PP For Chapter 1 - Introduction To Accounting - Final

1
Click to edit Master title style

1
1
Accounting: A Malaysian Perspective, 4
th
ed
(Adapted from Accounting 22
nd
ed)
Warren, Reeve and Duchac
Introduction to
Accounting and
Business
1
2
2
2
1. Describe the nature of a business and types of business
organization.
2. Describe the role of ethics and accounting in business.
3. Describe the importance of business ethics, why ethics is
a fundamental business concept and the basic principles of
proper ethical conduct and legal compliance.
4. Explain what accounting is.
5. Identify the users and uses of the accounting information.
6. Describe the role of accounting in business and
specialized accounting fields.
After completing this chapter, you should be able to:
3
3
3
After completing this chapter, you should be able to:
7. Explain the meaning of generally accepted accounting
principles (GAAPs).
8. Describe the assumptions, principles, and constraints and
relate to the practice of accounting.
9. State the basic accounting equation and explain each
element of the equation.
10. Analyze the effects of business transactions on the basic
elements of the accounting equation.
11. Describe the financial statements of a proprietorship and
how they are prepared.
4
4
4
Describe the nature of a
business and types of business
organization
Objective 1
1-1
5
5
5
Service Business Service
The Walt Disney Company Entertainment
Malaysia Airlines System (MAS) Transportation
Maybank Corporation Financial services
Marriott International Hotels Hospitality and lodging
KPMG Auditing
1-1
Types of Businesses
6
6
6
Merchandising Business Product
Giant General merchandise
Amazon.com Internet books, music, video
Toy R Us Toys
Panasonic Consumer electronics
Gap Inc. Apparel
Types of Businesses
1-1
7
7
7
Manufacturing Business Product
General Motors Corporation Cars, trucks, vans
Nokia Cell phones
Dell Inc. Personal computers
Nike Athletic shoes and apparel
F & N Company Beverages
Sony Corporation Stereos and televisions
Types of Businesses
1-1
8
8
8
Proprietorship
Partnership
Corporation
Limited liability company
Common Forms of Business Organizations
1-1
9
9
9
Proprietorship

owned by one individual,

more than 70% of business organizations in
Malaysia are organized by proprietorships,

easy and low cost of organizing,

financial resources are limited to the owners
resources, and

commonly used by small businesses such as
hardware stores, laundries, restaurants, and grocery
shop.
1-1
10
10
10
Partnership

owned by two or more individuals,

about 10% of business organizations in Malaysia
are organized by partnerships,

combine the skills and resources of more than one
person, and

like proprietorships, small local businesses such
as automotive repair shops, music stores, beauty
salons, and clothing stores may be organized as
partnerships.
1-1
11
11
11
Corporation

organized under state or federal statutes as a separate
legal taxable entity
generates 90% of the total dollars of business receipts
received.
comprises only 20% of the business organizations in
Malaysia.
ownership is divided into shares of stock, sold to
shareholders (stockholders)
able to obtain large amount of resources by issuing
stock.
is used only by large businesses.
1-1
12
12
12
Limited liability company (LLC)

combines attributes of a partnership and a
corporation in that it is organized as a corporation.

can elect to be taxed as a partnership

a popular alternative to a partnership

has tax and liability advantages to the owners.
1-1
13
13
13
A business stakeholder is a
person or entity having an interest
in the economic performance and
well-being of a business.
1-1
14
14
14
Capital market stakeholders
provide the major financing for the
business in order for the business to
begin and continue its operations.
1-1
15
15
15
Product or service market stakeholders
include customers who purchase the
businesss products or services as well
as the vendors who supply inputs to the
business.
1-1
16
16
16
Government stakeholders
have an interest in the economic
performance of a business. City,
county, state, and federal governments
collect taxes from businesses within
their jurisdiction.
1-1
17
17
17
I nternal stakeholders include
individuals employed by the business.
Managers have an incentive to
maximize the economic value of the
business. Employees have an interest
because their jobs depend on it.
1-1
18
18
18
Describe the role of ethics and accounting in
business

