b usiness a ctivities – t he s ource of a ccounting i nformation
DESCRIPTION
Chapter F2. B USINESS A CTIVITIES – T HE S OURCE OF A CCOUNTING I NFORMATION. Electronic Presentation by Douglas Cloud Pepperdine University. Objectives. 1. Identify financing activities and explain why they are important to a business. - PowerPoint PPT PresentationTRANSCRIPT
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BBUSINESS USINESS AACTIVITIES CTIVITIES ––TTHE HE
SSOURCE OFOURCE OF A ACCOUNTING CCOUNTING
IINFORMATIONNFORMATION
BBUSINESS USINESS AACTIVITIES CTIVITIES ––TTHE HE
SSOURCE OFOURCE OF A ACCOUNTING CCOUNTING
IINFORMATIONNFORMATION
Electronic Presentation by Douglas Cloud
Pepperdine University
Electronic Presentation by Douglas Cloud
Pepperdine University
Chapter Chapter F2F2
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1. Identify financing activities and explain why they are important to a business.
2. Demonstrate how accounting measures and records business activities.
3. Identify investing activities and explain why they are important to a business.
4. Identify operating activities and explain how they create profits for a company.
ObjectivesObjectivesObjectivesObjectives
Once you have Once you have completed this chapter, completed this chapter, you should be able to:you should be able to:
Once you have Once you have completed this chapter, completed this chapter, you should be able to:you should be able to:
ContinuedContinuedContinuedContinued
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5. Describe how financial reports summarize business activities and provide information for business decisions.
ObjectivesObjectivesObjectivesObjectives
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11ObjectiveObjectiveObjectiveObjective
Identify financing activities and explain why they are important to a business.
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Financing ActivitiesFinancing ActivitiesFinancing ActivitiesFinancing Activities
A business is an organization that exists
for the purpose of making a profit for its owners.
A business is an organization that exists
for the purpose of making a profit for its owners.
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A contribution by owners to a business, along with any profits
that are kept in the business, is known as
owners’ equity.
A contribution by owners to a business, along with any profits
that are kept in the business, is known as
owners’ equity.
Financing ActivitiesFinancing ActivitiesFinancing ActivitiesFinancing Activities
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Financing ActivitiesFinancing ActivitiesFinancing ActivitiesFinancing Activities
Business activities are events that occur when a
business acquires, uses, or sells resources or claims to
those resources.
Business activities are events that occur when a
business acquires, uses, or sells resources or claims to
those resources.
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Financing ActivitiesFinancing ActivitiesFinancing ActivitiesFinancing Activities
Financing activities occur when owners or creditors provide
resources to a company or when a company transfers resources to
owners or creditors.
Financing activities occur when owners or creditors provide
resources to a company or when a company transfers resources to
owners or creditors.
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Financing from Owners and Creditors
Exhibit 1Exhibit 1Exhibit 1Exhibit 1
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22Demonstrate how accounting measures and records business activities.
ObjectiveObjectiveObjectiveObjective
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An account is a record of increases and decreases in the
dollar amount associated with a specific resource or activity.
An account is a record of increases and decreases in the
dollar amount associated with a specific resource or activity.
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Accounting transactions are descriptions of business
activities (or events) that are measured in dollar values and
recorded in accounts.
Accounting transactions are descriptions of business
activities (or events) that are measured in dollar values and
recorded in accounts.
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AssetsAssets =Resources
controlled by the business
The Accounting EquationThe Accounting EquationThe Accounting EquationThe Accounting Equation
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AssetsAssets = LiabilitiesLiabilities Owners’ Equity
Owners’ Equity+
The claims of creditors to a
company’s resources
Owners’ claims on the company’s
assets
The Accounting EquationThe Accounting EquationThe Accounting EquationThe Accounting Equation
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Financing ActivitiesFinancing Activities
On January 2, 2004, Mom’s Cookie Company received
$10,000 from the company’s owners. On January 3, 2004, the company received $8,000
from the bank.
On January 2, 2004, Mom’s Cookie Company received
$10,000 from the company’s owners. On January 3, 2004, the company received $8,000
from the bank.
