ACCT 2112 Chap1 LECTURE SLIDE

8/10/2019 ACCT 2112 Chap1 LECTURE SLIDE

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PowerPoint Authors:Susan Coomer Galbreath, Ph.D., CPACharles W. Caldwell, D.B.A., CMAJon A. Booker, Ph.D., CPA, CIACynthia J. Rooney, Ph.D., CPAWinston Kwok, Ph.D., CPA

Chapter 1

ACCOUNTING

IN

BUSINESS

McGraw-H il l/I rwin Copyri ght 2011 by The McGraw-H il l Companies, I nc. Al l ri ghts reserved.


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IdentifyingSelect transactions and events

RecordingInput, measure and classify

CommunicatingPrepare, analyze and interpret

IMPORTANCEOFACCOUNTING

Accounting

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USERSOFACCOUNTINGINFORMATION

External Users

LendersShareholdersGovernments

Consumer GroupsExternal AuditorsCustomers

Internal Users

ManagersOfficers/DirectorsInternal Auditors

Sales StaffBudget OfficersControllers

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ExternalUsers

Financial accountingprovides external users

with financial statements.

Internal Users

Managerial accountingprovides information needs

for internal decision-makers.

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OPPORTUNITIESINACCOUNTINGC 2


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Beliefs thatdistinguish right

from wrong

Accepted standardsof good and bad

behavior

Ethics

ETHICS- A KEYCONCEPT

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ETHICS- A KEYCONCEPT


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Financial accounting practice is governed by conceptsand rules known as generally accepted accounting

principles (GAAP).

GENERALLYACCEPTEDACCOUNTINGPRINCIPLES

Relevant Information Affects the decision of its users.

Reliable Information Is trusted by users.

ComparableInformation

Is helpful in contrastingorganizations.

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The Securities and Exchange Commissionis thegovernment agency that establishes reporting requirements

for companies that issue stock or shares to the public.

SETTINGACCOUNTINGPRINCIPLES

Financial Accounting Standards Boardis the private group that sets both

broad and specific principles.

The International Accounting Standards Board (IASB)issues International Financial Reporting Standards that

identify preferred accounting practices to create harmonyamong accounting practices of different countries.

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INTERNATIONALSTANDARDS

The International Accounting Standards Board (IASB), anindependent group (consisting of 16 individuals from many

countries), issues International Financial Reporting Standards(IFRS) that identify preferred accounting practices.

IASB

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PRINCIPLESANDASSUMPTIONSOFACCOUNTING

Cost Principle

Accounting information is based onactual cost. Actual cost is

considered objective.

Revenue Recognition Principle1. Recognize revenue when it is earned.2. Proceeds need not be in cash.3. Measure revenue by cash received

plus cash value of items received.

Matching PrincipleA company must record its expenses

incurred to generate the revenue reported.

Full Disclosure PrincipleA company is required to report thedetails behind financial statementsthat would impact usersdecisions.

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ACCOUNTINGASSUMPTIONS

Monetary Unit AssumptionExpress transactions and events in

monetary, or money, units.

Business Entity AssumptionA business is accounted for

separately from other businessentities, including its owner.

Time Period AssumptionPresumes that the life of a company can

be divided into time periods, such asmonths and years.

Now Future

Going-Concern AssumptionReflects assumption that the business

will continue operating instead ofbeing closed or sold.

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FORMSOFBUSINESSENTITIES

SoleProprietorship

Partnership Corporation

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*Proprietorships and partnerships that areset up as LLCs provide limited liability.

CHARACTERISTICSOFBUSINESSES

Characteristic Proprietorship Partnership Corporation

Business entity yes yes yes

Legal entity no no yes

Limited liability no no yesUnlimited life no no yes

Business taxed no no yes

One owner allowed yes no yes

**

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Owners of a corporation are called

shareholders(or stockholders). Shareholders arenot personally liable for corporate acts. When acorporation issues only one class of shares, we

call it ordinary shares (or share capital).

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TRANSACTIONANALYSISANDTHEACCOUNTINGEQUATION

Assets = Liabilities + Equity

Accounting Equation

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Land

Equipment

Buildings

Cash

Vehicles

StoreSupplies

NotesReceivable

AccountsReceivable

ASSETS

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Resourcesowned or

controlled bya company

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TaxesPayable

WagesPayable

NotesPayable

AccountsPayable

LIABILITIES

Creditorsclaims on

assets

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EQUITY

OwnersClaims onAssets

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TRANSACTIONANALYSISEQUATION

The accounting equation MUST remain inbalanceafter each transaction.

Liabilities EquityAssets = +

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TRANSACTION1: INVESTMENTBYOWNERS

The accounts involved are:(1) Cash(asset)

(2) Owner Capital(equity)

On December 1, Chas Taylor invests$30,000 cash to start a consulting business.

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TRANSACTION2: PURCHASESUPPLIESFORCASH

The accounts involved are:

(1) Cash(asset)

(2) Supplies(asset)

Chas Taylors company, FastForwardpurchases supplies paying $2,500 cash.

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TRANSACTION3: PURCHASEEQUIPMENTFORCASH


(1) Cash(asset)

(2) Equipment(asset)

FastForward purchases equipment for$26,000 cash.

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TRANSACTION4: PURCHASESUPPLIESONCREDIT


(1) Supplies(asset)

(2) Accounts Payable(liability)

FastForward purchases Supplies of $7,100 onaccount.

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TRANSACTION5: PROVIDESERVICESFORCASH


(1) Cash(asset)

(2) Revenues(equity)

The company provides consulting servicesreceiving $4,200 cash.

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TRANSACTION6AND7: PAYMENTOFEXPENSESINCASH


(1) Cash(asset)

(2) Expenses(equity)

The company pays $1,000 rent and $700 insalary to the companys only employee.

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SUMMARYOFTRANSACTIONS

Other transactions were executed during December and the summary ofall transactions is shown below:

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FINANCIALSTATEMENTS

Lets prepare the financial statements reflectingthe transactions we have recorded.

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Income statement (Statement of

comprehensive income) Statement of changes in equity

Balance sheet (Statement of financial

position)

Statement of cash flows

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The income statementdescribes a companys revenues andexpenses along with the resulting net income or loss over a

period of time due to earnings activities.

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STATEMENT OF CHANGES IN EQUITYP 2

FASTFORWARD

Statement of Changes in Equity

For Month Ended December 31, 2011

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TheBalance Sheetdescribes a companys financialposition at a point in time.

BALANCESHEETP 2

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STATEMENTOFCASHFLOWSP 2

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DECISIONANALYSIS

Return on assets (ROA) is stated in ratio form asincome divided by assets invested.

Net incomeAverage total assets

Return on assets =

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1B - BUSINESSACTIVITIESANDTHE

ACCOUNTINGEQUATIONThere are three major types of activities in any organization:1.Financing Activities Provide the means organizationsuse to pay for resources such as land, buildings, and

equipment to carry out plans.2.Investing Activities - Are the acquiring and disposing ofresources (assets) that an organization uses to acquire andsell its products or services.3.Operating Activities Involve using resources to research,

develop, and purchase, produce, distribute, and marketproducts and services.

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1C - IASBs ConceptualFramework for Financial

Reporting

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END OF CHAPTER 1

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ACCT 2112 Chap1 LECTURE SLIDE