Describe the importance of business ethics,
why ethics is a fundamental business
concept and the basic principles of proper
ethical conduct and legal compliance.
Objective 2 and 3
1-2-
3
19
19
19
Why ethics?
Because our actions are watched and judged as
right or wrong, honest or dishonest, and fair or bias.
because it has impact on society and others.
to communicate credible economic information
activities.
These judgments represent the standards of conduct
known as ethics.
Ethics is the moral principles that guide the
conduct of individuals.
1-2-
3
20
20
20
Explain what accounting is.
Objective 4
1-4
21
21
21
Accounting
an information system that provides
reports to stakeholders about the
economic activities and condition of a
business.
1-4
22
22
22
I dentify the users and uses of the
accounting information
Objective 5
1-5
23
23
23
Who uses the accounting information?

I nternal users
eg. marketing managers, production supervisors,
finance directors, and company officers.

they need detailed information like financial
comparison of operating alternatives, projection of
income from new sales, and forecasts of cash needs
for the coming year on a timely basis in running the
business.
1-5
24
24
24
Who uses the accounting information?
External users
Investors to make decisions whether to buy, hold, or sell their share
in the company.

Tax authority check for companys tax compliance.

Security Commission (SC) to make sure that company is operating
within the prescribed rules.

Customers observe whether company continues to maintain product
quality and warranty and then decide whether to continue supporting
its products.

Labour union want to know whether company can afford to give pay
raises or benefits.

Economic planners to forecast economic activities.
1-5
25
25
25
The process by which accounting provides
information to business stakeholders is as follows:
Identify stakeholders.

Assess stakeholders information needs.

Design the accounting information system to meet
stakeholders needs.

Record economic data about business activities and events.

Prepare accounting reports for stakeholders.
1-5
26
26
26
1-1
27
27
27
Describe the role of the accounting
profession in business and specialized
accounting fields
Objective 6
1-6
28
28
28
Financial accounting is primarily concerned
with the recording and reporting of economic
data and activities for a business.
Managerial accounting uses both financial
accounting and estimated data to aid
management in running day-to-day
operations and in planning future operations.
1-6
29
29
29
Accountants employed by a business firm or
a not-for-profit organization are said to be
employed in private accounting.
Accountants and their staff who provide
services on a fee basis are said to be
employed in public accounting.
1-6
30
30
30
Explain the meaning of GAAPs
Objective 7
1-7
31
31
31
GAAPs (Generally Accounting Accepted Principles)
are a standard set of rules and standard system used in
preparing financial statements so that stakeholders can
compare financial performance and condition of one
company to another.
Accounting principles and concepts develop from
research, practice, and pronouncements of authoritative
bodies such as the Malaysian Accounting Standards
Board (MASB).
1-7
32
32
32
Describe the assumptions,
principles, and constraints
and relate to the practice of
accounting.
Objective 8
1-8
33
33
33
When developing GAAPs, there are certain basic
assumptions made.

The assumptions provide a foundation for the
accounting process.

There are four main basic accounting
assumptions:

[i] Economic Entity Assumption
[ii] Going Concern Assumption,
[iii] Time Period Assumption, and
[iv] Monetary-unit Assumption.
1-8
34
34
34
There are at least five basic accounting
principles guiding accounting practices namely:

[i] Cost Principle,
[ii] Objectivity Principle,
[iii] Revenue Recognition Principle,
[iv] Matching Principle, and
[v] Full Disclosure Principle.
1-8
35
35
35
There are two main accounting constraints:

