acct 2001 chapter 1 student lecture

8/16/2019 Acct 2001 Chapter 1 Student Lecture

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Accounting InAction

Accounting InAction

Financial Accounting, Sixth Edition

Chapter 1

Chapter 1


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What is Accounting?

What is Accounting?

SO 1 Explain what accounting is.

The purpose of accounting is to:(1) i entif! " recor " an co##unicate the

econo#ic e$ents of an(%) organi&ation to(') intereste users.


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Three Acti$ities

What is Accounting?

What is Accounting?

SO 1 Explain what accounting is.

llustration 1 1Accounting process

The accounting process inclu es the bookkeeping function.


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*anage#ent+u#an,esources

,S

-a or/nions

SEC*ar0eting

inance

n$estors

Cre itors

Who /ses Accounting 2ata?

Who /ses Accounting 2ata?

SO % entif! the users an uses of accounting.

Custo#ers

nternal /sers

External/sers


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The 3uil ing 3loc0s of Accounting


Ethics n inancial ,eporting

SO ' /n erstan wh! ethics is a fun a#ental usiness concept .

Standards of conduct by which one’s actions are judged as right or wrong, honest or dishonest, fairor not fair, are Ethics .

Recent financial scandals include: Enron,orld!o" , #ealthSouth , A$%, and others.

!ongress passed Sarbanes&'(ley Act of )**).

Effecti+e financial reporting depends on soundethical beha+ior.


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arious usersneed financialinfor"ation

arious usersneed financialinfor"ation

The accounting professionhas atte"pted to de+elop

a set of standards thatare generally acceptedand uni+ersally practiced.

-inancial State"entsalance Sheet

$nco"e State"entRetained Earnings State"entState"ent of !ash -lows/ote 0isclosure

-inancial State"entsalance Sheet

$nco"e State"entRetained Earnings State"entState"ent of !ash -lows/ote 0isclosure

4enerall! AccepteAccounting5rinciples (4AA5)

4enerall! AccepteAccounting5rinciples (4AA5)



SO 6 Explain generall! accepte accounting principles an the cost principle.


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Organi&ations n$ol$e in Stan ar Setting:Securities and E(change !o""ission 1SE!2

-inancial Accounting Standards oard 1-AS 2

$nternational Accounting Standards oard1$AS 2


The 3uil ing 3loc0s of Accounting The 3uil ing 3loc0s of Accounting

http:33www.fasb.org3

http:33www.sec.go+3

http:33www.iasb.org3

http://www.fasb.org/http://www.sec.gov/http://www.iasb.org/http://www.iasb.org/http://www.sec.gov/http://www.fasb.org/


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Cost 5rinciple (+istorical) 4 dictates that co"paniesrecord assets at their cost.$ssues:

Reported at cost when purchased and also o+er theti"e the asset is held.!ost easily +erified, whereas "arket +alue is oftensubjecti+e.

-air +alue infor"ation "ay be "ore useful.

The 3uil ing 3loc0s of Accounting The 3uil ing 3loc0s of Accounting



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*onetar! /nit Assu#ption 4 include in theaccounting records only transaction data that can bee(pressed in ter"s of "oney.Econo#ic Entit! Assu#ption 4 re5uires thatacti+ities of the entity be kept separate and distinctfro" the acti+ities of its owner and all other econo"icentities.

6roprietorship.6artnership.!orporation.

Assu#ptions Assu#ptions

SO 7 Explain the #onetar! unit assu#ptionan the econo#ic entit! assu#ption.

or#s of3usiness Ownership


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5roprietorship 5artnership Corporation

'wned by two or"ore persons.

'ften retail andser+ice&typebusinesses

%enerally

unli"itedpersonal liability

6artnershipagree"ent

'wnershipdi+ided into

shares of stockSeparate legalentity organi7edunder statecorporation law

8i"ited liability

or#s of 3usiness Ownership or#s of 3usiness Ownership

%enerally ownedby one person.

'ften s"allser+ice&typebusinesses

'wner recei+es

any profits,suffers anylosses, and ispersonally liablefor all debts.

SO 7 Explain the #onetar! unit assu#ptionan the econo#ic entit! assu#ption.


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AssetsAssets -ia ilities-ia ilities Stoc0hol ers8E9uit!Stoc0hol ers8E9uit!= +

6ro+ides the un erl!ing fra#ewor0 for recording andsu""ari7ing econo"ic e+ents.

Assets are clai"ed by either creditors or owners.

!lai"s of creditors "ust be paid before ownershipclai"s.

The 3asic Accounting E9uation The 3asic Accounting E9uation

SO : State the accounting e9uation" an efineassets" lia ilities" an stoc0hol ers8 e9uit!.


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Resources abusiness owns.6ro+ide futureser+ices orbenefits.!ash, Supplies,E5uip"ent, etc.




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!lai"s against assets1debts and obligations2.!reditors & party to who""oney is owed.

Accounts payable, /otespayable, etc.




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'wnership clai"on total assets.Referred to asresidual e5uity. ) parts are :6aid&in !apital,Retained Earnings1!orporation2.




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Stoc0hol ers8 E9uit! Stoc0hol ers8 E9uit!

ncreases to Stoc0hol ers8 E9uit!:

n$est#ent ! stoc0hol ers (5ai in Capital) are

a"ounts paid in by stockholders in e(change for ownershipinterests called co##on stoc0 .

llustration 1



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ncreases to Stoc0hol ers8 E9uit!:

,e$enues result fro" business acti+ities entered into for

the purpose of earning inco"e.!o""on sources of re+enue are: sales, fees, ser+ices,co""issions, interest, di+idends, royalties, and rent.

llustration 1



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2ecreases to Stoc0hol ers8 E9uit!:

Expenses are the cost of assets consu"ed or ser+icesused in the process of earning re+enue.

