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The document serves as an overview of introductory accounting principles, detailing the accounting process, its users, and fundamental concepts such as generally accepted accounting principles (GAAP), ethical standards, and the basic accounting equation. It discusses the types of financial statements, their preparation, and how transactions affect the accounting equation, emphasizing the role of ethics in financial reporting. Additionally, it explores the distinctions among various forms of business ownership, the necessity of ethical conduct in accounting, and the classification of accounting transactions.

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Chapter 1-1
Chapter 1-2 Accounting in Action Accounting Principles, Ninth Edition
Chapter 1-3 1. Explain what accounting is. 2. Identify the users and uses of accounting. 3. Understand why ethics is a fundamental business concept. 4. Explain generally accepted accounting principles and the cost principle. 5. Explain the monetary unit assumption and the economic entity assumption. 6. State the accounting equation, and define its components. 7. Analyze the effects of business transactions on the accounting equation. 8. Understand the four financial statements and how they are prepared. Study Objectives Study Objectives
Chapter 1-4 Accounting in Action Accounting in Action Ethics in Ethics in financial financial reporting reporting Generally Generally accepted accepted accounting accounting principles principles Assumptions Assumptions What is What is Accounting? Accounting? The Building The Building Blocks of Blocks of Accounting Accounting The Basic The Basic Accounting Accounting Equation Equation Using the Using the Basic Basic Accounting Accounting Equation Equation Financial Financial Statements Statements Three Three activities activities Who uses Who uses accounting accounting data data Assets Assets Liabilities Liabilities Owner’s Owner’s equity equity Transaction Transaction analysis analysis Summary of Summary of transactions transactions Income Income statement statement Owner’s Owner’s equity equity statement statement Balance Balance sheet sheet Statement of Statement of cash flows cash flows
Chapter 1-5 What is Accounting? What is Accounting? SO 1 Explain what accounting is. SO 1 Explain what accounting is. The purpose of accounting is to: (1) (1) identify identify, record record, and communicate communicate the economic events of an (2) organization to (3) interested users.
Chapter 1-6 Three Activities What is Accounting? What is Accounting? SO 1 Explain what accounting is. SO 1 Explain what accounting is. Illustration 1-1 Accounting process The accounting process includes the bookkeeping function.
Chapter 1-7 Management There are two broad groups of users of financial information: internal users and external users. Human Resources Labor Unions BSEC Marketing Finance Investors Creditors Who Uses Accounting Data? Who Uses Accounting Data? SO 2 Identify the users and uses of accounting. SO 2 Identify the users and uses of accounting. Customers Internal Users External Users
Chapter 1-8 Common Questions Asked User 1. Can we afford to give our employees a pay raise? Human Resources 2. Did the company earn a satisfactory income? 3. Do we need to borrow in the near future? 4. Is cash sufficient to pay dividends to the stockholders? 5. What price for our product will maximize net income? Who Uses Accounting Data? Who Uses Accounting Data? SO 2 Identify the users and uses of accounting. SO 2 Identify the users and uses of accounting. 6. Will the company be able to pay its short-term debts? Investors Management Finance Marketing Creditors
Chapter 1-9 Discussion Question SO 3 Understand why ethics is a fundamental business concept SO 3 Understand why ethics is a fundamental business concept. Q1-1: “Accounting is ingrained in our society and it is vital to our economic system.” Do you agree? Explain. See notes page for discussion Who Uses Accounting Data? Who Uses Accounting Data?
Chapter 1-10 The Building Blocks of Accounting The Building Blocks of Accounting Ethics In Financial Reporting SO 3 Understand why ethics is a fundamental business concept SO 3 Understand why ethics is a fundamental business concept. Standards of conduct by which one’s actions are judged as right or wrong, honest or dishonest, fair or not fair, are Ethics. Recent financial scandals include: Enron, WorldCom, HealthSouth, AIG, and others. Congress passed Sarbanes-Oxley Act of 2002. Effective financial reporting depends on sound ethical behavior.
Chapter 1-11 Ethics are the standards of conduct by which one's actions are judged as: a. right or wrong. b. honest or dishonest. c. fair or not fair. d. all of these options. Review Question Review Question Ethics Ethics SO 3 Understand why ethics is a fundamental business concept SO 3 Understand why ethics is a fundamental business concept.