[i] conservatism and
[ii] materiality
1-8
36
36
36
The business entity concept
limits the economic data in
the accounting system to
data related directly to the
activities of the business.
1-8
37
37
37
The cost concept is the
basis for entering the
exchange price, or cost
of an acquisition in the
accounting records.
1-8
38
38
38
The objectivity concept
requires that the accounting
records and reports be based
upon objective evidence.
1-8
39
39
39
The unit of measure
concept requires that
economic data be
recorded in dollars.
1-8
40
40
40
40
Example 1
On August 25, Gallatin Repair Service extended an offer of
$125,000 for land that had been priced for sale at $150,000. On
September 3, Gallatin Repair Service accepted the sellers
counteroffer of $137,000. On October 20, the land was assessed
at a value of $98,000 for property tax purposes. On December 4,
Gallatin Repair Service was offered $160,000 for the land by a
national retail chain. At what value should the land be recorded
in Gallatin Repair Services records?
Follow My Example
$137,000. Under the cost concept, the land should be recorded at
the cost to Gallatin Repair Service.
41
1-8
41
41
41
State the basic accounting
equation and explain each
element of the equation.
Objective 9
1-9
42
42
42
Assets = Liabilities + Owners Equity
The resources
owned by a
business
The Accounting Equation
1-9
43
43
43
The rights of the
creditors, which
represent debts
of the business
1-9
44
44
44
The rights of the
owners
1-9
45
45
45
45
The following accounts appear in the adjusted trial balance of
Hindsight Consulting. Indicate whether each account would be
reported in the (a) current asset; (b) property, plant, and
equipment; (c) current liability, (d) long-term liability; or (e)
owners equity section of the December 31, 2007, balance sheet
of Hindsight Consulting.
Example 2
Johan is the owner and operator of Youre A Star, a motivational consulting
business. At the end of its accounting period, December 31, 2008, Youre A
Star has assets of $800,000 and liabilities of $350,000. Using the
accounting equation, determine the following amounts:
a. Owners equity, as of December 31, 2008.
b. Owners equity, as of December 31, 2009, assuming that assets
increased by $130,000 and liabilities decreased by $25,000
during 2009.
Follow My Example
a. A = L + OE
$800,000 = $350,000 + OE
OE = $450,000

b. A = L + OE
$130,000 = $25,000 + OE
OE = $155,000
OE on Dec. 31, 2009:
$605,000 ($450,000 + $155,000) 46
1-9
46
46
46
Analyze the effects of business
transactions on the basic elements
of the accounting equation.
Objective 10
1-
10
47
47
47
A business transaction is an
economic event or condition that
directly changes an entitys
financial condition or directly
affects its results of operations.
1-
10
48
48
48
On November 1, 2007, Kris
Klarah begins a business that
will be known as
J aringSolutions.
1-
10
49
49
49
49
a. Kris Klarah deposits $25,000 in a bank
account in the name of JaringSolutions.
Kris Klarah, Capital
25,000 Investment
by Kris
Klarah
Cash
25,000
a.
=
Assets Owners Equity
=
50
1-
10
50
50
50
50
b. JaringSolutions exchanged $20,000 for
land.
Kris Klarah, Capital
25,000
Cash + Land
25,000
Bal.
Assets Owners Equity
=
=
b. 20,000 +20,000
Bal. 5,000 20,000 25,000
51
51
51
51
51
Accounts Kris Klarah,
Cash + Supplies + Land Payable Capital
Assets
c. During the month, JaringSolutions
purchased supplies for $1,350 and agreed
to pay the supplier in the near future (on
account).
Owners
Liabilities + Equity
=
5,000 20,000 25,000
=
+1,350 +1,350 c.
Bal.
5,000 1,350 20,000 1,350 25,000
Bal.
52
1-
10
52
52
52
Beginning with entry (d) the
asset section will be shown
first, then the liabilities and
owners equity will be shown in
the following slide.
1-
10
53
53
53
53