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ASSETSASSETS == LIABILITIESLIABILITIES ++OWNERS’ OWNERS’ EQUITYEQUITYDate Accounts
Beginning Amounts 0 = 0 + 0
1/2 Cash 10,000Contributed Capital 10,000
1/3 Cash 8,000Notes payable 8,000Ending Amounts 18,000 = 8,000 + 10,000Cash refers to financial resources in the form of coins and currency, bank deposits,
and short-term investments that can be converted easily into currency.
Cash refers to financial resources in the form of coins and currency, bank deposits,
and short-term investments that can be converted easily into currency.
Accounting Representation of Financing Activities
Exhibit 3Exhibit 3Exhibit 3Exhibit 3
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ASSETSASSETS == LIABILITIESLIABILITIES ++OWNERS’ OWNERS’ EQUITYEQUITYDate Accounts
Beginning Amounts 0 = 0 + 0
1/2 Cash 10,000Contributed Capital 10,000
1/3 Cash 8,000Notes payable 8,000Ending Amounts 18,000 = 8,000 + 10,000Contributed capital is an
owners’ equity account and identifies amounts contributed to a company by its owners.
Contributed capital is an owners’ equity account and
identifies amounts contributed to a company by its owners.
Accounting Representation of Financing Activities
Exhibit 3Exhibit 3Exhibit 3Exhibit 3
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ASSETSASSETS == LIABILITIESLIABILITIES ++OWNERS’ OWNERS’ EQUITYEQUITYDate Accounts
Beginning Amounts 0 = 0 + 0
1/2 Cash 10,000Contributed Capital 10,000
1/3 Cash 8,000Notes payable 8,000Ending Amounts 18,000 = 8,000 + 10,000
Notes payable is a liability account used to identify amounts a company owes to
creditors with whom a formal agreement, or note, has been signed.
Notes payable is a liability account used to identify amounts a company owes to
creditors with whom a formal agreement, or note, has been signed.
Accounting Representation of Financing Activities
Exhibit 3Exhibit 3Exhibit 3Exhibit 3
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33Identify investing activities and explain why they are important to a business.
ObjectiveObjectiveObjectiveObjective
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Investing ActivitiesInvesting ActivitiesInvesting ActivitiesInvesting Activities
Investing activities involve the acquisition and disposal of long-
term resources used by a business.
Investing activities involve the acquisition and disposal of long-
term resources used by a business.
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Business Activities: Investing in Long-Term Resources
Exhibit 4Exhibit 4Exhibit 4Exhibit 4
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On January 5, Mom’s Cookie Company paid $6,000 for
office equipment. On January 6, the company bought a
delivery van for $25,000. It paid $3,000 in cash and financed the remaining
$22,000 of the purchase price with a note payable.
On January 5, Mom’s Cookie Company paid $6,000 for
office equipment. On January 6, the company bought a
delivery van for $25,000. It paid $3,000 in cash and financed the remaining
$22,000 of the purchase price with a note payable.
Investing ActivitiesInvesting ActivitiesInvesting ActivitiesInvesting Activities
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ASSETSASSETS == LIABILITIESLIABILITIES ++OWNERS’ OWNERS’ EQUITYEQUITYDate Accounts
Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000
Cash –6,000
On January 5, one asset increased (Equipment) and another asset decreased
(Cash) by the same amount, so the accounting equation remained unchanged.
On January 5, one asset increased (Equipment) and another asset decreased
(Cash) by the same amount, so the accounting equation remained unchanged.
Accounting Representation of Investing Activities
Exhibit 5Exhibit 5Exhibit 5Exhibit 5
ContinuedContinued
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ASSETSASSETS == LIABILITIESLIABILITIES ++OWNERS’ OWNERS’ EQUITYEQUITYDate Accounts
Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000
Cash –6,000 1/6 Equipment 25,000
Cash –3,000Notes Payable 22,000Ending Amounts 40,000 = 30,000 + 10,000
On January 6, the company acquired a delivery van for $25,000.
On January 6, the company acquired a delivery van for $25,000.
