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8/11/2019 Chapter 1- Financial Accounting I - P
http://slidepdf.com/reader/full/chapter-1-financial-accounting-i-p 1/14
Financial Accounting I
Chapter 1: Accounting and the BusinessEnvironment
Pamela Gonzalez, MBA
8/11/2019 Chapter 1- Financial Accounting I - P
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Accounting and the BusinessEnvironment
Accounting
Information system that
provides essentialinformation about the
financial activities of abusiness entity to various
individuals or groups for theiruse in making informed
decisions.
Financial Accounting
Outsiders
Managerial Accounting
Insiders
8/11/2019 Chapter 1- Financial Accounting I - P
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Accounting and the BusinessEnvironment
Business Set goals and measure them
Investors Analyze potential earnings andperformance
Creditors Ability to make the loan payments
Taxing Authorities Figure income tax
CPA – Certified Public Accountans (serve general
public)
CMA – Certified Management Accountants (work for single
company)
FinancialStatement
s
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Accounting and the BusinessEnvironment
SEC
FASB
PCAOB --AICPA --IMA
US FinancialMarkets
AccountingStandards
Guidelines
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Accounting and the BusinessEnvironment
Proprietorship
Partnership Corporation LLP/LLC Not-for-profit
One Owner
Limited life
Propietor ispersonallyliable
Two or moreOwners
Limited life
Partners arepersonallyliable
ManyOwners(stockholders)
Unlimited life
Stockholdersnot personallyliable
Members
Unlimited life
Members notpersonallyliable
None
Unlimited life
Fiduciaryliability
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Accounting and the BusinessEnvironment
PROPRIETORSHIP
Separate legal entity
No continuous life or transferability of ownership
Unlimited liability of owner
Unification of ownership and management
Business taxation
Government regulation
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Accounting and the BusinessEnvironment
GAAP(Generally Accepted Accounting Principles)
Entity Concept
FaithfulRepresentarion
Principle
Cost PrincipleGoing – Concern
Principle
StableMonetary Unit
Concept
One businessseparate from
its ownersData faithfullyrepresents the
measurement ordescription of that
data
Assets and servicesshould be recorded attheir actual cost(amount paid).
Will remain inoperation for the
foreseeable future
Stable currencybuying power
8/11/2019 Chapter 1- Financial Accounting I - P
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Accounting and the BusinessEnvironment
Assets Liabilities Equity
Everything thebusiness ownsthat has value
Everything thebusiness owes
Net worth
Revenues –
ExpensesDrawings
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Accounting and the BusinessEnvironment
Assets Liabilities Equity
Transactions affect whatthe company owns, owes
or its net worth
1. The e-learning agency received $30,000 cash and gave capital to Sheena Bright.2. Paid $20,000 cash for land.3. Bought $500 of office supplies on account.4. Received $5,500 cash from clients for service revenue earned.5. Performed services for clients on account, $3,000.6. Paid cash expenses: computer rent, $600; office rent, $1,100; employee salary, $
utilities, $400.1. Paid $300 on the account payable created in transaction2. Bright buys $200 of groceries. This is not a transaction of the business.3. Collected $1,000 on the account receivable created in transaction4. Sold land for cash at its cost of $9,000.5. Owner withdrew cash of $2,000.
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Income StatementStatement of Owner ’s EquityBalance Sheet
Statement of Cash Flow
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Accounting and the BusinessEnvironment
IncomeStatement
Statementof Owner’s
Equity
BalanceSheet
Statementof Cash
Flow
Statement of Earnings or Statement of Operations
Presents a summary of revenues and expenses for a period of time;it tells us whether the business enjoyed net income or suffered netloss.
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Accounting and the BusinessEnvironment
IncomeStatement
Statementof Owner’s
Equity
BalanceSheet
Statementof Cash
Flow
Shows the changes in capital for a business entity during a timeperiod, such as month, quarter, or year.
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Accounting and the BusinessEnvironment
IncomeStatement
Statementof Owner’s
Equity
BalanceSheet
Statementof Cash
Flow
Statement of financial position
Lists a business entity’s assets, liabilities and owner ’s equity as of aspecific date, usually the end of a month, quarter or year.
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