Professional Documents
Culture Documents
Mod2-Accounting and Financial Statements
Mod2-Accounting and Financial Statements
Mod2-Accounting and Financial Statements
Objectives
Introductory Accounting
What is Accounting?
Accounting is an
information system that:
identifies
measures
records
communicates
relevant, reliable,
consistent and
comparable information
about an organizations
economic activities.
Introductory Accounting
Forms of Organization
Sole Proprietorship
Partnership
Corporation
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Introductory Accounting
Sole Proprietorship
One owner
Separate entity for accounting purposes
Not a separate legal entity from the owner
Unlimited liability
Limited life
Owner taxed on profits
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Introductory Accounting
Partnership
Introductory Accounting
Corporation
Introductory Accounting
Non-Business Organizations
Introductory Accounting
Internal
Owners
Managers
External
Introductory Accounting
Introductory Accounting
Income statement
Statement of owners equity
Balance sheet
Statement of cash flows
Introductory Accounting
Income Statement
Introductory Accounting
Income Statement
Inflows of assets
in exchange for
products and
services
provided to
customers.
S ervice Corporation
Income S tatement
For Month Ended January 31, 2005
Revenues:
Consulting revenue
Rental revenue
Total revenues
Operating Expenses:
Rent expense
$ 1,200
S alaries expense
900
Total operating expenses
Net income
Introductory Accounting
$ 4,700
300
$ 5,000
2,100
$ 2,900
Income Statement
S ervice Corporation
Income S tatement
For Month Ended January 31, 2005
Costs incurred
or the using
up of assets
from generating
revenue
Revenues:
Consulting revenue
Rental revenue
Total revenues
Operating Expenses:
Rent expense
$ 1,200
S alaries expense
900
Total operating expenses
Net income
Introductory Accounting
$ 4,700
300
$ 5,000
2,100
$ 2,900
Income Statement
S ervice Corporation
Income S tatement
For Month Ended January 31, 2005
Total revenues
less
total expenses
results in
Net Income
or Net Loss
Revenues:
Consulting revenue
Rental revenue
Total revenues
Operating Expenses:
Rent expense
$ 1,200
S alaries expense
900
Total operating expenses
Net income
Introductory Accounting
$ 4,700
300
$ 5,000
2,100
$ 2,900
Introductory Accounting
Covers a
period
of time.
From the
Income
statement.
$
$9,500
2,900
Introductory Accounting
12,400
$12,400
1,200
$11,200
Balance Sheet
Introductory Accounting
Balance Sheet
Properties or
economic
resources
owned by a
business
Service Company
Balance Sheet
January 31, 2005
Assets
Cash
$ 7,100
Supplies
4,100
Equipment
7,050
Liabilities
Accounts payable $ 950
Notes payable
6,100
Total liabilities
$ 7,050
Owner's Equity
11,200
Service, capital
Total liabilities
and owner's
equity
$ 18,250
Introductory Accounting
Balance Sheet
Debts or
Obligations
of the
business
Service Company
Balance Sheet
January 31, 2005
Assets
Cash
$ 7,100
Supplies
4,100
Equipment
7,050
Liabilities
Accounts payable $ 950
Notes payable
6,100
Total liabilities
$ 7,050
Owner's Equity
Service, capital
11,200
Total liabilities
and owner's
equity
$ 18,250
Introductory Accounting
Balance Sheet
Owners
claim on the
assets of a
business
From the
Statement
Of Owners
Equity
Service Company
Balance Sheet
January 31, 2005
Assets
Cash
$ 7,100
Supplies
4,100
Equipment
7,050
Liabilities
Accounts payable $ 950
Notes payable
6,100
Total liabilities
$ 7,050
Owner's Equity
Service, capital
11,200
Total liabilities
and owner's
equity
$ 18,250
Introductory Accounting
Introductory Accounting
From
the
balance
sheet
$5,000
(4,100)
(1,200)
(900)
($1,200)
0
$9,500
(1,200)
Introductory Accounting
8,300
$7,100
$7,100
Relevant
Reliable
Consistent
Comparable
Introductory Accounting
Every business is to
be accounted for
separately from its
owner or owners.
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Introductory Accounting
Cost Principle
Introductory Accounting
Objectivity Principle
Financial statement
information must be
supported by
independent, unbiased,
and verifiable evidence.
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Introductory Accounting
Going-Concern Principle
Financial statements
reflect the assumption that
the business will continue
operating instead of being
closed or sold.
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Introductory Accounting
Introductory Accounting
Revenue Recognition
Principle
Revenue is recorded at
the time it is earned
regardless of whether
cash or another asset
has been exchanged.
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Introductory Accounting
Assets
Liabilities
Equity
Introductory Accounting
Transactions
Introductory Accounting
Transaction 1
John Rich invests $9,500 cash in the business.
Cash increases by $9,500.
Owners capital increases by $9,500.
(1)
Bal
Owner's
Assets
=
Liabilities
+ Equity
Accounts Notes
Owner's
Cash
Supplies Furniture
Payable Payable
Capital
$9,500
$9,500
$9,500
$0
$9,500
$0
$0
=
$0
$9,500
Introductory Accounting
$9,500
Transaction 2
Purchased supplies for $3,000 cash.