Chapter 1-12 Various users need financial information The accounting profession has attempted to develop a set of standards that are generally accepted and universally practiced. Financial Statements Balance Sheet Income Statement Statement of Owner’s Equity Statement of Cash Flows Note Disclosure Generally Accepted Generally Accepted Accounting Accounting Principles (GAAP) Principles (GAAP) The Building Blocks of Accounting The Building Blocks of Accounting SO 4 Explain generally accepted accounting principles and the cost principle. SO 4 Explain generally accepted accounting principles and the cost principle.
Chapter 1-13 Organizations Involved in Standard Setting: Bangladesh Securities and Exchange Commission (BSEC) Financial Accounting Standards Board (FASB) International Accounting Standards Board (IASB) SO 4 Explain generally accepted accounting principles and the cost principle. SO 4 Explain generally accepted accounting principles and the cost principle. The Building Blocks of Accounting The Building Blocks of Accounting http://www.fasb.org/ http://www.sec.gov/ http://www.iasb.org/
Chapter 1-14 Cost Principle (Historical) – dictates that companies record assets at their cost. Issues: Reported at cost when purchased and also over the time the asset is held. Cost easily verified, whereas market value is often subjective. Fair value information may be more useful. The Building Blocks of Accounting The Building Blocks of Accounting SO 4 Explain generally accepted accounting principles and the cost principle. SO 4 Explain generally accepted accounting principles and the cost principle.
Chapter 1-15 Monetary Unit Assumption – include in the accounting records only transaction data that can be expressed in terms of money. Economic Entity Assumption – requires that activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities. Proprietorship. Partnership. Corporation. Assumptions Assumptions SO 5 Explain the monetary unit assumption SO 5 Explain the monetary unit assumption and the economic entity assumption. and the economic entity assumption. Forms of Business Ownership
Chapter 1-16 Proprietorship Partnership Corporation Owned by Owned by two or two or more persons more persons. . Often Often retail and retail and service-type service-type businesses businesses Generally Generally unlimited unlimited personal liability personal liability Partnership Partnership agreement agreement Ownership Ownership divided into divided into shares of stock shares of stock Separate legal Separate legal entity entity organized organized under state under state corporation law corporation law Limited liability Limited liability Forms of Business Ownership Forms of Business Ownership Generally Generally owned owned by one person by one person. . Often Often small small service-type service-type businesses businesses Owner receives Owner receives any any profits profits, , suffers any suffers any losses losses, and is , and is personally personally liable liable for all debts for all debts. . SO 5 Explain the monetary unit assumption SO 5 Explain the monetary unit assumption and the economic entity assumption. and the economic entity assumption.
Chapter 1-17 Combining the activities of Kellogg and General Mills would violate the a. cost principle. b. economic entity assumption. c. monetary unit assumption. d. ethics principle. Assumptions Assumptions SO 5 Explain the monetary unit assumption SO 5 Explain the monetary unit assumption and the economic entity assumption. and the economic entity assumption. Review Question Review Question
Chapter 1-18 A business organized as a separate legal entity under state law having ownership divided into shares of stock is a a. proprietorship. b. partnership. c. corporation. d. sole proprietorship. SO 5 Explain the monetary unit assumption SO 5 Explain the monetary unit assumption and the economic entity assumption. and the economic entity assumption. Forms of Business Ownership Forms of Business Ownership Review Question Review Question
Chapter 1-19 Assets Assets Liabilities Liabilities Owner’s Owner’s Equity Equity = + Provides the underlying framework for recording and summarizing economic events. Assets are claimed by either creditors or owners. Claims of creditors must be paid before ownership claims. The Basic Accounting Equation The Basic Accounting Equation SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define its components. its components.
Chapter 1-20 Assets Assets Liabilities Liabilities Owner’s Owner’s Equity Equity = + Provides the underlying framework for recording and summarizing economic events. The Basic Accounting Equation The Basic Accounting Equation Resources a business owns. Provide future services or benefits. Cash, Supplies, Equipment, etc. Assets Assets SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define its components. its components.
