Professional Documents
Culture Documents
CH 01
CH 01
Coby Harmon
University of California, Santa Barbara
Westmont College
1-1
Accounting in Action
Learning Objectives
After studying this chapter, you should be able to:
[1] Explain what accounting is.
[2] Identify the users and uses of accounting.
[3] Understand why ethics is a fundamental business concept.
[4] Explain generally accepted accounting principles.
[5] Explain the monetary unit assumption and the economic entity
assumption.
[6] State the accounting equation, and define its components.
[7] Analyze the effects of business transactions on the accounting equation.
[8] Understand the four financial statements and how they are prepared.
1-2
Preview of Chapter 1
Accounting Principles
Eleventh Edition
Weygandt Kimmel Kieso
1-3
What is Accounting?
Purpose of accounting is to:
1. identify,
2. record, and
3. communicate
the economic events of an organization to interested users.
1-4
What is Accounting?
Three Activities
Illustration 1-1
Accounting process
1-5
Illustration 1-2
Questions that internal
users ask
1-6
LO 2
1-7
1-8
Illustration 1-3
Questions that external
users ask
LO 2
1-9
1-10
Illustration 1-4
Steps in analyzing ethics cases
and situations
1-11
1-12
Various users
need financial
information
Balance Sheet
Income Statement
Statement of Owners Equity
Statement of Cash Flows
Note Disclosure
1-13
Generally Accepted
Accounting
Principles (GAAP)
1-14
1-16
1-17
Generally owned
by one person.
Owned by two or
more persons.
Often small
service-type
businesses
Owner receives
any profits,
suffers any
losses, and is
personally liable
for all debts.
1-18
Partnership
Generally
unlimited
personal liability
Corporation
Ownership
divided into
shares of stock
Separate legal
entity organized
under state
corporation law
Limited liability
Partnership
agreement
LO 5 Explain the monetary unit assumption
and the economic entity assumption.
1-19
1-20
1-21
Liabilities
Owners
Equity
1-22
Assets
1-23
Liabilities
Owners
Equity
Assets
1-24
Liabilities
Owners
Equity
Assets
1-25
Liabilities
Owners
Equity
Owners Equity
Illustration 1-6
1-26
Owners Equity
Illustration 1-6
1-27
1-28
Criterion
Record/
Dont Record
1-29
Transaction Analysis
Transaction (1): Ray Neal decides to open a computer programming
service which he names Softbyte. On September 1, 2014, Ray Neal
invests $15,000 cash in the business.
1-30
LO 7
Transaction Analysis
Transaction (2): Purchase of Equipment for Cash. Softbyte purchases
computer equipment for $7,000 cash.
1-31
LO 7
Transaction Analysis
Transaction (3): Softbyte purchases for $1,600 from Acme Supply
Company computer paper and other supplies expected to last several
months. The purchase is made on account.
1-32
LO 7
Transaction Analysis
Transaction (4): Softbyte receives $1,200 cash from customers for
programming services it has provided.
1-33
LO 7
Transaction Analysis
Transaction (5): Softbyte receives a bill for $250 from the Daily News
for advertising but postpones payment until a later date.
1-34
LO 7
Transaction Analysis
Transaction (6): 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.
1-35
LO 7
Transaction Analysis
Transaction (7): Softbyte pays the following expenses in cash for
September: store rent $600, salaries of employees $900, and utilities
$200.
1-36
LO 7
Transaction Analysis
Transaction (8): Softbyte pays its $250 Daily News bill in cash.
1-37
LO 7
Transaction Analysis
Transaction (9): Softbyte receives $600 in cash from customers who
had been billed for services [in Transaction (6)].
1-38
LO 7
Transaction Analysis
Transaction (10): Ray Neal withdraws $1,300 in cash from the
business for his personal use.
Illustration 1-8
Tabular summary of
Softbyte transactions
1-39
LO 7
Financial Statements
Companies prepare four financial statements :
Income
Statement
1-40
Owners
Equity
Statement
Balance
Sheet
Statement
of Cash
Flows
LO 8 Understand the four financial statements and how they are prepared.
Financial Statements
Question
Net income will result during a time period when:
a. assets exceed liabilities.
b. assets exceed revenues.
c. expenses exceed revenues.
d. revenues exceed expenses.
1-41
LO 8 Understand the four financial statements and how they are prepared.
Financial Statements
Illustration 1-9
Financial statements and
their interrelationships
1-42
LO 8
Financial Statements
Illustration 1-9
1-43
LO 8
Financial Statements
Illustration 1-9
1-44
LO 8
Financial Statements
Income Statement
1-45
LO 8 Understand the four financial statements and how they are prepared.
Financial Statements
Owners Equity Statement
1-46
LO 8 Understand the four financial statements and how they are prepared.
Financial Statements
Balance Sheet
1-47
LO 8 Understand the four financial statements and how they are prepared.
Financial Statements
Statement of Cash Flows
1-48
LO 8 Understand the four financial statements and how they are prepared.
1-49
Financial Statements
Question
Which of the following financial statements is prepared as of
a specific date?
a. Balance sheet.
b. Income statement.
c. Owner's equity statement.
d. Statement of cash flows.
1-50
LO 8 Understand the four financial statements and how they are prepared.