Hho8e Ch01 Stud

Chapter 1
Define accounting vocabulary
1.
Measures business activity Processes data into reports
2.
3.
Communicates results to decision makers
Copyright (c) 2009 Prentice Hall. All rights reserved.
End product of accounting process Report on business in monetary terms
Define the users of financial information
Individuals
Businesses
Investors
Creditors
Taxing Authorities
Financial Accounting
Managerial Accounting
Provides information for external decision makers
Provides information for internal decision makers
Describe the accounting profession and the organizations that govern it
Lucrative career with many opportunities Certified Public Accountants (CPAs)

Pass qualifying exam Meet education and/or experience requirements
FASB SEC AICPA IMA

Copyright (c) 2009 Prentice Hall. All rights reserved. 10
Investors & creditors want reliable financial information Companies want to attract investors
11
SEC requires companies to have financial statements examined by CPAs Recent accounting scandals hurt investor confidence
12
AICPA
Code of Professional Conduct
IMA
Standards of Ethical Conduct
Sets standards for private accountants
Guides CPAS in their work
13
Identify the different types of business organizations
Proprietorships
Partnerships
Corporations
Limited Liability Companies

Proprietorship Partnership
Corporation
LLC
Owners
One
Two or more
Stockholders usually many Indefinite
Members
Life of Organization Liability of owners for business debts
Limited by owners choice or death Owner is personally liable
Limited by owners choice or death Partners are personally liable
Indefinite
Stockholders not personally liable
Members are not personally liable
16
Delineate the distinguishing characteristics and organization of a proprietorship
Separate Legal Entity
No Continuous Life Unlimited Liability of Owner

Unification of Ownership and Management Business Taxation
Government Regulation
19
Incorporators obtain charter from the state Charter authorizes corporation to:
Issue stock Conduct business in accordance with state law and the corporations bylaws
Corporations begins to exist when stock is issued
20
Stockholders elect
Board of Directors who hire
Officers of the corporation
21
Apply accounting concepts and principles
Generally Accepted Accounting Principles Goal:

To provide useful information to those making investment and lending decisions
23
Entity Concept
Reliability
Cost
Going Concern
Monetary Unit
24
Entity Concept
Reliability Cost
25
Going concern Monetary Unit
26
Define and use the accounting equation
Assets =
Liabilities + Owners equity
Economic Resources
Claims to Economic Resources

Economic resources that have a future benefit
29
Liabilities
Debts payable to outsiders
Owners equity
Owners claims to the assets of the business In a proprietorship owners equity
30
Assets =
Liabilities + Owners equity
31
Capital
+ Net income
Revenues
- Expenses
- Withdrawals
32
Amounts earned by delivering goods or services to customers
33
Outflows of assets or increasing liabilities in the course of delivering goods or services to customers
34
Assets
Liabilities
Owners equity
Nice Cuts Love Dry Cleaners Hudson Gift and Cards
$? ? 85,000 102,000
$25,000 ? ? 49,000
$43,000 54,000 ??
35
Assets
Liabilities
Owners equity
Nice Cuts Love Dry Cleaners Hudson Gift and Cards
$? $68,000 85,000 102,000
$25,000 ? 31,000 49,000
$43,000 54,000 ? 53,000
36
Depict accounting for business transactions
An event that affects the financial position of a particular entity Can be recorded reliably Every transaction impacts at least two items The accounting equation balances before and after each transaction
38
Assets Liabilities Accounts Accounts Date Cash receivable Supplies Land payable
Bal 2,500 1,500 0 13,000 4,000
Owners Equity Marilyn Mansion, Capital

13,000
Assets = $ ?
Liabilities & Equity = $?
39
Date Cash Bal (a) Bal 2,500 10,000 12,500
Assets Accounts receivable Supplies

1,500 -
Land 13,000
Liabilities Accounts payable

4,000
Owners Equity Marilyn Mansion, Capital

13,000 10,000
1,500
13,000
4,000
23,000
Assets = $ ?
40
Assets Liabilities Accounts Accounts Date Cash receivable Supplies Land payable Bal (b) Bal 12,500 1,100 13,600 1,500 - 13,000 4,000
Owners Equity Marilyn Mansion, Capital 23,000 1,100 24,100
1,500
- 13,000
4,000
Assets = $ ?
41
Date Bal (c)
Cash 13,600 (4,000)
Accounts receivable 1,500
Supplies -
Land 13,000
Accounts payable 4,000 (4,000)
Marilyn Mansion, Capital 24,100
Bal
9,600
1,500
Assets = $ ?
13,000
24,100
42
Date Bal (d) Bal
Cash 9,600
Accounts receivable Supplies