Chapter 1-21 Assets Assets Liabilities Liabilities Owner’s Owner’s Equity Equity = + Provides the underlying framework for recording and summarizing economic events. The Basic Accounting Equation The Basic Accounting Equation Claims against assets (debts and obligations). Creditors - party to whom money is owed. Accounts payable, Notes payable, etc. Liabilities Liabilities SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define its components. its components.
Chapter 1-22 Assets Assets Liabilities Liabilities Owner’s Owner’s Equity Equity = + Provides the underlying framework for recording and summarizing economic events. The Basic Accounting Equation The Basic Accounting Equation Ownership claim on total assets. Referred to as residual equity. Capital, Drawings, etc. (Proprietorship or Partnership). Owner’s Equity Owner’s Equity SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define its components. its components.
Chapter 1-23 Owners’ Equity Owners’ Equity Revenues result from business activities entered into for the purpose of earning income. Common sources of revenue are: sales, fees, services, commissions, interest, dividends, royalties, and rent. Illustration 1-6 SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define its components. its components.
Chapter 1-24 Owners’ Equity Owners’ Equity Expenses are the cost of assets consumed or services used in the process of earning revenue. Common expenses are: salaries expense, rent expense, utilities expense, tax expense, etc. Illustration 1-6 SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define its components. its components.
Chapter 1-25 Using The Basic Accounting Equation Using The Basic Accounting Equation Transactions are a business’s economic events recorded by accountants. May be external or internal. Not all activities represent transactions. Each transaction has a dual effect on the accounting equation. SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation.
Chapter 1-26 Q1-15: Q1-15: Are the following events recorded in the accounting records? Event Supplies are purchased on account. Criterion Is the financial position (assets, liabilities, or owner’s equity) of the company changed? SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. An employee is hired. Owner withdraws cash for personal use. Record/ Don’t Record Transactions (Question?) Transactions (Question?)
Chapter 1-27 Discussion Question Q1-18: In February 2010, Paula King invested an additional $10,000 in her business, King’s Pharmacy, which is organized as a proprietorship. King’s accountant, Lance Jones, recorded this receipt as an increase in cash and revenues. Is this treatment appropriate? Why or why not? See notes page for discussion Transactions Transactions SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation.
Chapter 1-28 Transaction (1). Investment By Owner. Transaction (1). Investment By Owner. Ray Neal decides to open a computer programming service which he names Softbyte. On September 1, 2010, he invests $15,000 cash in the business. The effect of this transaction on the basic equation is: Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation.
Chapter 1-29 Transaction (2). Purchase of Equipment for Cash. Transaction (2). Purchase of Equipment for Cash. Softbyte purchases computer equipment for $7,000 cash. Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation.
Chapter 1-30 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Transaction (3). Purchase of Supplies on Credit. Transaction (3). Purchase of Supplies on Credit. Softbyte purchases for $1,600 from Acme Supply Company computer paper and other supplies expected to last several months.
Chapter 1-31 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Transaction (4). Services Provided for Cash. Transaction (4). Services Provided for Cash. Softbyte receives $1,200 cash from customers for programming services it has provided.
Chapter 1-32 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Transaction (5). Purchase of Advertising on Credit. Transaction (5). Purchase of Advertising on Credit. Softbyte receives a bill for $250 from the Daily News for advertising but postpones payment until a later date.
Chapter 1-33 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Transaction (6). Services Provided for Cash and Credit. Transaction (6). Services Provided for Cash and Credit. Softbyte provides $3,500 of programming services for customers. The company receives cash of $1,500 from customers, and it bills the balance of $2,000 on account.
Chapter 1-34 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Transaction (7). Payment of Expenses. Transaction (7). Payment of Expenses. Softbyte pays the following Expenses in cash for September: store rent $600, salaries of employees $900, and utilities $200.
Chapter 1-35 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Transaction (8). Payment of Accounts Payable. Transaction (8). Payment of Accounts Payable. Softbyte pays its $250 Daily News bill in cash.
Chapter 1-36 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Transaction (9). Receipt of Cash on Account. Transaction (9). Receipt of Cash on Account. Softbyte receives $600 in cash from customers who had been billed for services [in Transaction (6)].