Accounting Representation of Investing Activities
Exhibit 5Exhibit 5Exhibit 5Exhibit 5
ContinuedContinued
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ASSETSASSETS == LIABILITIESLIABILITIES ++OWNERS’ OWNERS’ EQUITYEQUITYDate Accounts
Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000
Cash –6,000 1/6 Equipment 25,000
Cash –3,000Notes Payable 22,000Ending Amounts 40,000 = 30,000 + 10,000
The company paid $3,000 in cash.The company paid $3,000 in cash.
Accounting Representation of Investing Activities
Exhibit 5Exhibit 5Exhibit 5Exhibit 5
ContinuedContinued
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ASSETSASSETS == LIABILITIESLIABILITIES ++OWNERS’ OWNERS’ EQUITYEQUITYDate Accounts
Beginning Amounts 18,000 = 8,000 + 10,000 1/5 Equipment 6,000
Cash –6,000 1/6 Equipment 25,000
Cash –3,000Notes Payable 22,000Ending Amounts 40,000 = 30,000 + 10,000
The balance of $22,000 was financed by issuing a note payable.
The balance of $22,000 was financed by issuing a note payable.
Accounting Representation of Investing Activities
Exhibit 5Exhibit 5Exhibit 5Exhibit 5
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44Identify operating activities and explain how they create profits for a company.
ObjectiveObjectiveObjectiveObjective
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Operating activities are those activities necessary to acquire
goods and services.
Operating activities are those activities necessary to acquire
goods and services.
Operating ActivitiesOperating ActivitiesOperating ActivitiesOperating Activities
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Revenue is the amount a company expects to receive when
it sells goods or services.
Revenue is the amount a company expects to receive when
it sells goods or services.
Operating ActivitiesOperating ActivitiesOperating ActivitiesOperating Activities
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Expense is the amount of resources consumed in the process of acquiring and
selling goods and services.
Expense is the amount of resources consumed in the process of acquiring and
selling goods and services.
Operating ActivitiesOperating ActivitiesOperating ActivitiesOperating Activities
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Purchase of Goods for SaleExhibit 6Exhibit 6Exhibit 6Exhibit 6
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Merchandise inventory is an
asset account and identifies the cost
of goods a company has
purchased for sale.
Merchandise inventory is an
asset account and identifies the cost
of goods a company has
purchased for sale.
Operating ActivitiesOperating ActivitiesOperating ActivitiesOperating Activities
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On January 7, Mom’s Cookie
Company purchased cookies from the bakery at a cost of $9,000.
On January 7, Mom’s Cookie
Company purchased cookies from the bakery at a cost of $9,000.
Mom’s Cookie Co.
Operating ActivitiesOperating ActivitiesOperating ActivitiesOperating Activities
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ASSETSASSETS == LIABILITIESLIABILITIES ++OWNERS’ OWNERS’ EQUITYEQUITYDate Accounts
Beginning Amounts40,000 = 30,000 + 10,000Jan. 7 Merchandise Inven. 9,000
Cash –9,000Ending Amounts 40,000 = 30,000 + 10,000
The company now has $9,000 of goods for sale.The company now has
$9,000 of goods for sale.
Accounting Representation of Purchase of Merchandise
Exhibit 7Exhibit 7Exhibit 7Exhibit 7
ContinuedContinued
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ASSETSASSETS == LIABILITIESLIABILITIES ++OWNERS’ OWNERS’ EQUITYEQUITYDate Accounts
Beginning Amounts40,000 = 30,000 + 10,000Jan. 7 Merchandise Inven. 9,000
Cash –9,000Ending Amounts 40,000 = 30,000 + 10,000
The firm spent $9,000 to acquire the merchandise.The firm spent $9,000 to acquire the merchandise.
Accounting Representation of Purchase of Merchandise
Exhibit 7Exhibit 7Exhibit 7Exhibit 7
ContinuedContinued
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ASSETSASSETS == LIABILITIESLIABILITIES ++OWNERS’ OWNERS’ EQUITYEQUITYDate Accounts
Beginning Amounts40,000 = 30,000 + 10,000Jan. 7 Merchandise Inven. 9,000
Cash –9,000Ending Amounts 40,000 = 30,000 + 10,000
The ending amount of assets remains the same.
The ending amount of assets remains the same.
