2301 chapt 01 fin stmts
TRANSCRIPT
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Chapter 1: Accounting is the Langua
1 Useaccounting vocabulary
2 Learnaccounting concepts and
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3 Applythe accounting equation to
organizations
4 Evaluatebusiness operations
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5 Usefinancial statements
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e of Business
Page 2
rinciples
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business
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1 Useaccounting vocabulary
Each chapter begins with an actual
statement
For Chapter 1 we used the i ncome
or" Consol idated Statement of Op
For J Crew Group Inc.
Company managers make lots of deci
for J Crew
Which is selling faster-pants,
or shoes?
Are jeans bringing in more pr
blazers?
Should J Crew expand into Eu
Asia?
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Accounting is
.. an information system
.. the "language of business"the better you understand the
the better you can manage yo
Accounting produces .
f inanc ial statements
. Which report informatio
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the business entity
The f inanc ial statemen tsmeasure
performance and tell where a bus
stands in financial terms
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Flow of Accounting Information
People make decisions
Business transactions occur
Companies report results
Who uses Accounting information?
.. individuals
investors and creditors
.. regulatory bodies
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.. non profit organizations
Two kinds of Accounting
FinancialAccounting
ManagerialAccounting
Financial Accounting --
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provides information to people u
the firm
investors
bankers
government agencies
general publ ic
Financial Accounting --
must meet standards ofrelevanc
rel iabil i ty
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Managerial Accounting --
generates "inside information" fo
provides information for manager
Managerial Accounting --
examples
budgets, forecasts, and projec
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must still be accurate and relevan
decision needs of managers
Forms a business can take
1 proprietorship
2 partnership
limited-liability companies (LL3 corporations
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proprietorship
has a single owner
legally the proprietor is the busin
proprietor is personally responsi
for accounting the proprietorshipfrom the proprietor
partnership
two or more partners
each partner is liable
jointly and severally liable
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Limited Liability Company
one or many ownersowners have no personal liability
owners are called members
Corporation
one or many owners
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owners have no personal liability
owners "own" stock
owners are called stockholders o
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page 3
language
r finances
page 3
about
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page 3
iness
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page 4
page 4
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page 4
page 4
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ersoutside
page 4
and
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page 4
managers
s
page 4
tion
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t for the
page 5
)
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page 6
ss
le
is separate
page 6
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page 7
page 7
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shareholders
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J. Crew Group, Inc. page 2
Consolidated Statement of Operations
Year ended
(In millions) Feb. 3, 2007
Revenue1 Net sales 1,117$
2 Other revenue 35
3 Total revenue 1,152
4 Cost of goods sold 652
5 Gross Profit 500
6 Selling and adm. expenses 375
7 Income from operations 125
8 Interest expense 44
9 Lose on debt refinancing 10
10 Income before inc. taxes 71
11 Income taxes (7)
12 Net income 78$
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Year ended
Feb. 2, 2008
1,292$
43
1,335
746
589
416
173
11
-
162
65
97$
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Learnaccounting concepts and
GenerallyA ccepted A ccounting
professional guidelines for
and disclosure of fina
Two importance sources of acco
1. Financial A ccounting Standa
sets rules in the Unite
2. International A ccounting Sta
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sets rules globally
Conceptual Foundation of Accou
The overall objective of accouis to provide usefu lfin
Conceptual Foundation of Accou
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Accounting's Objectives-
fundamental qual i tat ive chara
relevance
faithful represe
Conceptual Foundation of Accou
relevance -able to in f luence decis
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Conceptual Foundation of Accoufaithful representation orrel ia
. complete
.. neutral (f ree f rom bias
w ithout mater ial error
accounting information focuseconom ic substance
Conceptual Foundation of Accou
Accounting's Objectives-
enhancing qual i tat ive charact
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. comparab il i ty
.. ver if iab i li t y
t imel iness
. understandabi l i ty
Conceptual Foundation of Accou
Two aspects ofcomparabi l i ty
1. able to compare dif ferent com
2. able to compare a company frperiod to the next -cons is
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Conceptual Foundation of Accou
