chap 1

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Learning Objectives1. Nature of a Business2. The Role of Accounting in Business3. Business Ethics4. Profession of Accounting5. Generally Accepted Accounting Principles6. Assets, Liabilities, and Owner’s Equity7. Business Transactions8. Financial Statements9. Financial Analysis and Interpretation

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

Chapter 1

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

Slide # Power Note Topics

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

Chapter 1

39

1116195370

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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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UserInformation

Needs

AccountingSystem

Reports


UserDecisions


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EXTERNAL USERS

Financial AccountingFinancial Accounting• investors• creditors• regulators• customers• competitors

Users 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 Information

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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

Auditor StaffAccountant

JuniorAccountant

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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

IndustryIndustryVice President

Finance

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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AssetsLiabilities

Owner’sEquity

Resources = Sources

Cost of resources usedin the business

Resources supplied by

creditors and owners


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a. Chris Clark deposits $25,000 in a bank account for NetSolutions.

ASSETS

=

Business TransactionsBusiness Transactions

OWNER’S EQUITY

LIABILITIES

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ASSETS

=


OWNER’S EQUITYCash Cash 25,00025,000

LIABILITIES

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ASSETS

=


OWNER’S EQUITYCash Cash 25,00025,000

LIABILITIES

Chris Clark, Chris Clark, Capital Capital 25,00025,000

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b. NetSolutions buys land for $20,000.

ASSETS

= OWNER’S EQUITY

LIABILITIES

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ASSETS

= OWNER’S EQUITY

LIABILITIES

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

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ASSETS

= OWNER’S EQUITY

LIABILITIES

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

Land Land 20,00020,000

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ASSETS

= OWNER’S EQUITY

LIABILITIES

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

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ASSETS

= OWNER’S EQUITY

LIABILITIES

Supplies Supplies 1,3501,350


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ASSETS

= OWNER’S EQUITY

LIABILITIES


Accounts PayableAccounts Payable1,3501,350Supplies Supplies

1,3501,350

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ASSETS

= OWNER’S EQUITY

LIABILITIES

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

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ASSETS

= OWNER’S EQUITY

LIABILITIES

Cash Cash 7,5007,500


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ASSETS

= OWNER’S EQUITY

LIABILITIES

Cash Cash 7,5007,500

Fees Earned Fees Earned 7,5007,500


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ASSETS

= OWNER’S EQUITY

LIABILITIES

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

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ASSETS

= OWNER’S EQUITY

LIABILITIES

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


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ASSETS

= OWNER’S EQUITY

LIABILITIES

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

ExpensesExpenses(3,650)(3,650)


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ASSETS

= OWNER’S EQUITY

LIABILITIES

f. NetSolutions pays $950 to creditors on account.

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ASSETS

= OWNER’S EQUITY

LIABILITIES

Cash Cash (950)(950)


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ASSETS

= OWNER’S EQUITY

LIABILITIES

Cash Cash (950)(950)

Accounts PayableAccounts Payable(950)(950)


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ASSETS

= OWNER’S EQUITY

LIABILITIES

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

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ASSETS

= OWNER’S EQUITY

LIABILITIES

Supplies Supplies (800)(800)


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ASSETS

= OWNER’S EQUITY

LIABILITIES

Supplies Supplies (800)(800)

Supplies ExpenseSupplies Expense(800)(800)


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ASSETS

= OWNER’S EQUITY

LIABILITIES

h. Chris Clark withdraws $2,000 in cash.

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ASSETS

= OWNER’S EQUITY

LIABILITIES

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


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ASSETS

= OWNER’S EQUITY

LIABILITIES

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

Chris Clark, Chris Clark, DrawingDrawing(2,000)(2,000)


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Transaction SummaryTransaction Summary

ASSETS

= OWNER’S EQUITY

LIABILITIES

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

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ASSETS

= OWNER’S EQUITY

LIABILITIES


Accts. PayableAccts. Payable 400400

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ASSETS

= OWNER’S EQUITY

LIABILITIES


Accts. PayableAccts. Payable 400400

C. Clark, CapitalC. Clark, Capital 25,00025,000C. Clark, DrawingC. Clark, Drawing (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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OWNER’S EQUITY

Effects of Transactions on Owner’s EquityEffects of Transactions on Owner’s Equity

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OWNER’S EQUITY


decreased bydecreased by

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OWNER’S EQUITY


Owner’s withdrawals

Expenses

decreased bydecreased by

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OWNER’S EQUITY


increased byincreased by

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OWNER’S EQUITY


Owner’s investments

Revenues

increased byincreased by

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OWNER’S EQUITY



Expenses


Revenues

decreased bydecreased by increased byincreased by

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OWNER’S EQUITY



Expenses


Revenues

decreased bydecreased by increased byincreased by

NET INCOME

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Financial StatementsFinancial StatementsNetSolutions

Income StatementFor 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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NetSolutionsStatement of Owner’s Equity

For the Month Ended November 30, 2002

Financial StatementsFinancial Statements

Chris Clark, capital, November 1, 2002 $ 0Investment on November 1, 2002 $25,000Net income for November 3,050 $28,050Less withdrawals 2,000Increase in owner’s equity 26,050Chris Clark, capital, November 30, 2002 $26,050

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NetSolutionsBalance Sheet

November 30, 2002

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

LiabilitiesAccounts payable $ 400

Owner’s EquityChris Clark, capital 26,050 Total liabilities and owner’s equity $26,450


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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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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 (20,000)Cash flows from financing activities: Cash received as owner’s investment $25,000 Deduct cash withdrawal by owner 2,000 Net cash flow from financing activities 23,000Net cash flow and Nov. 30, 2002 cash balance $5,900


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)


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 as owner’s investment $25,000 Deduct cash withdrawal by owner 2,000 Net cash flow from financing activities 23,000Net cash flow and Nov. 30, 2002 cash balance $5,900

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)


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 (20,000)Cash flows from financing activities: Cash received as owner’s investment $25,000 Deduct cash withdrawal by owner 2,000 Net cash flow from financing activities 23,000Net cash flow and Nov. 30, 2002 cash balance $5,900

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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 as owner’s investment $25,000 Deduct cash withdrawal by owner 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 Owner’s EquityRatio of Liabilities to Owner’s Equity

Ratio of liabilitiesto owner’s equity =

FormulaFormula

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

Total liabilitiesTotal owner’s equity

NetSolutions =

ExampleExample$400

$16,050 .025 or 2.5%

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Power NotesChapter 1 Introduction to Accounting and Business Introduction to Accounting and Business

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chap 1