C1 - 1 Learning Objectives 1.Nature of a Business 2.The Role of Accounting in Business 3.Business Ethics 4.Profession of Accounting 5.Generally Accepted

C1 - 1

Learning Objectives

1. Nature of a Business

2. The Role of Accounting in Business

3. Business Ethics

4. Profession of Accounting

5. Generally Accepted Accounting Principles

6. Assets, Liabilities, and Owner’s Equity

7. Business Transactions

8. Financial Statements

9. Financial Analysis and Interpretation.

Power Notes Introduction to Accounting and Business Introduction to Accounting and Business

Chapter F1

C1

C1 - 2 Note: To select a topic, type the slide # and press Enter.

• Accounting – An Information Process• Users of Accounting Information• Profession of Accounting• The Accounting Equation• Business Transactions• Financial Statements• Ratio of Liabilities to Stockholders Equity

Slide # Power Note Topics

Power Notes Introduction to Accounting and Business Introduction to Accounting and Business

Chapter F1

39

1116195369

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Accounting — An Information Process Accounting — An Information Process


Identificationof Users

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UserInformation

Needs




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UserInformation

Needs

AccountingSystem



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UserInformation

Needs

AccountingSystem

Economic Dataand Activities



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UserInformation

Needs

AccountingSystem


Reports



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a. Chris Clark deposits $25,000 in a bank account for NetSolutions in return for shares of stock in the

corporation.

ASSETS

=

Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions

Cash Cash 25,00025,000

LIABILITIES

Capital Stock Capital Stock 25,00025,000

STOCKHOLDERS’ EQUITY

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b. NetSolutions buys land for $20,000.

ASSETS

=

LIABILITIES

Cash Cash (20,000)(20,000)

Land Land 20,00020,000


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ASSETS

=

LIABILITIES

c. NetSolutions buys supplies for $1,350, agreeing to pay the supplier in the near future.

Accounts PayableAccounts Payable1,3501,350

Supplies Supplies 1,3501,350 STOCKHOLDERS’ EQUITY

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ASSETS

=

LIABILITIES

Cash Cash 7,5007,500

Fees Earned Fees Earned 7,5007,500

d. NetSolutions earns fees of $7,500, receiving cash.


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ASSETS

=

LIABILITIES

Cash Cash (3,650)(3,650)

ExpensesExpenses(3,650)(3,650)

e. NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275.


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ASSETS

=

LIABILITIES

Cash Cash (950)(950)

Accounts PayableAccounts Payable(950)(950)

f. NetSolutions pays $950 to creditors on account.


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UserInformation

Needs

AccountingSystem

Reports


UserDecisions



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ASSETS

=

LIABILITIES

Cash Cash (2,000)(2,000)

DividendsDividends(2,000)(2,000)

h. NetSolutions pays $2,000 to stockholders (Chris Clark) as dividends.


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EXTERNAL USERS

Financial AccountingFinancial Accounting

• investors• creditors• regulators• customers• competitors

Users of Accounting InformationUsers of Accounting InformationUsers of Accounting InformationUsers of Accounting Information

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EXTERNAL USERS

Financial AccountingFinancial Accounting

• investors• creditors• regulators• customers• competitors

• owners• managers• employees

INTERNAL USERS

ManagerialManagerial AccountingAccounting

Users of Accounting InformationUsers of Accounting InformationUsers of Accounting InformationUsers of Accounting Information

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Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements

NetSolutionsIncome Statement

For the Month Ended November 30, 2002

Fees earned $7,500Operating expenses: Wages expense $2,125 Rent expense 800 Supplies expense 800 Utilities expense 450 Miscellaneous expense 275 Total operating expenses 4,450Net income $3,050

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NetSolutionsRetained Earnings Statement



Net income for November $ 3,050Less dividends 2,000Retained earnings, November 30, 2002 $ 1,050

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NetSolutionsBalance Sheet

November 30, 2002

AssetsCash $ 5,900Supplies 550Land 20,000Total assets $26,450

LiabilitiesAccounts payable $ 400

Stockholders’ EquityCapital stock $25,000Retained earnings 1,050 26,050Total liabilities and stockholders’ equity $26,450


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NetSolutionsStatement of Cash Flows


Cash flows from operating activities: Cash received from customers $ 7,500 Deduct cash payments for expenses and payments to creditors 4,600 Net cash flow from operating activities $ 2,900Cash flows from investing activities: Cash payments for acquisition of land (20,000Cash flows from financing activities: Cash received from sale of stock $25,000 Deduct cash dividends 2,000 Net cash flow from financing activities 23,000Net cash flow and Nov. 30, 2002 cash balance $5,900

)


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Ratio of Liabilities to Stockholders’ EquityRatio of Liabilities to Stockholders’ EquityRatio of Liabilities to Stockholders’ EquityRatio of Liabilities to Stockholders’ Equity

Ratio of liabilitiesto stockholders’ equity =

FormulaFormula

Objective: Use the ratio of liabilities to stockholders’ equity to analyze the ability of a business to withstand poor business conditions and to pay its creditors.