!o""on e(penses are: salaries e(pense, rent e(pense,utilities e(pense, ta( e(pense, etc.

llustration 1



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2ecreases to Stoc0hol ers8 E9uit!:

2i$i en s are the distribution of cash or other assets tostockholders.0i+idends reduce retained earnings, howe+er di+idends arenot an e(pense.

Stoc0hol ers8 E9uit! Stoc0hol ers8 E9uit! llustration 1



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/sing The 3asic Accounting E9uation /sing The 3asic Accounting E9uation

Transactions are a business’s econo"ic e+entsrecorded by accountants.

9ay be e(ternal or internal.

/ot all acti+ities represent transactions.

Each transaction has a ual effect on theaccounting e5uation.

SO ; Anal!&e the effects of usiness transactionson the accounting e9uation.


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Stockholders’ E5uity

51 1A: arone’s Repair Shop was started on 9ay.6repare a tabular analysis of the following transactionsfor the "onth of 9ay.

Transactions (5ro le#) Transactions (5ro le#)

1.!ash

AccountsRecei+able E5uip"ent

Accounts6ayable

!o""onStock


; ; < ;

1. Stoc0hol ers in$este >1?"??? cash to start therepair shop.

Assets 8iabilities


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;=*,***1. ;=*,***


%. 5urchase e9uip#ent for >7"??? cash.

%.

n$est#ent


!ashAccounts

Recei+able E5uip"entAccounts6ayable

!o""onStock; ; < ;

Assets 8iabilities


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;=*,***1. ;=*,***


'. 5ai >6?? cash for *a! office rent.

&>,***%. ;>,***'.


!ashAccounts


!o""onStock; ; < ;

Assets 8iabilitiesRetainedEarnings;


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;=*,***1. ;=*,***


&>,***%. ;>,***&?**'. &?**


!ashAccounts


!o""onStock; ; < ;

Assets 8iabilitiesRetainedEarnings

6.

6. ,ecei$e >7"1?? fro# custo#ers for repair ser$ice.

;


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;=*,***1. ;=*,***


&>,***%. ;>,***&?**'. &?**


!ashAccounts


!o""onStock; ; < ;


;>,=**6. ;>,=**

7. 5ai i$i en s of >1"??? cash.

7.

;


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;=*,***1. ;=*,***


&>,***%. ;>,***&?**'. &?**


!ashAccounts


!o""onStock; ; < ;


;>,=**6. ;>,=**&=,***7. &=,***

. 5ai part ti#e e#plo!ee salaries of >%"???.

.

;


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;=*,***1. ;=*,***


&>,***%. ;>,***&?**'. &?**


!ashAccounts


!o""onStock; ; < ;


;>,=**6. ;>,=**&=,***7. &=,***&),***. &),***

;. ncurre >%7? of a $ertising costs" on account.

;.

;


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;=*,***1. ;=*,***


&>,***%. ;>,***&?**'. &?**


!ashAccounts


!o""onStock; ; < ;


;>,=**6. ;>,=**&=,***7. &=,***&),***. &),***

;)>* &)>*;.

@. 5ro$i e repair ser$ices on account to custo#ers >;7?.

@.

;


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;=*,***1. ;=*,***


&>,***%. ;>,***&?**'. &?**


!ashAccounts


!o""onStock; ; < ;


;>,=**6. ;>,=**&=,***7. &=,***&),***. &),***

;)>* &)>*;.;@>*@. ;@>*

. Collecte >1%? cash for ser$ices pre$iousl! ille .

.

;


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!o"panies prepare four financial state"ents fro"the su""ari7ed accounting data:!o"panies prepare four financial state"ents fro"the su""ari7ed accounting data:

alanceSheet

$nco"eState"ent

State"entof !ash-lows

RetainedEarnings

State"ent

inancial State#ents inancial State#ents

SO @ /n erstan the four financial state#ents an how the! are prepare .


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nco#e State#ent



Reports the re+enuesand e(penses for a

specific period of ti"e./et inco"e 4 re+enuese(ceed e(penses.

/et loss 4 e(pensese(ceed re+enues.


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nco#e State#ent



,etaine EarningsState#ent

/et inco"e is needed todeter"ine the ending balance inretained earnings.


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,etaine EarningsState#ent

State"ent indicates thereasons why retained

earnings has increasedor decreased during theperiod.


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3alance Sheet ,etaine EarningsState#ent

The ending balance in retainedearnings is needed in preparing thebalance sheet.


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Reports the assets,liabilities, andstockholders’ e5uity at aspecific date.

Assets listed at the top,followed by liabilitiesand stockholders’ e5uity.

Total assets "ust e5ualtotal liabilities andstockholders’ e5uity.

3alance Sheet


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Cash flow fro# Operations!ash receipts fro" custo"ers >,))*A!ash paid for e(penses 1),?**2 !ash pro+ided by operations ),B)*

Cash flow fro# (n$esting6urchase of e5uip"ent 1>,***2

Cash flow fro# inancing$n+est"ent by owners =*,*** 0rawings by owners 1=,***2 !ash pro+ided by financing C,***

Bet increase in cash D,B)* Cash .alance" *a! 1 & Cash .alance" *a! '1 :"@%?>

State#ent of Cash lows3arone8s ,epair Shop

or the *onth En e *a! '1" %??;

State#ent of Cash lows3alance Sheet


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caused by the use of these progra"s or fro" the use of theinfor"ation contained herein.

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acct 2001 chapter 1 student lecture

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