Chapter 1-37 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Transaction (10). Withdrawal of Cash by Owner. Transaction (10). Withdrawal of Cash by Owner. Ray Neal withdraws $1,300 in cash from the business for his personal use.
Chapter 1-38 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Summary of Transactions Summary of Transactions Illustration 1-8 Tabular summary of Softbyte transactions
Chapter 1-39 Companies prepare four financial statements from the summarized accounting data: Balance Sheet Income Statement Statement of Cash Flows Owner’s Equity Statement Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared.
Chapter 1-40 Net income will result during a time period when: a. assets exceed liabilities. b. assets exceed revenues. c. expenses exceed revenues. d. revenues exceed expenses. Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared. Review Question Review Question
Chapter 1-41 Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared. Income Statement Reports the revenues and expenses for a specific period of time. Net income – revenues exceed expenses. Net loss – expenses exceed revenues. Illustration 1-9 Financial statements and their interrelationships
Chapter 1-42 Financial Statements Financial Statements Net income is needed to determine the ending balance in owner’s equity. Illustration 1-9 Financial statements and their interrelationships
Chapter 1-43 Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared. Statement indicates the reasons why owner’s equity has increased or decreased during the period. Owner’s Equity Statement Illustration 1-9 Financial statements and their interrelationships
Chapter 1-44 Financial Financial Statements Statements The ending balance in owner’s equity is needed in preparing the balance sheet Illustration 1-9 Financial statements and their interrelationships
Chapter 1-45 Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared. Balance Sheet Illustration 1-9 Financial statements and their interrelationships
Chapter 1-46 Financial Financial Statements Statements Illustration 1-9 Financial statements and their interrelationships
Chapter 1-47 Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared. Information for a specific period of time. Answers the following: 1. Where did cash come from? 2. What was cash used for? 3. What was the change in the cash balance? Statement of Cash Flows
Chapter 1-48 Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared. Statement of Cash Flows Illustration 1-9 Financial statements and their interrelationships
Chapter 1-49 Which of the following financial statements is prepared as of a specific date? a. Balance sheet. b. Income statement. c. Owner's equity statement. d. Statement of cash flows. Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared. Review Question Review Question
Chapter 1-50 Discussion Question Discussion Question Q1-19: “A company’s net income appears directly on the income statement and the owner’s equity statement, and it is included indirectly in the company’s balance sheet.” Do you agree? Explain. See notes page for discussion Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared.
Chapter 1-51 Forensic Accounting Careers with insurance companies and law offices to conduct investigations into theft and fraud. Opportunities in Government Careers with the IRS, the FBI, the SEC, and in public colleges and universities. Private Accounting Careers in industry working in cost accounting, budgeting, accounting information systems, and taxation. SO 9 Explain the career opportunities in accounting. SO 9 Explain the career opportunities in accounting. Accounting Career Opportunities Accounting Career Opportunities Public Accounting Careers in auditing and taxation serving the general public.

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Principles of Accounting short slides for better improvement.

  • 3. Chapter 1-3 1. Explain what accounting is. 2. Identify the users and uses of accounting. 3. Understand why ethics is a fundamental business concept. 4. Explain generally accepted accounting principles and the cost principle. 5. Explain the monetary unit assumption and the economic entity assumption. 6. State the accounting equation, and define its components. 7. Analyze the effects of business transactions on the accounting equation. 8. Understand the four financial statements and how they are prepared. Study Objectives Study Objectives
  • 4. Chapter 1-4 Accounting in Action Accounting in Action Ethics in Ethics in financial financial reporting reporting Generally Generally accepted accepted accounting accounting principles principles Assumptions Assumptions What is What is Accounting? Accounting? The Building The Building Blocks of Blocks of Accounting Accounting The Basic The Basic Accounting Accounting Equation Equation Using the Using the Basic Basic Accounting Accounting Equation Equation Financial Financial Statements Statements Three Three activities activities Who uses Who uses accounting accounting data data Assets Assets Liabilities Liabilities Owner’s Owner’s equity equity Transaction Transaction analysis analysis Summary of Summary of transactions transactions Income Income statement statement Owner’s Owner’s equity equity statement statement Balance Balance sheet sheet Statement of Statement of cash flows cash flows
  • 5. Chapter 1-5 What is Accounting? What is Accounting? SO 1 Explain what accounting is. SO 1 Explain what accounting is. The purpose of accounting is to: (1) (1) identify identify, record record, and communicate communicate the economic events of an (2) organization to (3) interested users.