Total liabilities

Total stockholders’ equity

NetSolutions =

ExampleExample

$400

$26,0500.015

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What are the starting rates for new graduates?

GovernmentGovernment IndustryIndustry CPA FirmsCPA Firms

College Graduates

The Accounting Profession The Accounting Profession

AuditorStaff

Accountant Junior

Accountant

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StaffAccountant

JuniorAccountantAuditor

College Graduates

How soon would I get promoted?


SeniorAccountantSupervisor Chief

Accountant

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What are the top positions in each category?


ChiefAccountant

StaffAccountant

SeniorAccountant

JuniorAccountant

Supervisor

Auditor

College Graduates


Controller ManagerDirector

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What is the fastest path to top management?

GovernmentGovernment

Administrator

IndustryIndustry

Vice PresidentFinance

CPA FirmsCPA Firms

ChiefAccountant

StaffAccountant

Controller

Partner

Manager

SeniorAccountant

JuniorAccountant

Director

Supervisor

Auditor

College Graduates


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10 to 20 years of experience1

GovernmentGovernment


Administrator

IndustryIndustry

Vice PresidentFinance

CPA FirmsCPA Firms

1

6 to 8 years of experience2

ChiefAccountant

StaffAccountant

Controller

Partner

Manager

SeniorAccountant

JuniorAccountant

2

Director

Supervisor

Auditor

College Graduates

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Resources

The Accounting EquationThe Accounting Equation

What are an organization’s resources called?

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Assets

Resources = Sources


What are the sources of the assets?

Cost of resources usedin the business

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Assets

Liabilities

Stockholders’Equity

Resources = Sources

Cost of resources usedin the business

Resources supplied by

creditors and owners


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ASSETS

=



LIABILITIES


corporation.

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ASSETS

=


Cash Cash 25,00025,000

LIABILITIES


corporation.


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ASSETS

=

LIABILITIES


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ASSETS

=

LIABILITIES

Cash Cash (20,000)(20,000)


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ASSETS

=

LIABILITIES



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ASSETS

=

LIABILITIES

Supplies Supplies 1,3501,350



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ASSETS

=

LIABILITIES



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ASSETS

=

LIABILITIES

Cash Cash 7,5007,500



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ASSETS

=

LIABILITIES



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ASSETS

=

LIABILITIES

Cash Cash (3,650)(3,650)



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ASSETS

=

LIABILITIES



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ASSETS

=

LIABILITIES

Cash Cash (950)(950)



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ASSETS

=

LIABILITIES

g. At the end of the month, the cost of supplies on hand is $550.


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ASSETS

=

LIABILITIES

Supplies Supplies (800)(800)



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ASSETS

=

LIABILITIES

Supplies Supplies (800)(800)

Supplies ExpenseSupplies Expense(800)(800)



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ASSETS

=

LIABILITIES

h. NetSolutions pays $2,000 to stockholders (Chris Clark) as dividends.


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ASSETS

=

LIABILITIES

Cash Cash (2,000)(2,000)

h. NetSolutions pays $2,000 to stockholders (Chris Clark)as dividends.


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Transaction SummaryTransaction SummaryTransaction SummaryTransaction Summary

ASSETS

=

LIABILITIES

CashCash 5,9005,900SuppliesSupplies 550550LandLand 20,00020,000


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ASSETS

=

LIABILITIES


Accts. PayableAccts. Payable 400400


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ASSETS

=

LIABILITIES


Accts. PayableAccts. Payable 400400

Capital StockCapital Stock 25,00025,000DividendsDividends (2,000)(2,000)Fees EarnedFees Earned 7,5007,500Wages ExpenseWages Expense (2,125)(2,125)Rent ExpenseRent Expense (800)(800)Supplies ExpenseSupplies Expense (800)(800)Utilities ExpenseUtilities Expense (450)(450)Misc. ExpenseMisc. Expense (275)(275)


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Effects of Transactions on Stockholders’ EquityEffects of Transactions on Stockholders’ EquityEffects of Transactions on Stockholders’ EquityEffects of Transactions on Stockholders’ Equity

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decreased bydecreased by



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decreased bydecreased by


Dividends

Expenses


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increased byincreased by


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increased byincreased by

Stockholders’ investments

Revenues


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Dividends

Expenses

decreased bydecreased by increased byincreased by


Revenues


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decreased bydecreased by increased byincreased by

NET INCOME

Dividends

Expenses


Revenues


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November 30, 2002


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November 30, 2002


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November 30, 2002


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)



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)



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)

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This is the last slide in Chapter F1. This is the last slide in Chapter F1.

Power NotesChapter F1

Introduction to Accounting and Business Introduction to Accounting and Business

Documents

C1 - 1 Learning Objectives 1.Nature of a Business 2.The Role of Accounting in Business 3.Business Ethics 4.Profession of Accounting 5.Generally Accepted