Accounting Representation of Purchase of Merchandise
Exhibit 7Exhibit 7Exhibit 7Exhibit 7
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Operating Activities: Selling Goods to Customers
Exhibit 8Exhibit 8Exhibit 8Exhibit 8
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Mom’s Cookie Company sells 380
boxes of cookies (cost to make = $7,600) to grocery stores during
the month for $11,400, receiving
cash.
Mom’s Cookie Company sells 380
boxes of cookies (cost to make = $7,600) to grocery stores during
the month for $11,400, receiving
cash.
Operating ActivitiesOperating ActivitiesOperating ActivitiesOperating Activities
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ASSETS =ASSETS = LIABILITIELIABILITIESS
+ OWNERS’ EQUITY+ OWNERS’ EQUITY
Date Accounts
1/31Cash 11,400Sales Revenue 11,400
1/31Cost of Goods Sold -7,600Merchan. Inventory -7,600Ending Amounts 11,400 +32,400 = 30,000 + 10,000 + 3,800
CashOther Assets
ContributedCapital
RetainedEarnings
Beginning Amounts 0 +40,000 30,000 10,000
Sold 380 boxes of cookies at $30 each. Cash increases $11,400.
Sold 380 boxes of cookies at $30 each. Cash increases $11,400.
Accounting Representation of Operating Activities
Exhibit 9Exhibit 9Exhibit 9Exhibit 9
ContinuedContinued
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ASSETS =ASSETS = LIABILITIELIABILITIESS
+ OWNERS’ EQUITY+ OWNERS’ EQUITY
Date Accounts
1/31Cash 11,400Sales Revenue 11,400
1/31Cost of Goods Sold -7,600Merchan. Inventory -7,600Ending Amounts 11,400 +32,400 = 30,000 + 10,000 + 3,800
CashOther Assets
ContributedCapital
RetainedEarnings
Beginning Amounts 0 +40,000 30,000 10,000
Sales Revenue increases Retained Earnings by $11,400.
Sales Revenue increases Retained Earnings by $11,400.
Accounting Representation of Operating Activities
Exhibit 9Exhibit 9Exhibit 9Exhibit 9
ContinuedContinued
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ASSETS =ASSETS = LIABILITIELIABILITIESS
+ OWNERS’ EQUITY+ OWNERS’ EQUITY
Date Accounts
1/31Cash 11,400Sales Revenue 11,400
1/31Cost of Goods Sold -7,600Merchan. Inventory -7,600Ending Amounts 11,400 +32,400 = 30,000 + 10,000 + 3,800
CashOther Assets
ContributedCapital
RetainedEarnings
Beginning Amounts 0 +40,000 30,000 10,000A second entry is required to record the cost of $7,600…
A second entry is required to record the cost of $7,600…
Accounting Representation of Operating Activities
Exhibit 9Exhibit 9Exhibit 9Exhibit 9
ContinuedContinued
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ASSETS =ASSETS = LIABILITIELIABILITIESS
+ OWNERS’ EQUITY+ OWNERS’ EQUITY
Date Accounts
1/31Cash 11,400Sales Revenue 11,400
1/31Cost of Goods Sold -7,600Merchan. Inventory -7,600Ending Amounts 11,400 +32,400 = 30,000 + 10,000 + 3,800
CashOther Assets
ContributedCapital
RetainedEarnings
Beginning Amounts 0 +40,000 30,000 10,000…and a reduction in the amount of inventory.
…and a reduction in the amount of inventory.
Accounting Representation of Operating Activities
Exhibit 9Exhibit 9Exhibit 9Exhibit 9
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On January 6, paid $300 for supplies used during January.On January 6, paid $300 for
supplies used during January.
ASSETS =ASSETS = LIABILITIELIABILITIESS
+ OWNERS’ EQUITY+ OWNERS’ EQUITY
Date AccountsCash
Other Assets
ContributedCapital
RetainedEarnings
1/6 Supplies Expense -300Cash -300
Accounting Representation of Expenses
Exhibit 10Exhibit 10Exhibit 10Exhibit 10
Continued on Slide 45Continued on Slide 45
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Operating ActivitiesOperating ActivitiesOperating ActivitiesOperating Activities
Did you notice that revenues increase
owners’ equity and expenses decrease owners’ equity?
