Accounting
Accounting in
in Action
Action
What is
Accounting?
Three
activities
Who uses
accounting
data
The Building
Blocks of
Accounting
Ethics in
financial
reporting
Generally
accepted
accounting
principles
Assumptions
The Basic
Accounting
Equation
Using the
Basic
Accounting
Equation
Assets
Transaction
analysis
Income
statement
Summary of
transactions
Owners
equity
statement
Liabilities
Owners
equity
Financial
Statements
Balance
sheet
Statement
of cash flows
What
What is
is Accounting?
Accounting?
What
What is
is Accounting?
Accounting?
Three Activities
LO 1
LO 1
Who
Who Uses
Uses Accounting
Accounting Data?
Data?
Human
Resources
Management
IRS
Customers
External
Users
RE
Investors
Labor
Unions
Creditors
DO IT! 1
Basic Concepts
LO 1
Solutions
Indicate whether the following statements are true or false.
1.
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Ethics In Financial Reporting
Ethics refers to standards of conduct by which ones actions
are judged as right or wrong, honest or dishonest, fair or not
fair.
Recent financial scandals include: Enron, WorldCom,
HealthSouth, AIG, and others companies
Regulators and lawmakers concerned that economy
would suffer if investors lost confidence in corporate
accounting. In response, Congress passed SarbanesOxley Act of 2002.
Effective financial reporting depends on sound ethical
behavior.
Illustration 1-4
Steps in analyzing ethics cases
and situations
LO 2
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Various users
need financial
information
Financial Statements
Balance Sheet
Income Statement
Statement of Owners Equity
Statement of Cash Flows
Note Disclosure
Generally Accepted
Accounting
Principles (GAAP)
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Organizations Involved in Standard Setting:
Securities and Exchange Commission (SEC)
http://www.sec.gov/
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Cost Principle (Historical) dictates that companies
record assets at their cost. Issues:
Assumptions
Assumptions
Monetary Unit Assumption include in the
Forms of
Business Ownership
Forms
Forms of
of Business
Business Ownership
Ownership
Proprietorship
Partnership
Corporation
Generally owned
by one person.
Owned by two or
more persons.
Often small
service-type
businesses
Ownership
divided into
shares of stock
Owner receives
any profits,
suffers any
losses, and is
personally liable
for all debts.
Generally
unlimited
personal liability
Partnership
agreement
Separate legal
entity organized
under state
corporation law
Limited liability
DO IT! 2
LO 2
DO IT! 2
Basic Concepts
LO 2
Solutions
1.
2.
3.
True
True
False
LO 2
Solutions
4.
5.
False
True
LO 2
Question
A business organized as a separate legal entity under
state law having ownership divided into shares of stock
is a:
a. proprietorship.
b. partnership.
c. corporation.
d. sole proprietorship.
LO 2
Question
A business organized as a separate legal entity under
state law having ownership divided into shares of stock is
a
a. proprietorship.
b. partnership.
c. corporation.
d. sole proprietorship.
LO 2
The
The Basic
Basic Accounting
Accounting Equation
Equation
Assets
Liabilities
Owners
Equity
The
The Basic
Basic Accounting
Accounting Equation
Equation
Assets
Liabilities
Assets
Resources a business owns.
Provide future services or benefits.
Cash, Supplies, Equipment, etc.
Owners
Equity
The
The Basic
Basic Accounting
Accounting Equation
Equation
Assets
Liabilities
Owners
Equity
Liabilities
Claims against assets (debts and obligations).
Creditors - party to whom money is owed.
Accounts payable, Notes payable, etc.
The
The Basic
Basic Accounting
Accounting Equation
Equation
Assets
Liabilities
Owners
Equity
Owners Equity
Ownership claim on total assets.
Referred to as residual equity.
Capital, Drawings, etc. (Proprietorship or
Partnership).
Owners
Owners Equity
Equity
Owners
Owners Equity
Equity
DO
DO IT!
IT! 3
Owner's equity
Owners
Equity effect
Effects
Effect on Equity
1. Rent Expense
Expense
Decrease
2. Service Revenue
Revenue
Increase
3. Drawings
Drawings
Decrease
Expense
Decrease
LO 3
Solution
Classification
Effect on Equity
1. Rent Expense
Expense
Decrease
2. Service Revenue
Revenue
Increase
3. Drawings
Drawings
Decrease
Expense
Decrease
LO 3
Analyze
Analyze the
the effects
effects of
of business
business transactions
transactions
on
on the
the accounting
accounting equation.
equation.
Transactions are a businesss economic events
recorded by accountants.
Transaction Analysis
Illustration: Are the following events recorded in the accounting
records?
Illustration 1-7
Event
Criterion
Purchase
computer
Discuss product
design with
potential customer
Pay rent
Record/
Dont Record
LO 4
Transactions
Transactions Analysis
Analysis
Transaction (1). Investment By Owner. Ray Neal decides
to open a computer programming service which he names Soft
byte. On September 1, 2010, he invests $15,000 cash in the.
The effect of this transaction on the basic equation is:
Transactions
Transactions Analysis
Analysis
Transaction (2). Purchase of Equipment for Cash. Softbyte
purchases computer equipment for $7,000 cash.
Transactions
Transactions Analysis
Analysis
Transaction (3). Purchase of Supplies on Credit. Softbyte
purchases for $1,600 from Acme Supply Company computer
paper and other supplies expected to last several months.
Transactions
Transactions Analysis
Analysis
Transaction (4). Services Provided for Cash. Softbyte
receives $1,200 cash from customers for programming
services it has provided.