  • 6. Chapter 1-6 Three Activities What is Accounting? What is Accounting? SO 1 Explain what accounting is. SO 1 Explain what accounting is. Illustration 1-1 Accounting process The accounting process includes the bookkeeping function.
  • 7. Chapter 1-7 Management There are two broad groups of users of financial information: internal users and external users. Human Resources Labor Unions BSEC Marketing Finance Investors Creditors Who Uses Accounting Data? Who Uses Accounting Data? SO 2 Identify the users and uses of accounting. SO 2 Identify the users and uses of accounting. Customers Internal Users External Users
  • 8. Chapter 1-8 Common Questions Asked User 1. Can we afford to give our employees a pay raise? Human Resources 2. Did the company earn a satisfactory income? 3. Do we need to borrow in the near future? 4. Is cash sufficient to pay dividends to the stockholders? 5. What price for our product will maximize net income? Who Uses Accounting Data? Who Uses Accounting Data? SO 2 Identify the users and uses of accounting. SO 2 Identify the users and uses of accounting. 6. Will the company be able to pay its short-term debts? Investors Management Finance Marketing Creditors
  • 9. Chapter 1-9 Discussion Question SO 3 Understand why ethics is a fundamental business concept SO 3 Understand why ethics is a fundamental business concept. Q1-1: “Accounting is ingrained in our society and it is vital to our economic system.” Do you agree? Explain. See notes page for discussion Who Uses Accounting Data? Who Uses Accounting Data?
  • 10. Chapter 1-10 The Building Blocks of Accounting The Building Blocks of Accounting Ethics In Financial Reporting SO 3 Understand why ethics is a fundamental business concept SO 3 Understand why ethics is a fundamental business concept. Standards of conduct by which one’s actions are judged as right or wrong, honest or dishonest, fair or not fair, are Ethics. Recent financial scandals include: Enron, WorldCom, HealthSouth, AIG, and others. Congress passed Sarbanes-Oxley Act of 2002. Effective financial reporting depends on sound ethical behavior.
  • 11. Chapter 1-11 Ethics are the standards of conduct by which one's actions are judged as: a. right or wrong. b. honest or dishonest. c. fair or not fair. d. all of these options. Review Question Review Question Ethics Ethics SO 3 Understand why ethics is a fundamental business concept SO 3 Understand why ethics is a fundamental business concept.
  • 12. Chapter 1-12 Various users need financial information The accounting profession has attempted to develop a set of standards that are generally accepted and universally practiced. Financial Statements Balance Sheet Income Statement Statement of Owner’s Equity Statement of Cash Flows Note Disclosure Generally Accepted Generally Accepted Accounting Accounting Principles (GAAP) Principles (GAAP) The Building Blocks of Accounting The Building Blocks of Accounting SO 4 Explain generally accepted accounting principles and the cost principle. SO 4 Explain generally accepted accounting principles and the cost principle.
  • 13. Chapter 1-13 Organizations Involved in Standard Setting: Bangladesh Securities and Exchange Commission (BSEC) Financial Accounting Standards Board (FASB) International Accounting Standards Board (IASB) SO 4 Explain generally accepted accounting principles and the cost principle. SO 4 Explain generally accepted accounting principles and the cost principle. The Building Blocks of Accounting The Building Blocks of Accounting http://www.fasb.org/ http://www.sec.gov/ http://www.iasb.org/
  • 14. Chapter 1-14 Cost Principle (Historical) – dictates that companies record assets at their cost. Issues: Reported at cost when purchased and also over the time the asset is held. Cost easily verified, whereas market value is often subjective. Fair value information may be more useful. The Building Blocks of Accounting The Building Blocks of Accounting SO 4 Explain generally accepted accounting principles and the cost principle. SO 4 Explain generally accepted accounting principles and the cost principle.
