7/17/2019 Hhtfa9e Ch01 Stud
1/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
1
7/17/2019 Hhtfa9e Ch01 Stud
2/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
22
The Financial StatementsChapter 1
7/17/2019 Hhtfa9e Ch01 Stud
3/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
3
Explain why accounting is the language ofbusiness
7/17/2019 Hhtfa9e Ch01 Stud
4/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
4
The Language of Business
Measures business activities
Processes data into reports
Communicates results Produces financial statements
7/17/2019 Hhtfa9e Ch01 Stud
5/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
5
Flow of Accounting Information
7/17/2019 Hhtfa9e Ch01 Stud
6/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
Users of Accounting Information
7/17/2019 Hhtfa9e Ch01 Stud
7/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
!
Financial Accounting Managerial Accounting
Provides information forexternal users
Investors Creditors
overnment
!he public
Provides information forinternal users " managers
Includes# $udgets
%orecasts
Kinds of Accounting
7/17/2019 Hhtfa9e Ch01 Stud
8/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
"
Organizing a Business
Proprietorship Partnership LLC Corporation
&wner's( Proprietor )&ne Partners " twoor more
Members *toc+holders" usually
many
Personalliability ofowner's(forbusinessdebts
Proprietor ispersonally liable
Partners arepersonallyliable, limitedpartners arenot
Membersare -&!personallyliable
*toc+holdersare -&!personallyliable
7/17/2019 Hhtfa9e Ch01 Stud
9/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
#
Proprietorships
*ingle owner
Common business form for small retail stores
and professional service providers Proprietor personally liable for business debts
7/17/2019 Hhtfa9e Ch01 Stud
10/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
10
Partnerships
!wo or more parties as co)owners
-ot a taxpaying entity
Income passes through to partners overned by an agreement
Mutual agency Each partner can act on behalf of the entity
.nlimited liability Involve ris+
/imited liability partnerships lessen ris+
7/17/2019 Hhtfa9e Ch01 Stud
11/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
11
LimitedLia!ilit" #ompan" $LL#%
&ne or many owners 'members(
/imited liability
/i+e a partnership0 not a taxpaying entity Income flows through to members
Popular form of business due to combination oftax status and limited liability
7/17/2019 Hhtfa9e Ch01 Stud
12/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
12
#orporations
&wned by stoc+holders *toc+ represents share of ownership
bility to raise large sums of capital /arger than proprietorship and partnerships
%ormed under state law /egally distinct from its owners
7/17/2019 Hhtfa9e Ch01 Stud
13/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
13
#orporations
2ouble taxation Corporate income is taxed
*hareholders taxed on distributions of earnings'dividends(
*toc+holders elect $oard of 2irectors *et policy and appoint officers
7/17/2019 Hhtfa9e Ch01 Stud
14/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
14
Explain and apply underlying accountingconcepts0 assumptions0 and principles
7/17/2019 Hhtfa9e Ch01 Stud
15/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
15
#onceptual Foundations of
Accounting
7/17/2019 Hhtfa9e Ch01 Stud
16/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
1
!o provide financial information that is useful to existing investors0lenders0 and other creditors in ma+ing decisions about providing
resources to that entity
3elevance'includes materiality(
%aithfulrepresentation
Comparability 4erifiability !imeliness .nderstandability
Cost
%inancial 3eporting *tandards
&b5ective
%undamental
6ualitativeCharacteris
tics
Constraints
Enhancing6ualitative
Characteristics
7/17/2019 Hhtfa9e Ch01 Stud
17/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
1!
Assumptions & Principles
Entity assumption business is a separate economic unit
Continuity 'going) concern( assumption Entity will continue to exist indefinitely
7istorical cost principle ssets recorded at purchase price
*table monetary unit assumption 2ollar8s purchasing power is stable over time
7/17/2019 Hhtfa9e Ch01 Stud
18/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
1"
International Financial 'eporting
Standards $IF'S% Many countries have own versions of generally
accepted accounting principles 'P(
3eports had to be restated to convert accountingdata from one country to another
I%3* developed and are used by most countriesin the world
.9*9 still follows own P
7/17/2019 Hhtfa9e Ch01 Stud
19/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
1#
International Financial 'eporting
Standards $IF'S% .9*9 P overseen by the *ecurities :
Exchange Commission '*EC(
*EC tentatively set date for .9*9 adoption of I%3*in ;ill ma+e it easier to compare financialstatements across the world
Most common accounting practices similarunder both .9*9 P and I%3*
7/17/2019 Hhtfa9e Ch01 Stud
20/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
20
Apply the accounting e?uation to businessorgani@ations
7/17/2019 Hhtfa9e Ch01 Stud
21/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
21
Accounting ()uation (lements
7/17/2019 Hhtfa9e Ch01 Stud
22/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
22
ssets
/iabilities
&wner8s
e?uity
$ssets % &iabilities ' ()ner*s E+uity
7/17/2019 Hhtfa9e Ch01 Stud
23/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
23
Assets Liabilities
Cash
Merchandise inventory
Property0 plant0 ande?uipment
ccounts payable
Income taxes payable
/ong)term debt
Assets and Lia!ilities
7/17/2019 Hhtfa9e Ch01 Stud
24/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
24
Owners* e)uit"
*toc+holders8 e?uity Paid)in capital
3etained earnings
Assets Liabilities Owners Equity
7/17/2019 Hhtfa9e Ch01 Stud
25/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
25
#orporate Accounting ()uation
ssets /iabilities *toc+holders8 e?uity
Paid)in capital3etainedearnings
mountsstoc+holders
haveinvested
Commonstoc+
mountsearned and
+ept bybusiness
'
7/17/2019 Hhtfa9e Ch01 Stud
26/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
2
Transactions Affecting 'etained
(arnings
7/17/2019 Hhtfa9e Ch01 Stud
27/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
2!
7/17/2019 Hhtfa9e Ch01 Stud
28/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
2"
+et Income
3evenues
Expenses
-et Income
Ifexpenses
exceed
revenues
net lossresults
7/17/2019 Hhtfa9e Ch01 Stud
29/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
2#
$eginning 3etainedEarnings
-et Income'-et /oss(
2ividendsEnding 3etained
Earnings
Expenses
3evenues
,inus
e+uals
Plus or ,inus ,inus e+uals
The #omponents of 'etained
(arnings
7/17/2019 Hhtfa9e Ch01 Stud
30/61
Copyright 2012 Pearson Education Inc. Publishing as Prentice Hall.
30
(,ercise --.A
ssets A;B< AD< A1