verifiability- must be able to check for accuracy
completeness
reliabili
process of verifying information'soften involves internaland ex
Conceptual Foundation of Accou
t imel iness-
information must be available
enough to help them
understandabi l i ty-
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must make sense to the reaso
Conceptual Foundation of Accou
Constraints
. mater ial i ty
.. cos t
Conceptual Foundation of Accou
material i ty
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. information must be important
.. if omitted or in error it would
in the users decision
only "mater ial informat ion"must
disc losed
Conceptual Foundation of Accou
cos t
cost should not exceed the exto the user
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Entity Concept
- an organization stands apart
separate economic uni
-sharp boundaries are draw ar
so as not to confuse its aff
Continuity Assumption
Going concern concept
assumes an entity will remain
enough to use existing asse
purpose
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Cost principle
assets and services should be
actual "historical cost"
Stable monetary unit
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- assume that the dollars purch
- ignore inflation
- add and subtract dollar amou
dollar has the same purchasin
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rinciples
page 7
Principles (GAAP)
measurement
cial information
nting guidelines
page 7
ds Board (FASB)
States
dards Board (ISAB)
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ting page 7
tingancial information
ting page 7
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ter ist ics
ntation
ting page 7
ons
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ting page 7-8i l i ty -
n thef a transaction
ting page 8
r is t ics
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ting page 8
anies-compare
m oneen t
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ting page 8
ty
ernal audito rs
ting page 8
o the user early
ake decisions
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able informed user
ting page 8
ting page 8
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ake a difference
be separately
ting page 8
ected benefit
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page 8
as a
t
und an "entity"
irs with others
page 9
in operations long
ts for their intended
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page 9
recorded at their
page10
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sing power is stable
ts as though each
power
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App lythe accounting equation to bu
organizations
Assets = Liabilities +
Asset
economic resources that are exp
a future benefit
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Claims on assets
-- Liabilities are "outsiders claims"-- debts payableto outsiders (or
-- Equity are "insider claims"Equity means ownersh ip
Equity has two parts
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-- paid in capital -(also called contr
-- retain earn ing - the amount ear
producing activities kept for u
Expanded balance sheet equation
Assets = Liabilities +
Assets = Liabi l i t ies+ Contrib uted Capit
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Paid-in capital
. the amount investors have "inves
.. basic component is common s toc
1 common s tockis issued by a
as evidence of ownership2 all corporations have common
Retained Earnings
the amount earned from income-
and kept for use in the busine
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Revenues
Expenses
Revenues
an increase in retained earnings
of goods and services
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Expenses
a decrease in retained earnings b
Dividend
a decrease in retained earnings b
distribution to shareholders
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Components of Retained Earnings
Beginning balance star t of th
+ Net Income/ - Net Loss revenues -
- Dividends payments
= Ending balance end of the
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iness
Page 13
Equities
Page 13
cted to produce
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Page 13
creditors)
Page 13
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buted capital)
ned from income
e in the business
Page 14
Equities
l + Retained Earn ings
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Page 14
ed" in the corporationk
orporation
stock
Page 14
roducing activities
s
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Page 14
y delivery
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Page 14
operations
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Page 15
per iod
expenses
o shareholders
eriod
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Evaluatebusiness operations
Four financial statements
income statement
statement of retained earn ing
balance sheet
statement o f cash f low
Income statement
How well did the company perfor
What did sell?
What did spend? -
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=
Statement of retained earnings
Why did the company's retained e
Beginning retained earnings
+ net income- dividends
Ending retained earnings
Balance sheet
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What is the company's financial pDec. 31. the end o f the year
Assets = Liabilities + Equity
Statement of cash flow
Increases / decreases in cash
+/ - Operating activities
+/ - Investing activities
+/ - Financing activities
= total Increases / (decreases) i
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+ Beginning bal
= Ending balance
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page 16
s
page 16
?
