WRD_ab.az.Ch01_SV Introduction to Acc

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Introduction to Accounting and Business

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Student Version



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Describe the nature of a

business, the role ofaccounting, and ethics in

business.

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Types of Businesses

Delta Air Lines Transportation services

Service Business Service

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Merchandising Business Product

Wal-Mart General merchandise

Manufacturing Business Product

General Motors Corp. Cars, trucks, vans



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The Role of Accounting in Business Accounting can be defined as an

information system that providesreports to users about the economic

activities and condition of a business.

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The area of accounting that provides

internal users with information is called

managerial accounting .

Managerial Accounting

The objective of managerial

accounting is to provide relevant and

timely information for managers’ andemployees’ decision-making needs.

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The area of accounting that provides

external users with information is

called financial accounting .

Financial Accounting

The objective of financial accounting

is to provide relevant and timely

information for the decision-makingneeds of users outside of the

business.

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Under the business enti ty

concept, the activities of a

business are recordedseparately from the activities

of its owners, creditors, or

other businesses.

Business Entity Concept

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• A proprietorship is owned by one individual.

• A partnership is similar to proprietorship

except that it is owned by two or more

individuals.• A corporation is organized under state or

federal statutes as a separate legal taxable

entity.

• A l imited liabi l i ty company (LLC) combines

attributes of a partnership and a corporation.

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Forms of Business Entity



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Under the cost concept ,

amounts are initially recordedin the accounting records at

their cost or purchase price.

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Cost Concept



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The objectivity concept requires

that the amounts recorded in theaccounting records be based on

objective evidence.

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Objectivity Concept



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The unit of measure concept

requires that economic data be recorded in dollars.

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Unit of Measure Concept



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State the accounting

equation and define eachelement of the equation.

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Assets = Liabilities + Owner’s Equity

The Accounting Equation

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The resources

owned by a

business

The rights of the

creditors are the

debts of the

business

The rights of the

owners



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Describe and illustrate how

business transactions can be

recorded in terms of the resultingchange in the elements of the

accounting equation.

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A business transaction is an

economic event or condition thatdirectly changes an entity’s

financial condition or its results

of operations.

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Business Transaction



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On November 1, 2009, Chris Clarkdeposits $25,000 in a bank account

in the name of NetSolutions.

Transaction A

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Transaction B

On November 5, 2009, NetSolutions paid $20,000 for the purchase of land

as a future building site.

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On November 10, 2009, NetSolutions purchased supplies

for $1,350 and agreed to pay the

supplier in the near future.

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Transaction C



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CASH + SUPPLIES + LAND

5,000 20,000 25,000Bal.

Assets =

=

ACCOUNTS CHRIS CLARK,

PAYABLE + CAPITAL

Liabilities + Owner’s Equity

Transaction C (cont inued)

c. +1,350 +1,350

Bal. 5,000 1,350 20,000 1,350 25,000

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On November 18, 2009, NetSolutions

received cash of $7,500 for providingservices to customers. A business

earns money by selling goods or

services to its customers. This amount

is called Revenue.

Transaction D

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5,000 1,350 20,000Bal.

Assets

Transaction D (cont inued)

d. +7,500

Bal. 12,500 1.350 20,000

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Transaction D (cont inued)

ACCOUNTS CHRIS CLARK, FEES

PAYABLE + CAPITAL + EARNED1,350 25,000Bal.


d. +7,500

Bal. 1,350 25,000 7,500

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12,500 1,350 20,000Bal.

Assets

Transaction E (cont inued)

e. –3,650

Bal. 8,850 1.350 20,000

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Transaction E (cont inued)

ACCOUNTS CHRIS CLARK, FEES WAGES RENT UTIL. MISC.

PAYABLE + CAPITAL + EARNED – EXP. – EXP. – EXP. – EXP.1,350 25,000 7,500Bal.


e. –2,125 –800 –450 –275

Bal. 1,350 25,000 7,500 –2,125 –800 –450 –275

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8,850 1,350 20,000Bal.

Assets

Transaction F (cont inued)

f. –950

Bal. 7,900 1.350 20,000

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ACCOUNTS CHRIS CLARK, FEES WAGES RENT UTIL. MISC.

PAYABLE + CAPITAL + EARNED – EXP. – EXP. – EXP. – EXP.1,350 25,000 7,500 –2,125 –800 –450 –275Bal.


f. –950

Bal. 400 25,000 7,500 –2,125 –800 –450 –275

Transaction F (cont inued)

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On November 30, 2009, Chris Clark

determined that the cost of supplies

on hand at the end of the period was

$550.

Transaction G

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ACCOUNTS CHRIS CLARK, FEES WAGES RENT SUP. UTIL. MISC.

PAYABLE + CAPITAL + EARNED – EXP. – EXP. – EXP. – EXP. – EXP.400 25,000 7,500 –2,125 –800 –450 –275Bal.


g. –800

Bal. 400 25,000 7,500 –2,125 –800 –800 –450 –275

Transaction G (cont inued)

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On November 30, 2009, Chris Clarkwithdrew $2,000 from NetSolutions

for personal use.

Transaction H

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7,900 550 20,000Bal.

Assets

Transaction H (cont inued)

h. –2,000

Bal. 5,900 550 20,000

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Transaction H (cont inued)

ACCTS. CLARK, CLARK, FEES WAGES RENT SUP. UTIL. MISC.

PAY. + CAPITAL – DRAW. + EARNED – EXP. – EXP. – EXP. – EXP. – EXP.400 25,000 7,500 –2,125 –800 –800 –450 –275Bal.


h. –2,000

Bal.400 25,000 –2,000 7,500 –2,125 –800 –800 –450 –275

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The income statement reports

the revenues and expenses fora period of time, based on thematching concept.

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Income Statement



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The matching concept is

applied by matching theexpenses with the revenuegenerated during a period by those expenses.

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Matching Concept

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The excess of revenue over the

expenses is called net income

or net prof it . If the expenses

exceed the revenue, the excess

is a net loss .

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This amount is comparedto the net cash flow on the

statement of cash flows.

From the statementof owner’s equity

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Exhibit 6 Financial Statements for NetSolutions (cont inued)

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This amount should match

Cash on the balance sheet.

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Financial Statements for NetSolutions (cont inued) Exhibit 6



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WRD_ab.az.Ch01_SV Introduction to Acc