Cash + Supplies + Land
Assets
5,000 1,350 20,000

d. JaringSolutions provided services to
customers, earning fees of $7,500 and
received the amount in cash.
Bal.
12,500 1,350 20,000
+7,500
d.
Bal.
54
1-
10
54
54
54
54
d. JaringSolutions provided services to
customers, earning fees of $7,500 and
received the amount in cash.
55
Liabilities + Owners Equity
Accounts Kris Klarah, Fees
Payable Capital + Earned
1,350 25,000
Bal.
+7,500
d.
+
25,000 7,500
Bal.
1,350
1-
10
55
55
55
The amounts used in earning revenue are
called expenses. Adding expenses to the
owners equity section results in a space
problem. To adjust for these added
headings, the word Bal. has been omitted
from the following Slides. The bottom
row in these four slides provides the
balances after each transaction.
Expenses
1-
10
56
56
56
56

Assets
e. JaringSolutions paid the following
expenses: wages, $2,125; rent, $800;
utilities, $450; and miscellaneous, $275.
Bal. 12,500 1,350 20,000
Bal. 8,850 1,350 20,000
e. 3,650
57
1-
10
57
57
57
57
Accounts Kris Klarah, Fees Wages Rent Utilities Misc.
Payable + Capital + Earned Expense Expense Expense Expense
1,350 25,000 7,500
2,125 800 450 275
e.
1,350 25,000 7,500 2,125 800 450 275
58
e. JaringSolutions paid the following expenses:
wages, $2,125; rent, $800; utilities, $450; and
miscellaneous, $275.
1-
10
58
58
58
58
f. JaringSolutions paid $950 to
creditors during the month.

Assets
Bal. 8,850 1,350 20,000
Bal. 7,900 1,350 20,000
f. 950
59
1-
10
59
59
59
59
Accounts Kris Klarah, Fees Wages Rent Utilities Misc.
Payable + Capital + Earned Expense Expense Expense Expense
1,350 25,000 7,500 2,125 800 450 275
400 25,000 7,500 2,125 800 450 275
f. JaringSolutions paid $950 to
creditors during the month.
f.
950
60
1-
10
60
60
60
60
g. At the end of the month, the cost
of supplies on hand is $550, so
$800 of supplies were used.

Assets
Bal. 7,900 1,350 20,000
Bal. 7,900 550 20,000
g. 800
61
61
61
61
61
Accounts Kris Klarah, Fees Wages Rent Supplies Util. Misc.
Payable + Capital + Earned Exp. Exp. Exp. Exp. Exp.
400 25,000 7,500 2,125 800 450 275
g. At the end of the month, the cost
of supplies on hand is $550, so
$800 of supplies were used.
g.
800
400 25,000 7,500 2,125 800 800 450 275
62
1-
10
62
62
62
62