Revenues
Expense
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income or loss
page 16
rnings change?
page 16
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sition at?
page 16
n cash
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Exh ib it 1-11 page 27
Relationship among the financial state
Revenues 700,000$ Beg. Ret. Ear
Expenses 670,000 Net income
Net Income 30,000$ Cash dividen
End. Ret. Ear
Assets Operating cas
Cash 35,000$ investing cash
Other Assets 265,000 Financing cas
Total Assets 300,000$ Net increase in
Liabilities Beginning cas
Total Liabilities 120,000$ Ending cash
Stockholders Equity
Common stock 40,000
Retained earnings 200,000
Other equity (60,000)
Total Stkhdrs Equity 180,000
ABC Company
Balance Sheet
December 31, 2010
AB
Statem
Year E
ABC CompanyIncome Statement
Year Ended Dec. 31, 2010
ABStatement
Year E
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Total Liab + Equity 300,000$
page 16
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ents
nings 180,000$
30,000$
d (10,000)$
nings 200,000$
90,000$
(100,000)
40,000
cash 30,000
5,000
35,000$
Company
nt of Cash Flow
ded Dec. 31, 2010
Companyf Retained Earnings
ded Dec. 31, 2010
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S1 - 1 PAGE 36
Assets = Liabilities +
a = 130,000$ +b 250,000$ = 70,000$ +
c 190,000$ = +
S1 - 8 PAGE 37
1 Assets Liabilities
A acct payable x
B common stock
C supplies x
D retained earningsE Land x
F Prepaid expense x
G Acct receivable x
H Long term debt x
I Mech inventory x
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J Note payable x
K expenses payable x
L Equipment x
S1- 9 Page 37
1 Revenues , expenses
2 net income / net loss
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S1- 10 Page 37
Call Anywhere Wireless Inc.
Income Statement
for the year ending 12/31/10
(millions)
Revenues 94
Expenses 23
Net Income 71
S1- 11 Page 37
Roam Corp.
Statement Retained Earning
for the year ending 12/31/10
(millions)
Beginning Retained earnings 210
Net Income 130
Dividend (43)
Ending Retained earnings 297
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S1- 12 Page 32
Tommer Products
Balance Sheet
At 12/31/10
Assets
Cash 12,000
Receivables 5,000
Inventory 42,000
Equipment 82,000
Total Assets 141,000
Liabilities
Acct Pay 17,000
Long term Note Pay 78,000
Total Liabilities 95,000
Equity
Common Stock 14,800
Retained earning 31,200
Total Equity 46,000
Total Equity & Liabilities 141,000
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S1- 13 Page 38
Yidas Medical SuppliesStatement of Cash Flows
For the year ending 12/31/10
Cash from
Operating
Net income 90,000
Cash adjustments (16,000)
Cash from Operating Activities: 74,000
Investing
Purchase of equipment (40,000)
Cash Used in Investing Activities: (40,000)
Finances
Dividends paid (60,000)
Cash Used in Financing Activities: (60,000)
Net decrease in cash (26,000)
Beginning balance 40,000
Ending balance 14,000
S1- 13 Page 38
a SCF,SRE dividends
b IS Salary expense
c BS Inventory
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d IS Sales revenue
e BS, SRE Retained earnings
f SCF Net cash provided by operating activitie
g SCF,IS,SRE Net income
h BS,SCF Cashi SCF Net cash used in financing activities
j BS Accounts payable
k BS Common stock
l IS Interest revenues
m BS Long term debt
n SCF Increase or decrease in cash
E1-16A Page 38
Assets =
Corner Grocery =
Hudson Bank 29$ =
DJ Video Rental 21$ =
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Equity
21,000$
80,000$
Equity
x
x
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Rev 380
exp 250
net inc 130
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BS = Balance Sheet
IS = Income Statement
SCF = Statement of Cash Flow
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SRE = Statement of Retained Earnings
Stockholders'
Liabilities + Equity
9$ + 7$
+ 15$
10$ +