  • 15. Chapter 1-15 Monetary Unit Assumption – include in the accounting records only transaction data that can be expressed in terms of money. Economic Entity Assumption – requires that activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities. Proprietorship. Partnership. Corporation. Assumptions Assumptions SO 5 Explain the monetary unit assumption SO 5 Explain the monetary unit assumption and the economic entity assumption. and the economic entity assumption. Forms of Business Ownership
  • 16. Chapter 1-16 Proprietorship Partnership Corporation Owned by Owned by two or two or more persons more persons. . Often Often retail and retail and service-type service-type businesses businesses Generally Generally unlimited unlimited personal liability personal liability Partnership Partnership agreement agreement Ownership Ownership divided into divided into shares of stock shares of stock Separate legal Separate legal entity entity organized organized under state under state corporation law corporation law Limited liability Limited liability Forms of Business Ownership Forms of Business Ownership Generally Generally owned owned by one person by one person. . Often Often small small service-type service-type businesses businesses Owner receives Owner receives any any profits profits, , suffers any suffers any losses losses, and is , and is personally personally liable liable for all debts for all debts. . SO 5 Explain the monetary unit assumption SO 5 Explain the monetary unit assumption and the economic entity assumption. and the economic entity assumption.
  • 17. Chapter 1-17 Combining the activities of Kellogg and General Mills would violate the a. cost principle. b. economic entity assumption. c. monetary unit assumption. d. ethics principle. Assumptions Assumptions SO 5 Explain the monetary unit assumption SO 5 Explain the monetary unit assumption and the economic entity assumption. and the economic entity assumption. Review Question Review Question
  • 18. Chapter 1-18 A business organized as a separate legal entity under state law having ownership divided into shares of stock is a a. proprietorship. b. partnership. c. corporation. d. sole proprietorship. SO 5 Explain the monetary unit assumption SO 5 Explain the monetary unit assumption and the economic entity assumption. and the economic entity assumption. Forms of Business Ownership Forms of Business Ownership Review Question Review Question
  • 19. Chapter 1-19 Assets Assets Liabilities Liabilities Owner’s Owner’s Equity Equity = + Provides the underlying framework for recording and summarizing economic events. Assets are claimed by either creditors or owners. Claims of creditors must be paid before ownership claims. The Basic Accounting Equation The Basic Accounting Equation SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define its components. its components.
  • 20. Chapter 1-20 Assets Assets Liabilities Liabilities Owner’s Owner’s Equity Equity = + Provides the underlying framework for recording and summarizing economic events. The Basic Accounting Equation The Basic Accounting Equation Resources a business owns. Provide future services or benefits. Cash, Supplies, Equipment, etc. Assets Assets SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define its components. its components.
  • 21. Chapter 1-21 Assets Assets Liabilities Liabilities Owner’s Owner’s Equity Equity = + Provides the underlying framework for recording and summarizing economic events. The Basic Accounting Equation The Basic Accounting Equation Claims against assets (debts and obligations). Creditors - party to whom money is owed. Accounts payable, Notes payable, etc. Liabilities Liabilities SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define its components. its components.
  • 22. Chapter 1-22 Assets Assets Liabilities Liabilities Owner’s Owner’s Equity Equity = + Provides the underlying framework for recording and summarizing economic events. The Basic Accounting Equation The Basic Accounting Equation Ownership claim on total assets. Referred to as residual equity. Capital, Drawings, etc. (Proprietorship or Partnership). Owner’s Equity Owner’s Equity SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define its components. its components.
  • 23. Chapter 1-23 Owners’ Equity Owners’ Equity Revenues result from business activities entered into for the purpose of earning income. Common sources of revenue are: sales, fees, services, commissions, interest, dividends, royalties, and rent. Illustration 1-6 SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define its components. its components.
  • 24. Chapter 1-24 Owners’ Equity Owners’ Equity Expenses are the cost of assets consumed or services used in the process of earning revenue. Common expenses are: salaries expense, rent expense, utilities expense, tax expense, etc. Illustration 1-6 SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define its components. its components.
  • 25. Chapter 1-25 Using The Basic Accounting Equation Using The Basic Accounting Equation Transactions are a business’s economic events recorded by accountants. May be external or internal. Not all activities represent transactions. Each transaction has a dual effect on the accounting equation. SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation.