Did you notice that revenues increase
owners’ equity and expenses decrease owners’ equity?
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On January 8, paid $600 for rent for January.
On January 8, paid $600 for rent for January.
ASSETS =ASSETS = LIABILITIELIABILITIESS
+ OWNERS’ EQUITY+ OWNERS’ EQUITY
Date AccountsCash
Other Assets
ContributedCapital
RetainedEarnings
1/8 Rent Expense -600Cash -600
Accounting Representation of Expenses
Exhibit 10Exhibit 10Exhibit 10Exhibit 10
ContinuedContinued
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On January 31, paid $1,000 for wages for January.
On January 31, paid $1,000 for wages for January.
ASSETS =ASSETS = LIABILITIELIABILITIESS
+ OWNERS’ EQUITY+ OWNERS’ EQUITY
Date AccountsCash
Other Assets
ContributedCapital
RetainedEarnings
1/31Wages Expense -1,000Cash -1,000
Accounting Representation of Expenses
Exhibit 10Exhibit 10Exhibit 10Exhibit 10
ContinuedContinued
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On January 31, paid $200 for utilities for January.
On January 31, paid $200 for utilities for January.
ASSETS =ASSETS = LIABILITIELIABILITIESS
+ OWNERS’ EQUITY+ OWNERS’ EQUITY
Date AccountsCash
Other Assets
ContributedCapital
RetainedEarnings
1/31Utilities Expense -200Cash -200
Ending Amounts 9,300 +32,400 = 30,000 + 10,000 + 1,700
Accounting Representation of Expenses
Exhibit 10Exhibit 10Exhibit 10Exhibit 10
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55Describe how financial reports summarize business activities and provide information for business decisions.
ObjectiveObjectiveObjectiveObjective
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Financial statements are reports that summarize the
results of a company’s accounting transactions
for a fiscal period.
Financial statements are reports that summarize the
results of a company’s accounting transactions
for a fiscal period.
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Slide 51 is a summary of balances for Mom’s Cookie Company at
January 31 (Exhibit 12).
Slide 51 is a summary of balances for Mom’s Cookie Company at
January 31 (Exhibit 12).
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AccountAccountJanuary 31 January 31
BalanceBalanceAssets:
Cash
9,300Merchandise inventory
1,400Equipment
31,000Liabilities:
Notes Payable
30,000Owners’ Equity:
Contributed Capital
10,000Sales Revenue
11,400Cost of Goods Sold
(7,600)Wages Expense
(1,000)Rent Expense
(600)Supplies Expense
(300)Utilities Expense
(200)
$9,000 $9,000 – $7,600– $7,600$9,000 $9,000 – $7,600– $7,600$6,000 $6,000 + $25,000+ $25,000$6,000 $6,000 + $25,000+ $25,000
$8,000 +$8,000 + $22,000 $22,000$8,000 +$8,000 + $22,000 $22,000
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The income statement reports revenues and expenses for a fiscal period as a means of
determining how well a company has performed.
The income statement reports revenues and expenses for a fiscal period as a means of
determining how well a company has performed.
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The income statement for Mom’s Cookie Company (Exhibit 13) is
shown on Slide 54.
The income statement for Mom’s Cookie Company (Exhibit 13) is
shown on Slide 54.
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Mom’s Cookie CompanyIncome Statement
For the Month Ended January 31, 2004
Sales revenue $11,400Cost of goods sold (7,600)Wages expense (1,000)Rent expense (600)Supplies expense (300)Utilities expense (200)Net income $ 1,700
AccountAccount January 31 Balance
Owners’ Equity:
Contributed Capital 10,000
Sales Revenue 11,400
Cost of Goods Sold (7,600)
Wages Expense (1,000)
Rent Expense (600)
Supplies Expense (300)
Utilities Expense (200)
Exhibit 13Exhibit 13Exhibit 13Exhibit 13
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Net income is the amount of profit earned by a business
during a fiscal period.
A fiscal period is the time period
for which a company wants
to report its financial activities.
