chapter 1-1 chapter 1 accounting in action accounting principles, ninth edition
TRANSCRIPT
Chapter 1-1
Chapter 1
Accounting in Accounting in ActionAction
Accounting Principles, Ninth Edition
Chapter 1-2
What is Accounting?What is Accounting?What is Accounting?What is Accounting?
SO 1 Explain what accounting is.SO 1 Explain what accounting is.
The purpose of accounting is to:
(1)(1) identifyidentify, recordrecord, and communicatecommunicate the economic events of an
(2) organization to
(3) interested users.
Chapter 1-3
Three Activities
What is Accounting?What is Accounting?What is Accounting?What is Accounting?
SO 1 Explain what accounting is.SO 1 Explain what accounting is.
Illustration 1-1Accounting process
The accounting process includes the bookkeeping function.
Chapter 1-4
Management
There are two broad groups of users of
financial information: internal users and
external users.
Human Resources
IRS
Labor Unions
SEC
Marketing
Finance
Investors
Creditors
Who Uses Accounting Data?Who Uses Accounting Data?Who Uses Accounting Data?Who Uses Accounting Data?
SO 2 Identify the users and uses of accounting.SO 2 Identify the users and uses of accounting.
Customers
Internal Users
External Users
Chapter 1-5
Common Questions Asked User
1. Can we afford to give our employees a pay raise?
Human Resources
2. Did the company earn a satisfactory income?
3. Do we need to borrow in the near future?
4. Is cash sufficient to pay dividends to the stockholders?
5. What price for our product will maximize net income?
Who Uses Accounting Data?Who Uses Accounting Data?Who Uses Accounting Data?Who Uses Accounting Data?
SO 2 Identify the users and uses of accounting.SO 2 Identify the users and uses of accounting.
6. Will the company be able to pay its short-term debts?
Investors
Management
Finance
Marketing
Creditors
Chapter 1-6
Various users need financial information
Various users need financial information
The accounting profession has
attempted to develop a set of standards that are generally accepted and universally practiced.
Financial StatementsBalance SheetIncome StatementStatement of Owner’s EquityStatement of Cash FlowsNote Disclosure
Financial StatementsBalance SheetIncome StatementStatement of Owner’s EquityStatement of Cash FlowsNote Disclosure
Generally Generally Accepted Accepted
Accounting Accounting Principles Principles
(GAAP)(GAAP)
Generally Generally Accepted Accepted
Accounting Accounting Principles Principles
(GAAP)(GAAP)
The Building Blocks of AccountingThe Building Blocks of AccountingThe Building Blocks of AccountingThe Building Blocks of Accounting
SO 4 Explain generally accepted accounting principles and the SO 4 Explain generally accepted accounting principles and the cost principle.cost principle.
Chapter 1-7
Cost Principle (Historical) – dictates that companies record assets at their cost.
Issues:
Reported at cost when purchased and also over the time the asset is held.
Cost easily verified, whereas market value is often subjective.
Fair value information may be more useful.
The Building Blocks of AccountingThe Building Blocks of AccountingThe Building Blocks of AccountingThe Building Blocks of Accounting
SO 4 Explain generally accepted accounting principles and the SO 4 Explain generally accepted accounting principles and the cost principle.cost principle.
Chapter 1-8
Monetary Unit Assumption – include in the accounting records only transaction data that can be expressed in terms of money.
Economic Entity Assumption – requires that activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities.
Proprietorship.
Partnership.
Corporation.
AssumptionsAssumptionsAssumptionsAssumptions
SO 5 Explain the monetary unit SO 5 Explain the monetary unit assumption and the economic assumption and the economic entity assumption.entity assumption.
Forms of Business
Ownership
Chapter 1-9
Proprietorship
Partnership Corporation
Owned by two Owned by two or more or more persons.persons.
Often retail and Often retail and service-type service-type businessesbusinesses
Generally Generally unlimited unlimited personal personal liabilityliability
Partnership Partnership agreementagreement
Ownership Ownership divided into divided into shares of stockshares of stock
Separate legal Separate legal entity entity organized organized under state under state corporation lawcorporation law
Limited liabilityLimited liability
Forms of Business OwnershipForms of Business OwnershipForms of Business OwnershipForms of Business Ownership
Generally Generally owned by one owned by one person.person.
Often small Often small service-type service-type businessesbusinesses
Owner receives Owner receives any profits, any profits, suffers any suffers any losses, and is losses, and is personally personally liable for all liable for all debts.debts.
SO 5 Explain the monetary unit SO 5 Explain the monetary unit assumption and the economic assumption and the economic entity assumption.entity assumption.