Assets
Bal. 7,900 550 20,000
Bal. 5,900 550 20,000
h. 2,000
h. At the end of the month, Kris
withdrew $2,000 in cash from the
business for personal use.
63
1-
10
63
63
63
63
Accounts Kris Klarah, Kris Klarah, Fees Wages Rent
Supplies Util. Misc.
Payable + Capital + Drawing Earned Exp. Exp.
Exp. Exp. Exp.
400 25,000 7,500 2,125 800 800 450 275
h.
2,000
h. At the end of the month, Kris
withdrew $2,000 in cash from the
business for personal use.
400 25,000 2,000 7,500 2,125 800 800 450 275
64
1-
10
64
64
64
64
Owners
withdrawals
Expenses
Decreased by
Owners Equity
Increased by
Owners
investments
Revenues
65
1-
10
65
65
65
65
Example 3
Salyo Delivery Service is owned and operated by Jo Salyo.
The following selected transactions were completed by
Salyo Delivery Service during February:
66
1. Received cash from owner as additional investment,
$35,000.
2. Paid creditors on account, $1,800.
3. Billed customers for delivery services on account,
$11,250.
4. Received cash from customers on account, $6,740.
5. Paid cash to owners for personal use, $1,000.
Continued
1-
10
66
66
66
66
Example 3
67
Indicate the effect of each transaction on the accounting
equation elements (Assets, Liabilities, Owners Equity,
Drawing, Revenue, and Expense) by listing the numbers
identifying the transactions, (1) through (5). Also, indicate
the specific item within the accounting equation element
that is affected. To illustrate, the answer to (1) is shown
below.
(1) Asset (Cash) increases by $35,000; Owners Equity (Jo
Salyo, Capital) increases by $35,000.
1-
10
67
67
67
67
Follow My Example
68
(2) Asset (Cash) decreases by $1,800; Liability (Accounts
Payable) decreases by $1,800.
For Practice: PE 1-3
(3) Asset (Accounts Receivable) increases by $11,250;
Revenue (Delivery Service Fees) increases by $11,250.
(4) Asset (Cash) increases by $6,740; Asset (Accounts
Receivable) decreases by $6,740.
(5) Asset (Cash) decreases by $1,000; Owners Equity (Jo
Salyo, Drawing) increases by $1,000.
1-
10
68
68
68
Describe the financial
statements of a proprietorship,
explain how they interrelate,
and how they are prepared.
Objective 11
1-
11
69
69
69
Accounting reports, called
financial statements,
provide summarized
information to the owner.
1-
11
70
70
70
The income statement is a
summary of the revenue and
expenses for a specific
period of time, such as a
month or a year.
1-
11
71
71
71
71
72
Net income is carried
to the statement of
owners equity
Income Statement 1-
11
72
72
72
A statement of owners equity
is a summary of the changes
in the owners equity that have
occurred during a specific
period of time.
1-
11
73
73
73
73
74
From the income statement
To the balance sheet
Statement of Owners Equity
1-
11
74
74
74
A balance sheet is a list of
the assets, liabilities, and
owners equity as of a
specific date.
1-
11
75
75
75
75
76
This amount is compared
to the net cash flow on the
statement of cash flows
From the statement
of owners equity
Balance Sheet 1-
11
76
76
76
A statement of cash flows
is a summary of the cash
receipts and payments for
a specific period of time.
1-
11
77
77
77
77
78
This amount should match
Cash on the balance sheet.
Statement of Cash Flows 1-
11
78
78
78
The income statement reports the
revenues and expenses for a period of
time based on the matching concept.
This concept is applied by matching the
expenses with the revenue generated
during a period by those expenses.
Income Statement
1-
11
79
79
79
The excess of revenue over
the expenses is called net
income or net profit. If the
expenses exceed the revenue,
the excess is a net loss.
1-
11
80
80
80
80
Example 4
The assets and liabilities of Chickadee Travel Service at April 30,
2009, the end of the current year, and its revenue and expenses
for the year are listed below. The capital of the owner, Adam
Cellini, was $80,000 at May 1, 2008, the beginning of the current
year.
81
Accounts payable $ 12,200 Miscellaneous expense $ 12,950
Accounts receivable 31,350 Office expense 63,000
Cash 53,050 Supplies 3,350
Fees earned 263,200 Wages expense 131,700
Land 80,000
Prepare an income statement for the current year ended April
30, 2009.
1-
11
81
81
81
81
Follow My Example
82
CHICKADEE TRAVEL SERVICE
INCOME STATEMENT
For the Year Ended April 30,
2009
Fees earned $263,200
Expenses:
Wages expense $131,700
Office expense 63,000
Miscellaneous expense 12,950
Total expenses 207,650
Net income $ 55,550
