Beruflich Dokumente
Kultur Dokumente
Chapter 1
Introducing Accounting in Business
McGraw-Hill/Irwin
McGraw-Hill/Irwin
McGraw-Hill/Irwin
C1
Importance of Accounting
Accounting Accounting is a system that Identifies Identifies Records Records Relevant Relevant Reliable Reliable Comparable Comparable to help users make to help users make better decisions. better decisions.
The McGraw-Hill Companies, Inc., 2008
information that is
Communicates Communicates
McGraw-Hill/Irwin
C1
Accounting Activities
Recording Business Activities
McGraw-Hill/Irwin
C2
Lenders
Consumer Groups
C2
C3
Opportunities in Accounting
Financial Financial Managerial Managerial
General accounting General accounting Cost accounting Cost accounting Budgeting Budgeting Internal auditing Internal auditing Consulting Consulting Controller Controller Treasurer Treasurer Strategy Strategy Lenders Lenders Consultants Consultants Analysts Analysts Traders Traders Directors Directors Underwriters Underwriters Planners Planners Appraisers Appraisers
Taxation Taxation
Preparation Preparation Planning Planning Regulatory Regulatory Investigations Investigations Consulting Consulting Enforcement Enforcement Legal services Legal services Estate plans Estate plans FBI investigators FBI investigators Market researchers Market researchers Systems designers Systems designers Merger services Merger services Business valuation Business valuation Human services Human services Litigation support Litigation support Entrepreneurs Entrepreneurs
Preparation Preparation Analysis Analysis Auditing Auditing Regulatory Regulatory Consulting Consulting Planning Planning Criminal Criminal investigation investigation
AccountingAccountingrelated related
McGraw-Hill/Irwin
C3
C4
McGraw-Hill/Irwin
C4
Use personal Consider all good ethics to and bad recognize ethical consequences. concern.
McGraw-Hill/Irwin
C5
Used in comparisons Used in comparisons across years & companies. across years & companies.
The McGraw-Hill Companies, Inc., 2008
C5
The International Accounting Standards Board (IASB) issues international standards that identify preferred accounting practices in other countries. The IASB does not have authority to impose its standards on companies.
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2008
C5
Principles of Accounting
Now
Future
McGraw-Hill/Irwin
Going-Concern Principle Reflects assumption that the business will continue operating instead of being closed or sold. McGraw-Hill Companies, Inc., 2008 The
C5
Principles of Accounting
Monetary Unit Principle Express transactions and events in monetary, or money, units.
Revenue Recognition Principle 1. Recognize revenue when it is earned. 2. Proceeds need not be in cash. 3. Measure revenue by cash received plus cash value of items received.
Business Entity Principle A business is accounted for separately from other business entities, including its owner.
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2008
C5
McGraw-Hill/Irwin
C5
Characteristics of Businesses
Characteristic Proprietorship Partnership Corporation Business entity yes yes yes Legal entity no no yes Limited liability no* no* yes Unlimited life no no yes Business taxed no no yes One owner allowed yes no yes
**Proprietorships and partnerships that are set up as LLCs Proprietorships and partnerships that are set up as LLCs provide limited liability. provide limited liability.
McGraw-Hill/Irwin
C5
Corporation
Owners of a corporation are called shareholders (or stockholders). When a corporation issues only one class of stock, we call it common stock (or capital stock).
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2008
A1
Accounting Equation
Assets Assets
Liabilities Liabilities
Equity Equity
Assets
McGraw-Hill/Irwin
A1
Assets
Cash Cash Accounts Accounts Receivable Receivable Notes Notes Receivable Receivable
Vehicles Vehicles
Land Land
A1
Liabilities
Accounts Accounts Payable Payable Notes Notes Payable Payable
A1
Equity
Contributed Contributed Capital Capital Retained Retained Earnings Earnings
Dividends Dividends
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2008
A1
=
_
Liabilities Liabilities
+
Revenues Revenues
Equity Equity
Dividends Dividends
Expenses Expenses
Retained Earnings
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2008
A2
Assets Assets
Liabilities Liabilities
Equity Equity
McGraw-Hill/Irwin
A2
Transaction Analysis
J. Scott invests $20,000 cash to start the business in exchange for stock. The accounts involved are: (1) Cash (asset) (2) Common Stock (equity)
McGraw-Hill/Irwin
A2
Transaction Analysis
J. Scott invests $20,000 cash to start the business in return for stock.
McGraw-Hill/Irwin
A2
Transaction Analysis
Purchased supplies paying $1,000 cash. The accounts involved are: (1) Cash (asset) (2) Supplies (asset)
McGraw-Hill/Irwin
A2
Transaction Analysis
Purchased supplies paying $1,000 cash.
McGraw-Hill/Irwin
A2
Transaction Analysis
Purchased equipment for $15,000 cash. The accounts involved are: (1) Cash (asset) (2) Equipment (asset)
McGraw-Hill/Irwin
A2
Transaction Analysis
Purchased equipment for $15,000 cash.
McGraw-Hill/Irwin
A2
Transaction Analysis
Purchased Supplies of $200 and Equipment of $1,000 on account. The accounts involved are: (1) Supplies (asset) (2) Equipment (asset) (3) Accounts Payable (liability)
McGraw-Hill/Irwin
A2
Transaction Analysis
Purchased Supplies of $200 and Equipment of $1,000 on account.
McGraw-Hill/Irwin
A2
Transaction Analysis
McGraw-Hill/Irwin
A2
Transaction Analysis
The balances so far appear below. Note that the Balance Sheet Equation is still in balance.
McGraw-Hill/Irwin
A2
Transaction Analysis
McGraw-Hill/Irwin
A2
Transaction Analysis
Provided consulting services receiving $3,000 cash. The accounts involved are: (1) Cash (asset) (2) Revenues (equity)
McGraw-Hill/Irwin
A2
Transaction Analysis
McGraw-Hill/Irwin
A2
Transaction Analysis
Paid salaries of $800 to employees. The accounts involved are: (1) Cash (asset) (2) Salaries expense (equity)
Remember that the balance in the salaries expense account actually increases. But, equity decreases because expenses reduce equity.
McGraw-Hill/Irwin
A2
Transaction Analysis
Paid salaries of $800 to employees.
A2
Transaction Analysis
Dividends of $500 are paid to shareholders. The accounts involved are: (1) Cash (asset) (2) Dividends (equity)
Remember that the Dividend account actually increases. But, equity decreases because dividends reduce equity.
McGraw-Hill/Irwin The McGraw-Hill Companies, Inc., 2008
A2
Transaction Analysis
P1
Financial Statements
Lets prepare the Financial Statements reflecting the transactions we have recorded.
1. Income Statement 2. Statement of Retained Earnings 3. Balance Sheet 4. Statement of Cash Flows
McGraw-Hill/Irwin
P1
Income Statement
Net income is the difference between Revenues and Expenses. The income statement describes a companys revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities.
McGraw-Hill/Irwin
P1
McGraw-Hill/Irwin
P1
Balance Sheet
The Balance Sheet describes The Balance Sheet describes a companys financial a companys financial position at a point in time. position at a point in time.
McGraw-Hill/Irwin
P1
McGraw-Hill/Irwin
P1
ROA is viewed as an ROA is viewed as an indicator of operating indicator of operating efficiency. efficiency.
McGraw-Hill/Irwin
End of Chapter 1
McGraw-Hill/Irwin