  • 26. Chapter 1-26 Q1-15: Q1-15: Are the following events recorded in the accounting records? Event Supplies are purchased on account. Criterion Is the financial position (assets, liabilities, or owner’s equity) of the company changed? SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. An employee is hired. Owner withdraws cash for personal use. Record/ Don’t Record Transactions (Question?) Transactions (Question?)
  • 27. Chapter 1-27 Discussion Question Q1-18: In February 2010, Paula King invested an additional $10,000 in her business, King’s Pharmacy, which is organized as a proprietorship. King’s accountant, Lance Jones, recorded this receipt as an increase in cash and revenues. Is this treatment appropriate? Why or why not? See notes page for discussion Transactions Transactions SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation.
  • 28. Chapter 1-28 Transaction (1). Investment By Owner. Transaction (1). Investment By Owner. Ray Neal decides to open a computer programming service which he names Softbyte. On September 1, 2010, he invests $15,000 cash in the business. The effect of this transaction on the basic equation is: Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation.
  • 29. Chapter 1-29 Transaction (2). Purchase of Equipment for Cash. Transaction (2). Purchase of Equipment for Cash. Softbyte purchases computer equipment for $7,000 cash. Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation.
  • 30. Chapter 1-30 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Transaction (3). Purchase of Supplies on Credit. Transaction (3). Purchase of Supplies on Credit. Softbyte purchases for $1,600 from Acme Supply Company computer paper and other supplies expected to last several months.
  • 31. Chapter 1-31 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Transaction (4). Services Provided for Cash. Transaction (4). Services Provided for Cash. Softbyte receives $1,200 cash from customers for programming services it has provided.
  • 32. Chapter 1-32 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Transaction (5). Purchase of Advertising on Credit. Transaction (5). Purchase of Advertising on Credit. Softbyte receives a bill for $250 from the Daily News for advertising but postpones payment until a later date.
  • 33. Chapter 1-33 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Transaction (6). Services Provided for Cash and Credit. Transaction (6). Services Provided for Cash and Credit. Softbyte provides $3,500 of programming services for customers. The company receives cash of $1,500 from customers, and it bills the balance of $2,000 on account.
  • 34. Chapter 1-34 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Transaction (7). Payment of Expenses. Transaction (7). Payment of Expenses. Softbyte pays the following Expenses in cash for September: store rent $600, salaries of employees $900, and utilities $200.
  • 35. Chapter 1-35 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Transaction (8). Payment of Accounts Payable. Transaction (8). Payment of Accounts Payable. Softbyte pays its $250 Daily News bill in cash.
  • 36. Chapter 1-36 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Transaction (9). Receipt of Cash on Account. Transaction (9). Receipt of Cash on Account. Softbyte receives $600 in cash from customers who had been billed for services [in Transaction (6)].
  • 37. Chapter 1-37 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Transaction (10). Withdrawal of Cash by Owner. Transaction (10). Withdrawal of Cash by Owner. Ray Neal withdraws $1,300 in cash from the business for his personal use.
  • 38. Chapter 1-38 Transactions Analysis Transactions Analysis SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions on the accounting equation. on the accounting equation. Summary of Transactions Summary of Transactions Illustration 1-8 Tabular summary of Softbyte transactions
  • 39. Chapter 1-39 Companies prepare four financial statements from the summarized accounting data: Balance Sheet Income Statement Statement of Cash Flows Owner’s Equity Statement Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared.
