
Owners Equity. All equity accounts have a credit nature
Revenue. All revenue accounts have a credit nature
Expenses. All expense accounts have a debit nature

5. Accounting Terms Assets
An asset is a resource controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise
Items of value owned and controlled by the Business
Buildings
Cash
Vehicles – equipment

6. Assets are resources owned by a business.
They are used in carrying out such activities as production, consumption and exchange.

7. Accounting Terms Liabilities Amounts owed by the Business to people or
Organizations : Loans- Creditors/Accounts Payable
Liabilities are claims against assets. They are existing
debts and obligations.

8. Creditors (Accounts Payable)
people or organizations other than the owner to whom the Business owes money.
Usually because of goods or services received which remain unpaid
Creditors are a liability to the business

9. Owner’s Equity:
Capital or Investments by Owners - Amounts owed by the Business to the owner (money and other items contributed to the business by the owner from his or her resources ie. CAPITAL)

10. Investments (assets) increase owner’s equity
Drawings decrease the owner’s equity
Revenues increase the owner’s equity
Expenses decrease owner’s equity

11. Owner’s Equity is equal to total assets minus total liabilities.
Owner’s Equity represents the ownership claim on total assets.

12. Working Capital Working Capital Financing Decisions
Investment
Decisions
Financing
Decisions

13. Revenue: Revenue: Gross inflow of economic benefits resulting from an
enterprise's ordinary activities is considered "revenue" provided
those inflows result in increases in equity.
Revenue. The IASC's framework defines "Income" to include both
revenue and gains.

14. Revenues Revenue for a given period equals:
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Revenues
Revenue for a given period equals:
Cash + Receivables from goods and services provided.
Liabilities are generally not affected by revenues.
A bank loan increases liabilities but is not revenue.
A collection of accounts receivable increases cash but is not revenue.
Owner investments increase Owner’s Equity but are not revenues.

15. Expenses: If revenues are increases in owner’s equity resulting from
selling goods, or rendering services.
Expenses:
are decreases in owner’s equity resulting from the costs of
selling goods, rendering services or performing other
business activities.
Expenses:

16. Expenses Expenses are the costs of doing business.
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Expenses
Expenses are the costs of doing business.
Not all cash payments are expenses.
Prepaid expenses are recorded as assets. As they expire, they become expenses.
Purchase of plant assets (e.g. equipment) is not an expense.
Owner withdrawals are not expenses.
Payment on a liability is not an expense.

17. Net income = revenues - expenses
Is the net increase in the owner’s equity that results from
the operations of a company and is accumulated in the
owner’s equity capital account.
Net income = revenues - expenses

18. Merchandising Income Statement as an example
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Merchandising Income Statement as an example
Income statement consists of three major parts.
1. Net sales.
2. Cost of goods sold.
3. Operating expenses.
Gross margin represents net sales minus cost of goods sold.

19. The Components of Income Statements for Service and Merchandising Companies.

20. 4/25/2017
Net Sales
Net Sales consists of gross sales less sales returns and allowances.
Gross sales is the total cash and credit sales occurring during the period.
Sales Returns and Allowances is a contra-revenue account used to accumulate cash refunds, credits on account, and allowances to customers for defective merchandise.

21. 4/25/2017
Cost of Goods Sold
Cost of goods sold (COGS) is the amount a merchant paid for the merchandise sold during the period.

22. 4/25/2017
Gross Margin
Gross margin, or gross profit, is the difference between net sales and cost of goods sold.
To be successful a firm must have gross margin sufficient enough to pay operating expenses and provide an adequate income.

23. 4/25/2017
Operating Expenses
Operating expenses represent the expenses other than cost of goods sold that are incurred in running a business.
Operating expenses are classified as either:
1. Selling expenses.
2. General and administrative expenses.

24. 4/25/2017
Operating Expenses
Selling expenses include the costs of storing goods and preparing them for sale, displaying, advertising, and otherwise promoting sales and delivering goods to the buyer (freight out expense).
General and Administrative expenses include expenses for accounting, personnel, credit and collections, and any other expenses that apply to overall operation.

25. 4/25/2017
Net Income
Net income is the final figure or “bottom line” of the income statement.
Net income is what remains after operating expenses are deducted from gross margin.
Net income represents the amount of business earnings that accrue to the owners during a period of time.

26. Overview of the Accounting Cycle
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Overview of the Accounting Cycle

27. Overview of the Accounting Cycle
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Overview of the Accounting Cycle

28. Basic Accounting Equation
Basic Equation
Assets =
Liabilities +
Owner’s Equity
Expanded Basic Equation
The equation must be in balance after every transaction. For every Debit there must be a Credit.

29. Basic Accounting Equation
Assets
Liabilities
Owner’s Equity = +
Provides the underlying framework for recording and summarizing economic events.
Assets
Resources a business owns.
Provide future services or benefits.
Cash, Supplies, Equipment, etc.

30. Basic Accounting Equation
Assets
Liabilities
Owner’s Equity = +
Provides the underlying framework for recording and summarizing economic events.
Liabilities
Claims against assets (debts and obligations).
Creditors - party to whom money is owed.
Accounts payable, Notes payable, etc.

31. Basic Accounting Equation
Assets
Liabilities
Owner’s Equity = +
Provides the underlying framework for recording and summarizing economic events.
Owner’s Equity
Ownership claim on total assets.
Referred to as residual equity.
Capital, Drawings, etc. (Proprietorship or Partnership).

32. Owner’s Equity
Revenues result from business activities entered into for the purpose of earning income.
Common sources of revenue are: sales, fees, services, commissions, interest, dividends, royalties, and rent.