1,500 700
Land 13,000
Accounts payable
Marilyn Mansion, Capital

24,100
700 13,000 700 24,100
9,600
1,500
700
Assets = $ ?
43
Date
Cash
Land
Accounts payable
Bal
(e) Bal
9,600
600 10,200
1,500
(600) 900
700
13,000
700
24,100
700
13,000
700
24,100
Assets = $ ?
Liabilities & Equity = $ ?
44
Date Bal (f) Bal
Cash 10,200 1,700 11,900
Accounts receivable Supplies 900 700
Land 13,000
Accounts payable 700
Marilyn Mansion, Capital 24,100 1,700
900
700
13,000
700
25,800
Assets = $ ?
45
Date Bal
Cash 11,900
Accounts receivable Supplies 900 700
Land 13,000
Accounts payable 700
Marilyn Mansion, Capital 25,800
(g)
Bal 11,900
4,300
5,200 700 13,000 700
4,300
30,100
Assets = $ ?
46
Date
Cash
Land
Accounts payable
Bal
(h)
11,900
(1,000) (300)
5,200
700
13,000
700
30,100
(1,000) (300)
Bal
10,600
5,200
700
13,000
700
28,800
Assets = $ ?
47
Date Bal (i)
Cash 10,600 100
Accounts receivable Supplies 5,200 700 (100)
Land 13,000
Accounts Marilyn Mansion, payable Capital 700 28,800
Bal
10,700
5,200
600
13,000
700
28,800
Assets = $ ?
Liabilities & Equity = $ ?
48
Date Bal (j) Bal
Cash 10,700 (2,200) 8,500
Accounts receivable 5,200
Supplies
Land
Accounts Marilyn Mansion, payable Capital 700 28,800 (2,200) 26,600
600 13,000
5,200
600 13,000
700
Assets = $ ?
49
Explain and prepare financial statements
Income Statement Statement of Owners Equity
Balance Sheet Statement of Cash Flows

Reports on profitability of business
Revenues
minus
Expenses
equals
Net income
52
Summary of changes in owners capital during a specific period

Beginning Capital Plus: Net income (or minus net loss) Less: Withdrawals Equals: Ending Capital
53
Reports the entitys assets, liabilities, and owners equity as of a specific date
Balance Sheet
Liabilities
Assets
Equity
54
Reports cash receipts and cash payments during a period
55
Goth Inc. Income Statement Month ended September 30, 2011 Revenue: Service revenue Expenses: Rent expense Advertising expense Total expenses Net income $1,000 300 1,300 $4,100 $5,400
56
Goth Inc. Statement of Owner's Equity Month ended September 30, 2011 Marilyn Mansion, Capital, September 1, 2011 Add: Investments by owner Net income
$13,000 11,700 4,100 $ 28,800 Less: Withdrawals (2,200) Marilyn Mansion, Capital, September 30, 2011 $ 26,600
57
Goth Inc. Balance Sheet

September 30, 2011
Assets Cash Accounts receivable Supplies Land Total assets $8,500 Accounts payable 5,200 600 Owners Equity 26,600 27,300 Liabilities $ 700
13,000 Marilyn Mansion, Capital 27,300 Total liabilities & owners equity
58
Use financial statements to evaluate business performance
Income Statement Revenues - Expenses = Net Income
Statement of Owners Equity Increased by Net Income Decreased by Withdrawals
Balance Sheet Assets = Liabilities + Equity

Income Statement
Statement of Owners Equity
Balance Sheet
Demonstrates profitability
Shows changes in Capital
Displays financial position
61

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Chapter 1

Define accounting vocabulary

Measures business activity Processes data into reports

Communicates results to decision makers

Copyright (c) 2009 Prentice Hall. All rights reserved.

End product of accounting process Report on business in monetary terms

Copyright (c) 2009 Prentice Hall. All rights reserved.

Define the users of financial information

Copyright (c) 2009 Prentice Hall. All rights reserved.

Provides information for external decision makers

Provides information for internal decision makers

Copyright (c) 2009 Prentice Hall. All rights reserved.

Describe the accounting profession and the organizations that govern it

Lucrative career with many opportunities Certified Public Accountants (CPAs)

Copyright (c) 2009 Prentice Hall. All rights reserved.

FASB SEC AICPA IMA

Copyright (c) 2009 Prentice Hall. All rights reserved.

Copyright (c) 2009 Prentice Hall. All rights reserved.

Guides CPAS in their work

Copyright (c) 2009 Prentice Hall. All rights reserved.

Identify the different types of business organizations

Limited Liability Companies

Stockholders usually many Indefinite

Life of Organization Liability of owners for business debts

Limited by owners choice or death Owner is personally liable

Limited by owners choice or death Partners are personally liable

Stockholders not personally liable

Members are not personally liable

Copyright (c) 2009 Prentice Hall. All rights reserved.

Delineate the distinguishing characteristics and organization of a proprietorship

Separate Legal Entity

No Continuous Life Unlimited Liability of Owner

Unification of Ownership and Management Business Taxation

Copyright (c) 2009 Prentice Hall. All rights reserved.

Corporations begins to exist when stock is issued

Copyright (c) 2009 Prentice Hall. All rights reserved.

Board of Directors who hire

Officers of the corporation

Copyright (c) 2009 Prentice Hall. All rights reserved.

Apply accounting concepts and principles

Generally Accepted Accounting Principles Goal:

Copyright (c) 2009 Prentice Hall. All rights reserved.

Copyright (c) 2009 Prentice Hall. All rights reserved.

Copyright (c) 2009 Prentice Hall. All rights reserved.

Going concern Monetary Unit

Copyright (c) 2009 Prentice Hall. All rights reserved.

Define and use the accounting equation

Liabilities + Owners equity

Claims to Economic Resources

Economic resources that have a future benefit

Copyright (c) 2009 Prentice Hall. All rights reserved.

Copyright (c) 2009 Prentice Hall. All rights reserved.

Liabilities + Owners equity

Copyright (c) 2009 Prentice Hall. All rights reserved.

Copyright (c) 2009 Prentice Hall. All rights reserved.

Amounts earned by delivering goods or services to customers

Copyright (c) 2009 Prentice Hall. All rights reserved.

Copyright (c) 2009 Prentice Hall. All rights reserved.

Nice Cuts Love Dry Cleaners Hudson Gift and Cards

Nice Cuts Love Dry Cleaners Hudson Gift and Cards

$? $68,000 85,000 102,000

$25,000 ? 31,000 49,000

$43,000 54,000 ? 53,000