  • 40. Chapter 1-40 Net income will result during a time period when: a. assets exceed liabilities. b. assets exceed revenues. c. expenses exceed revenues. d. revenues exceed expenses. Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared. Review Question Review Question
  • 41. Chapter 1-41 Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared. Income Statement Reports the revenues and expenses for a specific period of time. Net income – revenues exceed expenses. Net loss – expenses exceed revenues. Illustration 1-9 Financial statements and their interrelationships
  • 42. Chapter 1-42 Financial Statements Financial Statements Net income is needed to determine the ending balance in owner’s equity. Illustration 1-9 Financial statements and their interrelationships
  • 43. Chapter 1-43 Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared. Statement indicates the reasons why owner’s equity has increased or decreased during the period. Owner’s Equity Statement Illustration 1-9 Financial statements and their interrelationships
  • 44. Chapter 1-44 Financial Financial Statements Statements The ending balance in owner’s equity is needed in preparing the balance sheet Illustration 1-9 Financial statements and their interrelationships
  • 45. Chapter 1-45 Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared. Balance Sheet Illustration 1-9 Financial statements and their interrelationships
  • 47. Chapter 1-47 Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared. Information for a specific period of time. Answers the following: 1. Where did cash come from? 2. What was cash used for? 3. What was the change in the cash balance? Statement of Cash Flows
  • 48. Chapter 1-48 Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared. Statement of Cash Flows Illustration 1-9 Financial statements and their interrelationships
  • 49. Chapter 1-49 Which of the following financial statements is prepared as of a specific date? a. Balance sheet. b. Income statement. c. Owner's equity statement. d. Statement of cash flows. Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared. Review Question Review Question
  • 50. Chapter 1-50 Discussion Question Discussion Question Q1-19: “A company’s net income appears directly on the income statement and the owner’s equity statement, and it is included indirectly in the company’s balance sheet.” Do you agree? Explain. See notes page for discussion Financial Statements Financial Statements SO 8 Understand the four financial statements and how they are prepared. SO 8 Understand the four financial statements and how they are prepared.
  • 51. Chapter 1-51 Forensic Accounting Careers with insurance companies and law offices to conduct investigations into theft and fraud. Opportunities in Government Careers with the IRS, the FBI, the SEC, and in public colleges and universities. Private Accounting Careers in industry working in cost accounting, budgeting, accounting information systems, and taxation. SO 9 Explain the career opportunities in accounting. SO 9 Explain the career opportunities in accounting. Accounting Career Opportunities Accounting Career Opportunities Public Accounting Careers in auditing and taxation serving the general public.

Editor's Notes

  • #3: 1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements? Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases). Forward-looking Information Soft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image). Timeliness (no real time financial information)
  • #4: Service Cost - Actuaries compute service cost as the present value of the new benefits earned by employees during the year. Future salary levels considered in calculation. Interest on Liability - Interest accrues each year on the PBO just as it does on any discounted debt. Actual Return on Plan Assets - Increase in pension funds from interest, dividends, and realized and unrealized changes in the fair market value of the plan assets. Amortization of Unrecognized Prior Service Cost - The cost of providing retroactive benefits is allocated to pension expense in the future, specifically to the remaining service-years of the affected employees. Gain or Loss - Volatility in pension expense can be caused by sudden and large changes in the market value of plan assets and by changes in the projected benefit obligation. Two items comprise the gain or loss: difference between the actual return and the expected return on plan assets and, amortization of the unrecognized net gain or loss from previous periods
  • #9: Question 1 (textbook) Yes, this is correct. Virtually every organization and person in our society uses accounting information. Businesses, investors, creditors, government agencies, and not-for-profit organizations must use accounting information to operate effectively.
  • #16: Service Cost - Actuaries compute service cost as the present value of the new benefits earned by employees during the year. Future salary levels considered in calculation. Interest on Liability - Interest accrues each year on the PBO just as it does on any discounted debt. Actual Return on Plan Assets - Increase in pension funds from interest, dividends, and realized and unrealized changes in the fair market value of the plan assets. Amortization of Unrecognized Prior Service Cost - The cost of providing retroactive benefits is allocated to pension expense in the future, specifically to the remaining service-years of the affected employees. Gain or Loss - Volatility in pension expense can be caused by sudden and large changes in the market value of plan assets and by changes in the projected benefit obligation. Two items comprise the gain or loss: difference between the actual return and the expected return on plan assets and, amortization of the unrecognized net gain or loss from previous periods
  • #27: Question 18 (Chapter 1) No, this treatment is not proper. While the transactions does involve a receipt of cash, it does not represent revenues. Revenues are the gross increase in owner’s equity resulting from business activities entered into for the purpose of earning income. This transactions is simply an additional investment made by the owner in the business.
  • #50: Question 19 (textbook) Y e s . Net income does appear on the income statement — it is the result of subtracting expenses from revenues. In addition, net income appears in the statement of owner’s equity—it is shown as an addition to the beginning-of-period capital. Indirectly, the net income of a company is also included in the balance sheet. It is included in the capital account which appears in the owner’s equity section of the balance sheet.