Chapter 1-10
AssetsAssetsAssetsAssets LiabilitiesLiabilitiesLiabilitiesLiabilitiesOwner’s Owner’s EquityEquity
Owner’s Owner’s EquityEquity
= +
Provides the underlying framework for recording and summarizing economic events.
Assets are claimed by either creditors or owners.
Claims of creditors must be paid before ownership claims.
The Basic Accounting EquationThe Basic Accounting EquationThe Basic Accounting EquationThe Basic Accounting Equation
SO 6 SO 6 State the accounting equation, and State the accounting equation, and define its components.define its components.
Chapter 1-11
AssetsAssetsAssetsAssets LiabilitiesLiabilitiesLiabilitiesLiabilitiesOwner’s Owner’s EquityEquity
Owner’s Owner’s EquityEquity
= +
Provides the underlying framework for recording and summarizing economic events.
The Basic Accounting EquationThe Basic Accounting EquationThe Basic Accounting EquationThe Basic Accounting Equation
Resources a business owns.
Provide future services or benefits.
Cash, Supplies, Equipment, etc.
AssetAssetssAssetAssetss
SO 6 SO 6 State the accounting equation, and State the accounting equation, and define its components.define its components.
Chapter 1-12
AssetsAssetsAssetsAssets LiabilitiesLiabilitiesLiabilitiesLiabilitiesOwner’s Owner’s EquityEquity
Owner’s Owner’s EquityEquity
= +
Provides the underlying framework for recording and summarizing economic events.
The Basic Accounting EquationThe Basic Accounting EquationThe Basic Accounting EquationThe Basic Accounting Equation
Claims against assets (debts and obligations).
Creditors - party to whom money is owed.
Accounts payable, Notes payable, etc.
LiabilitiLiabilitiesesLiabilitiLiabilitieses
SO 6 SO 6 State the accounting equation, and State the accounting equation, and define its components.define its components.
Chapter 1-13
AssetsAssetsAssetsAssets LiabilitiesLiabilitiesLiabilitiesLiabilitiesOwner’s Owner’s EquityEquity
Owner’s Owner’s EquityEquity
= +
Provides the underlying framework for recording and summarizing economic events.
The Basic Accounting EquationThe Basic Accounting EquationThe Basic Accounting EquationThe Basic Accounting Equation
Ownership claim on total assets.
Referred to as residual equity.
Capital, Drawings, etc. (Proprietorship or Partnership).
Owner’s Owner’s EquityEquityOwner’s Owner’s EquityEquity
SO 6 SO 6 State the accounting equation, and State the accounting equation, and define its components.define its components.
Chapter 1-14
Owners’ EquityOwners’ EquityOwners’ EquityOwners’ Equity
Revenues result from business activities entered into for the purpose of earning income.
Common sources of revenue are: sales, fees, services, commissions, interest, dividends, royalties, and rent.
Illustration 1-6
SO 6 SO 6 State the accounting equation, and State the accounting equation, and define its components.define its components.
Chapter 1-15
Owners’ EquityOwners’ EquityOwners’ EquityOwners’ Equity
Expenses are the cost of assets consumed or services used in the process of earning revenue.
Common expenses are: salaries expense, rent expense, utilities expense, tax expense, etc.
Illustration 1-6
SO 6 SO 6 State the accounting equation, and State the accounting equation, and define its components.define its components.
Chapter 1-16
Q1-15:Q1-15: Are the following events recorded in the accounting records?
Event
Supplies are
purchased on account.
Criterion
Is the financial position (assets, liabilities, or owner’s equity) of the company
changed?
SO 7 SO 7 Analyze the effects of business Analyze the effects of business transactions on the accounting transactions on the accounting equation.equation.
An employee is hired.
Owner withdraws cash for
personal use.
Record/ Don’t Record
Transactions (Question?)Transactions (Question?)Transactions (Question?)Transactions (Question?)
Chapter 1-17
Transaction (1). Investment By Owner.Transaction (1). Investment By Owner. Ray Neal decides to open a computer programming service which he names Softbyte. On September 1, 2010, he invests $15,000 cash in the. The effect of this transaction on the basic equation is:
Transactions AnalysisTransactions AnalysisTransactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business Analyze the effects of business transactions on the accounting transactions on the accounting equation.equation.
Chapter 1-18
Transaction (2). Purchase of Equipment for Cash.Transaction (2). Purchase of Equipment for Cash. Softbyte purchases computer equipment for $7,000 cash.
Transactions AnalysisTransactions AnalysisTransactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business Analyze the effects of business transactions on the accounting transactions on the accounting equation.equation.
Chapter 1-19
Transactions AnalysisTransactions AnalysisTransactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business Analyze the effects of business transactions on the accounting transactions on the accounting equation.equation.