For practice: PE 1-4
1-
11
82
82
82
The statement of owners
equity reports the changes in
the owners equity for a period
of time. It is prepared after the
income statement.
Statement of Owners Equity
1-
11
83
83
83
83
Example 5
Using the data for Chickadee Travel Service shown
in Example 4, prepare a statement of owners
equity for the current year ended April 30, 2009.
Adam Che Lini invested an additional $50,000 in
the business during the year and withdrew cash of
$30,000 for personal use.
84
1-
11
84
84
84
84
Follow My Example
STATEMENT OF OWNERS EQUITY
For the Year Ended April 30, 2009
85
Adam Cellini, capital, May 1, 2008 $ 80,000
Additional investment by owner during year $ 50,000
Net income for the year 55,550
$105,550
Less withdrawals 30,000
Increase in owners equity 75,550
Adam Cellini, capital, April 30, 2009 $155,550
1-
11
85
85
85
The balance sheet reports
the amounts of a firms
assets, liabilities, and
owners equity at the end
of a specific period.
Balance Sheet
1-
11
86
86
86
The account form of balance
sheet lists the assets on the left
and the liabilities and owners
equity on the rightsimilar to
design of an account.
1-
11
87
87
87
The report form of balance
sheet presents the liabilities
and owners equity sections
below the assets section.
1-
11
88
88
88
88
Example
Using the data for Chickadee Travel Service shown in Example
Exercise 4 and 5, prepare the balance sheet as of April 30, 2009.
89
Follow My Example
BALANCE SHEET
April 30, 2009
Assets Liabilities
Cash $ 53,050 Accounts payable $12,200
Accounts receivable 31,350
Supplies 3,350 Owners Equity
Land 80,000 Adam Cellini, capital 155,550
Total assets $167,750 Total liab. & owners eq. $167,750
1-
11
89
89
89
The statement of cash flows
consists of three sections:
(1) Operating activities
(2) Investing activities
(3) Financing activities
Statement of Cash Flows
1-
11
90
90
90
The cash flows from
operating activities section
reports a summary of cash
receipts and cash payments
from operations.
1-
11
91
91
91
The cash flows from investing
activities section reports the cash
transactions for the acquisition and sale
of relatively permanent assets.
1-
11
92
92
92
The cash flows from financing
activities section reports the
cash transactions related to cash
investments by the owner,
borrowings, and cash
withdrawals by the owner.
1-
11
93
93
93
93
Example 7
A summary of cash flows for Chickadee Travel Service for the
year ended April 30, 2009, is shown below.
94
Cash receipts:
Cash received from customers $251,000
Cash received from additional
investment of owner 50,000
Cash payments:
Cash paid for expenses 210,000
Cash paid for land 80,000
Cash paid to owner for personal use 30,000
The cash balance as of May 1, 2008, was $72,050.
Prepare a statement of cash flows for Chickadee
Travel Service for the year ended April 30. 2009.
1-
11
94
94
94
94
Follow My Example
STATEMENT OF CASH FLOWS
For the Year Ended April 30, 2009
Cash flows from operating activities:
Cash received from customers $251,000
Deduct cash payments for expenses 210,000
Net cash flows from operating activities $ 41,000
Cash flows from investing activities:
Cash payments for purchase of land (80,000)
Cash flows from financing activities:
Cash received from owner as investment $ 50,000
Deduct cash withdrawals by owner 30,000
Net cash flows from financing activities 20,000
Net decrease in cash during year $(19,000)
Cash as of May 1, 2008 72,050
Cash as of April 30, 2009 $ 53,050
95
1-
11
95
95
95
The income statement and the statement
of owners equity are interrelated.
Net income or net loss
appears on both statements.
Interrelationships Among Financial Statements 1-
11
96
96
96
The statement of owners equity and
the balance sheet are interrelated.
The owners capital at the end of the
period on the statement of owners
equity also appears on the balance
sheet as owners capital.
1-
11
97
97
97
The balance sheet and the statement
of cash flows are interrelated.
The cash on the balance sheet also
appears as the end-of-period cash on
the statement of cash flows.
1-
11

PP For Chapter 1 - Introduction To Accounting - Final

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Originaltitel

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

PP For Chapter 1 - Introduction To Accounting - Final

Hochgeladen von

Copyright:

Verfügbare Formate

1

Click to edit Master title style

Das könnte Ihnen auch gefallen