33. Owner’s Equity
Expenses are the cost of assets consumed or services used in the process of earning revenue.
Common expenses are: salaries expense, rent expense, utilities expense, tax expense, etc.

34. Transaction Problem
Barone’s Repair Shop was started on May 1 by Nancy. Prepare a tabular analysis of the following transactions for the month of May.
1. Invested $10,000 cash to start the repair shop.
Liabilities
Equity
Assets
Accounts Receivable
Accounts Payable
Barone, Capital
Cash + +
Equipment = + 1.
+10,000
+10,000
Investment

35. Transaction Problem 2. Purchased equipment for $5,000 cash. + + = +
Liabilities
Equity
Assets
Accounts Receivable
Accounts Payable
Barone, Capital
Cash + +
Equipment = + 1.
+10,000
+10,000
Investment 2.
-5,000
+5,000

36. Transaction Problem 3. Paid $400 cash for May office rent. + + = +
Liabilities
Equity
Assets
Accounts Receivable
Accounts Payable
Barone, Capital
Cash + +
Equipment = + 1.
+10,000
+10,000
Investment 2.
-5,000
+5,000 3.
-400
-400
Expense

37. Transaction Problem
4. Received $5,100 from customers for repair service.
Liabilities
Equity
Assets
Accounts Receivable
Accounts Payable
Barone, Capital
Cash + +
Equipment = + 1.
+10,000
+10,000
Investment 2.
-5,000
+5,000 3.
-400
-400
Expense 4.
+5,100
+5,100
Revenue

38. Transaction Problem 5. Withdrew $1,000 cash for personal use. + + = +
Liabilities
Equity
Assets
Accounts Receivable
Accounts Payable
Barone, Capital
Cash + +
Equipment = + 1.
+10,000
+10,000
Investment 2.
-5,000
+5,000 3.
-400
-400
Expense 4.
+5,100
+5,100
Revenue 5.
-1,000
-1,000
Drawings

39. Transaction Problem 6. Paid part-time employee salaries of $2,000. + +
Liabilities
Equity
Assets
Accounts Receivable
Accounts Payable
Barone, Capital
Cash + +
Equipment = + 1.
+10,000
+10,000
Investment 2.
-5,000
+5,000 3.
-400
-400
Expense 4.
+5,100
+5,100
Revenue 5.
-1,000
-1,000
Drawings 6.
-2,000
-2,000
Expense

40. Transaction Problem 7. Incurred $250 of advertising costs, on account.
Liabilities
Equity
Assets
Accounts Receivable
Accounts Payable
Barone, Capital
Cash + +
Equipment = + 1.
+10,000
+10,000
Investment 2.
-5,000
+5,000 3.
-400
-400
Expense 4.
+5,100
+5,100
Revenue 5.
-1,000
-1,000
Drawings 6.
-2,000
-2,000
Expense 7.
+250
-250
Expense

41. Transaction Problem 8. Provided $750 of repair services on account. +
Liabilities
Equity
Assets
Accounts Receivable
Accounts Payable
Barone, Capital
Cash + +
Equipment = + 1.
+10,000
+10,000
Investment 2.
-5,000
+5,000 3.
-400
-400
Expense 4.
+5,100
+5,100
Revenue 5.
-1,000
-1,000
Drawings 6.
-2,000
-2,000
Expense 7.
+250
-250
Expense 8.
+750
+750
Revenue

42. Transaction Problem
9. Collected $120 cash for services previously billed.
Liabilities
Equity
Assets
Accounts Receivable
Accounts Payable
Barone, Capital
Cash + +
Equipment = + 1.
+10,000
+10,000
Investment 2.
-5,000
+5,000 3.
-400
-400
Expense 4.
+5,100
+5,100
Revenue 5.
-1,000
-1,000
Drawings 6.
-2,000
-2,000
Expense 7.
+250
-250
Expense 8.
+750
+750
Revenue 9.
+120
-120
6, , = ,200

43. Financial Statements
Companies prepare four financial statements from the summarized accounting data:
Income Statement
Owner’s Equity Statement
Balance Sheet
Statement of Cash Flows

44. Financial Statements Income Statement
Reports the revenues and expenses for a specific period of time.
Net income – revenues exceed expenses.
Net loss – expenses exceed revenues.

45. Financial Statements Review Question
Net income will result during a time period when:
assets exceed liabilities.
assets exceed revenues.
expenses exceed revenues.
revenues exceed expenses.

46. Owner’s Equity Statement
Financial Statements
Owner’s Equity Statement
Income Statement
Net income is needed to determine the ending balance in owner’s equity.

47. Owner’s Equity Statement
Financial Statements
Owner’s Equity Statement
Statement indicates the reasons why owner’s equity has increased or decreased during the period.

48. Owners’ Equity Statement
Financial Statements
Owners’ Equity Statement
Balance Sheet
The ending balance in owner’s equity is needed in preparing the balance sheet

49. Financial Statements Balance Sheet
Reports the assets, liabilities, and owner’s equity at a specific date.
Assets listed at the top, followed by liabilities and owner’s equity.
Total assets must equal total liabilities and owner’s equity.

50. Statement of Cash Flows
Financial Statements
Statement of Cash Flows
Balance Sheet

51. Statement of Cash Flows
Financial Statements
Statement of Cash Flows
Information for a specific period of time.
Answers the following:
Where did cash come from?
What was cash used for?
What was the change in the cash balance?

52. Financial Statements Review Question
Which of the following financial statements is prepared as of a specific date?
Balance sheet.
Income statement.
Owner's equity statement.
Statement of cash flows.