Mom’s Cookie CompanyIncome Statement
For the Month Ended January 31, 2004
Sales revenue $11,400Cost of goods sold (7,600)Wages expense (1,000)Rent expense (600)Supplies expense (300)Utilities expense (200)Net income $ 1,700
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A balance sheet identifies a company’s assets and claims to
those assets by creditors and owners at a specific date.
A balance sheet identifies a company’s assets and claims to
those assets by creditors and owners at a specific date.
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Mom’s Cookie CompanyBalance Sheet
At January 31, 2004
Assets:Cash $ 9,300Merchandise inventory 1,400Equipment 31,000
Total assets $41,700Liabilities and Owners’ Equity
Notes payable $30,000Contributed capital 10,000Retained earnings 1,700
Total liabilities and owners’ equity $41,700
equal
Exhibit 14Exhibit 14Exhibit 14Exhibit 14 Balance Sheet
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The statement of cash flows reports events that affected a
company’s cash account during a fiscal period.
The statement of cash flows reports events that affected a
company’s cash account during a fiscal period.
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Mom’s Cookie CompanyStatement of Cash Flows
For the Month Ended January 31, 2004
Operating ActivitiesReceived from customers $11,400Paid for merchandise (9,000)Paid for wages (1,000)Paid for rent (600)Paid for supplies (300)Paid for utilities (200)Net cash flow from operating activities $ 300
Investing ActivitiesPaid for equipment (31,000)
ContinuedContinued
Exhibit 15Exhibit 15Exhibit 15Exhibit 15 Statement of Cash Flows
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Carried forward $(30,700)Financing Activities
Received from creditors $30,000Received from owners 10,000Net cash flow from financing activities 40,000
Net cash flow in January 9,300Cash balance, January 1 0Cash balance, January 31 $ 9,300
The statement of cash flows is useful for identifying how much cash a company has,
where that cash came from, and how the company used its cash during a fiscal period.
The statement of cash flows is useful for identifying how much cash a company has,
where that cash came from, and how the company used its cash during a fiscal period.
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What role does accounting play What role does accounting play in an organization’s in an organization’s
transformation process?transformation process?
What role does accounting play What role does accounting play in an organization’s in an organization’s
transformation process?transformation process?
Accounting is an information system for the measurement and reporting of the
transformation of resources into goods and services and the sale or transfer of these goods
and services to customers.
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AssetsAssets $40,000$40,000
+11,400+11,400 ––9,7009,700$41,700$41,700
ProfitProfitRevenuesRevenues $11,400$11,400ExpensesExpenses ––9,7009,700Net IncomeNet Income $ 1,700$ 1,700
LiabilitiesLiabilities $30,000$30,000 Owner Equity:Owner Equity: Contributed CapitalContributed Capital 10,00010,000 Retained EarningsRetained Earnings 1,700 1,700
$41,700 $41,700
Exhibit 16Exhibit 16Exhibit 16Exhibit 16 Reporting the Transformation Process
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Financial AnalysisFinancial AnalysisFinancial AnalysisFinancial Analysis
Return on assets (ROA) is the ratio of net income to total
assets.
Return on assets (ROA) is the ratio of net income to total
assets.
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Financial AnalysisFinancial AnalysisFinancial AnalysisFinancial Analysis
For Mom’s Cookie Company at January
31, 2004…
For Mom’s Cookie Company at January
31, 2004…
Net Income
Total Assets
$1,700
$41,700= 4.1%
ROA is 4.1%.
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Business Business ActivitiesActivities
OperatingOperatingInvestingInvesting
FinancingFinancing
Business Business ActivitiesActivities
OperatingOperatingInvestingInvesting
FinancingFinancing
AccountingAccounting MeasuringMeasuringRecordingRecordingReportingReportingAnalyzingAnalyzing
AccountingAccounting MeasuringMeasuringRecordingRecordingReportingReportingAnalyzingAnalyzing
Business Business DecisionsDecisionsBusiness Business DecisionsDecisions
Actions Based on Business Decisions
A Model of the Accounting Process
Exhibit 17Exhibit 17Exhibit 17Exhibit 17
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THE ENDTHE END
CCHAPTERHAPTER F2 F2
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