Transaction (3). Purchase of Supplies on Credit.Transaction (3). Purchase of Supplies on Credit. Softbyte purchases for $1,600 from Acme Supply Company computer paper and other supplies expected to last several months.
Chapter 1-20
Transactions AnalysisTransactions AnalysisTransactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business Analyze the effects of business transactions on the accounting transactions on the accounting equation.equation.
Transaction (4). Services Provided for Cash.Transaction (4). Services Provided for Cash. Softbyte receives $1,200 cash from customers for programming services it has provided.
Chapter 1-21
Transactions AnalysisTransactions AnalysisTransactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business Analyze the effects of business transactions on the accounting transactions on the accounting equation.equation.
Transaction (5). Purchase of Advertising on Credit.Transaction (5). Purchase of Advertising on Credit. Softbyte receives a bill for $250 from the Daily News for advertising but postpones payment until a later date.
Chapter 1-22
Transactions AnalysisTransactions AnalysisTransactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business Analyze the effects of business transactions on the accounting transactions on the accounting equation.equation.
Transaction (6). Services Provided for Cash and Transaction (6). Services Provided for Cash and Credit.Credit. Softbyte provides $3,500 of programming services for customers. The company receives cash of $1,500 from customers, and it bills the balance of $2,000 on account.
Chapter 1-23
Transactions AnalysisTransactions AnalysisTransactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business Analyze the effects of business transactions on the accounting transactions on the accounting equation.equation.
Transaction (7). Payment of Expenses.Transaction (7). Payment of Expenses. Softbyte pays the following Expenses in cash for September: store rent $600, salaries of employees $900, and utilities $200.
Chapter 1-24
Transactions AnalysisTransactions AnalysisTransactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business Analyze the effects of business transactions on the accounting transactions on the accounting equation.equation.
Transaction (8). Payment of Accounts Payable.Transaction (8). Payment of Accounts Payable. Softbyte pays its $250 Daily News bill in cash.
Chapter 1-25
Transactions AnalysisTransactions AnalysisTransactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business Analyze the effects of business transactions on the accounting transactions on the accounting equation.equation.
Transaction (9). Receipt of Cash on Account.Transaction (9). Receipt of Cash on Account. Softbyte receives $600 in cash from customers who had been billed for services [in Transaction (6)].
Chapter 1-26
Transactions AnalysisTransactions AnalysisTransactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business Analyze the effects of business transactions on the accounting transactions on the accounting equation.equation.
Transaction (10). Withdrawal of Cash by Owner.Transaction (10). Withdrawal of Cash by Owner. Ray Neal withdraws $1,300 in cash from the business for his personal use.
Chapter 1-27
Transactions AnalysisTransactions AnalysisTransactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business Analyze the effects of business transactions on the accounting transactions on the accounting equation.equation.
Summary of TransactionsSummary of TransactionsIllustration 1-8Tabular summary ofSoftbyte transactions
Chapter 1-28
Companies prepare four financial statements from the summarized accounting data:Companies prepare four financial statements from the summarized accounting data:
Balance Sheet
Income Statemen
t
Statement of Cash
Flows
Owner’s Equity
Statement
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are SO 8 Understand the four financial statements and how they are prepared.prepared.
Chapter 1-29
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are SO 8 Understand the four financial statements and how they are prepared.prepared.
Income Statement
Reports the revenues and expenses for a specific period of time.Net income – revenues exceed expenses.Net loss – expenses exceed revenues.
Illustration 1-9Financial statements andtheir interrelationships
Chapter 1-30
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements Net income is needed to determine the ending balance in owner’s equity.
Illustration 1-9Financial statements andtheir interrelationships
Chapter 1-31
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are SO 8 Understand the four financial statements and how they are prepared.prepared.
Statement indicates the reasons why owner’s equity has increased or decreased during the period.
Owner’s Equity Statement
Illustration 1-9Financial statements andtheir interrelationships
Chapter 1-32
Financial Financial StatementStatementss
Financial Financial StatementStatementss
The ending balance in owner’s equity is needed in preparing the balance sheet
Illustration 1-9Financial statements andtheir interrelationships
Chapter 1-33
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are SO 8 Understand the four financial statements and how they are prepared.prepared.
Balance Sheet
Illustration 1-9Financial statements andtheir interrelationships
Chapter 1-34
Financial Financial StatementStatementss
Financial Financial StatementStatementss
Illustration 1-9Financial statements andtheir interrelationships
Chapter 1-35
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are SO 8 Understand the four financial statements and how they are prepared.prepared.
Statement of Cash Flows
Illustration 1-9Financial statements andtheir interrelationships
Chapter 1-36
End of the Chapter!