Transactions
Transactions Analysis
Analysis
Transaction (5). Purchase of Advertising on Credit.
Softbyte receives a bill for $250 from the Daily News for
advertising but postpones payment until a later date.
Transactions
Transactions Analysis
Analysis
Transaction (6). Services Provided for Cash and Credit.
Softbyte provides $3,500 of programming services for
customers. The company receives cash of $1,500 from
customers, and it bills the balance of $2,000 on account.
Transactions
Transactions Analysis
Analysis
Transaction (7). Payment of Expenses. Softbyte pays the
following Expenses in cash for September: store rent $600,
salaries of employees $900, and utilities $200.
Transactions
Transactions Analysis
Analysis
Transaction (8). Payment of Accounts Payable. Softbyte
pays its $250 Daily News bill in cash.
Transactions
Transactions Analysis
Analysis
Transaction (9). Receipt of Cash on Account. Softbyte
receives $600 in cash from customers who had been billed
for services [in Transaction (6)].
Transactions
Transactions Analysis
Analysis
Transaction (10). Withdrawal of Cash by Owner. Ray Neal
withdraws $1,300 in cash from the business for his personal
use.
Transactions
Transactions Analysis
Analysis
Summary of Transactions
Summary of Transactions
1. Each transaction is analyzed in terms of its
effect on:
a. The three components of the basic accounting
equation.
b. Specific of items within each component.
2. The two sides of the equation must always be equal.
DO IT! 4
Tabular Analysis
Solutions
1. The owner invested $25,000 cash in the business.
Assets
TransCash
action
1.
+ Equipment =
Liabilities +
Owner's Equity
Accounts
Owner's
Owner's
+
+
+ Rev. - Exp.
Payable
Capital
Drawings
+25,000
2.
+25,000
+7,000
3.
+8,000
4.
-850
5.
-1,000
$31,150 +
+7,000
+8,000
-850
-1,000
$7,000
$18,050
$7,000
$25,000 + $8,000 -
$18,050
$850
- $1,000
LO 4
+ Equipment =
Liabilities +
Owner's Equity
Accounts
Owner's
Owner's
+
+
+ Rev. - Exp.
Payable
Capital
Drawings
+25,000
2.
+25,000
+7,000
3.
+8,000
4.
-850
5.
-1,000
$31,150 +
+7,000
+8,000
-850
-1,000
$7,000
$18,050
$7,000
$25,000 + $8,000 -
$18,050
$850
- $1,000
LO 4
+ Equipment =
Liabilities +
Owner's Equity
Accounts
Owner's
Owner's
+
+
+ Rev. - Exp.
Payable
Capital
Drawings
+25,000
2.
+25,000
+7,000
3.
+8,000
4.
-850
5.
-1,000
$31,150 +
+7,000
+8,000
-850
-1,000
$7,000
$18,050
$7,000
$25,000 + $8,000 -
$18,050
$850
- $1,000
LO 4
+ Equipment =
Liabilities +
Owner's Equity
Accounts
Owner's
Owner's
+
+
+ Rev. - Exp.
Payable
Capital
Drawings
+25,000
2.
+25,000
+7,000
3.
+8,000
4.
-850
5.
-1,000
$31,150 +
+7,000
+8,000
-850
-1,000
$7,000
$18,050
$7,000
$25,000 + $8,000 -
$18,050
$850
- $1,000
LO 4
+ Equipment =
Liabilities +
Owner's Equity
Accounts
Owner's
Owner's
+
+
+ Rev. - Exp.
Payable
Capital
Drawings
+25,000
2.
+25,000
+7,000
3.
+8,000
4.
-850
5.
-1,000
$31,150 +
+7,000
+8,000
-850
-1,000
$7,000
$38,150
$7,000
$25,000 + $1,000
$38,150
+ $8,000 -
$850
LO 4
Financial
Financial Statements
Statements
Companies
Companies prepare
prepare four
four financial
financial statements
statements from
from
the
the summarized
summarized accounting
accounting data:
data:
Income
Statement
Owners
Equity
Statement
Balance
Sheet
Statement
of Cash
Flows
Financial Statements
Question
Net income will result during a time period when:
a. assets exceed liabilities.
b. assets exceed revenues.
c. expenses exceed revenues.
d. revenues exceed expenses.
LO 5
Income Statement
Financial Statements
SOFTBYTE
Income Statement
For the Month Ended September 30, 2017
Illustration 1-9
Financial statements
and
their interrelationships
SOFTBYTE
Owners Equity Statement
For the Month Ended September 30, 2017
LO 5
SOFTBYTE
Owners Equity Statement
For the Month Ended September 30, 2017
The ending
balance in
owners equity
is needed in
preparing the
balance sheet.
Illustration 1-9
Financial statements
and their
interrelationships
Illustration 1-9
SOFTBYTE
Balance Sheet
September 30, 2017
Balance Sheet
LO 5
Financial
Statements
SOFTBYTE
Balance Sheet
September 30, 2017
Illustration 1-9
Financial statements
and their
interrelationships
LO 5
Financial Statements
Question
Which of the following financial statements is prepared
as of a specific date?
a. Balance sheet.
b. Income statement.
c. Owner's equity statement.
d. Statement of cash flows.
LO 5
DO IT!
(a)
(b)
(c)
LO 5
DO IT!
(a)
DO IT!
(b)
LO 5
DO IT!
(c)
LO 5
LEARNING
OBJECTIVE
Public Accounting
Private Accounting
Governmental Accounting
Forensic Accounting