Supplies increase by $3,000.
Cash decreases by $3,000.
Assets
(2)
Bal
Cash
Supplies Furniture
$9,500
-$3,000
$3,000
$6,500
$3,000
$0
$9,500
Liabilities
Accounts Notes
Payable Payable
$0
=
Owner's
+ Equity
Owner's
Capital
$9,500
$0
$9,500
Introductory Accounting
$9,500
Transaction 3
Purchased $7,050 of Furniture and $1,400 of supplies on
credit. (A/P for supplies and Notes Payable for the furniture.)
Supplies increase by $1,400.
Furniture increases by $7,050.
Accounts Payable increases by $1,400.
Notes payable increases by $7,050.
(3)
bal
Owner's
Assets
=
Liabilities
+ Equity
Accounts Notes
Owner's
Cash
Supplies Furniture
Payable Payable
Capital
$6,500
$3,000
$9,500
$1,400
$7,050
$1,400
$7,050
$6,500
$4,400
$7,050
$1,400
$7,050
$9,500
$17,950
$17,950
Introductory Accounting
Transaction 4
Services rendered for $2,700 cash.
Cash increases $2,700.
Owners equity increases $2,700.
(4)
bal
Owner's
Assets
=
Liabilities
+ Equity
Accounts Notes
Owner's
Cash
Supplies Furniture
Payable Payable
Capital
$6,500
$4,400
$7,050
$1,400
$7,050
$9,500
$2,700
$2,700
$9,200
$4,400
$7,050
$1,400
$7,050
$12,200
$20,650
$20,650
Introductory Accounting
Transaction 5
Payment of $1,200 rent expense in cash.
Cash decreases $1,200.
Owners equity decreases $1,200.
(5)
bal
Owner's
Assets
=
Liabilities
+ Equity
Accounts Notes
Owner's
Cash
Supplies Furniture
Payable Payable
Capital
$9,200
$4,400
$7,050
$1,400
$7,050
$12,200
-$1,200
-$1,200
$8,000
$4,400
$7,050
$1,400
$7,050
$11,000
$19,450
$19,450
Introductory Accounting
Transaction 6
Payment of $900 salaries expense in cash.
Cash decreases $900.
Owners equity decreases $900.
(6)
bal
Owner's
Assets
=
Liabilities
+ Equity
Accounts Notes
Owner's
Cash
Supplies Furniture
Payable Payable
Capital
$8,000
$4,400
$7,050
$1,400
$7,050
$11,000
-$900
-$900
$7,100
$4,400
$7,050
$1,400
$7,050
$10,100
$18,550
$18,550
Introductory Accounting
Transaction 7
Service contract signed for February and March.
No economic exchange has taken place.
All accounts remain unaffected.
Owner's
Assets
=
Liabilities
+ Equity
Accounts Notes
Owner's
Cash
Supplies Furniture
Payable Payable
Capital
$7,100
$4,400
$7,050
$1,400
$7,050
$10,100
(7)
bal
$7,100
$4,400
$18,550
$7,050
$1,400
=
$7,050
$10,100
$18,550
Introductory Accounting
Transaction 8
Services revenue of $1,700 and rental revenues of $300 rendered for
credit.
Accounts receivable increases $2,000.
Owners capital increases $2,000.
Assets
Cash
$7,100
(8)
bal $7,100
Accounts
Receivable
$2,000
$2,000
$4,400
Liabilities
Accounts
Notes
Owner's
payable Payable capital
$1,400
$7,050 $10,100
$2,000
$1,400
$7,050 $12,100
Supplies Furniture
$4,400
$7,050
$ 20,550
Owner's
Equity
$7,050
=
$ 20,550
Introductory Accounting
Transaction 9
Receipt of $2,000 cash on account.
Cash increases $2,000.
Accounts receivable decreases $2,000.
Assets
Accounts
Cash Receivable Supplies Furniture
$7,100
$2,000 $4,400
$7,050
(9) $2,000
-$2,000
bal $9,100
$0 $4,400
$7,050
$ 20,550
Liabilities
Owner's
Equity
$1,400
=
$7,050 $12,100
$ 20,550
Introductory Accounting
Transaction 10
Payment of $450 accounts payable.
Cash decreases $450.
Accounts payable decreases $450.
Assets
Accounts
Cash Receivable Supplies Furniture
$9,100
$0
$4,400
$7,050
(10) -$450
bal $8,650
$0
$4,400
$7,050
$ 20,100
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Liabilities
Accounts Notes
payable Payable
$1,400
$7,050
-$450
$950
$7,050
=
$ 20,100
Introductory Accounting
Owner's
+ Equity
Owner's
capital
$12,100
$12,100
Transaction 11
Withdrawal of $1,200 cash by owner.
Cash decreases $1,200.
Owners capital decreases $1,200.
Assets
Accoun
ts
Notes
payable Payable
$950
$7,050
Accounts
Cash Receivable Supplies Furniture
$8,650
$0
$4,400
$7,050
(11) -$1,200
bal
$7,450
$0
$4,400
$7,050
$ 18,900
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Liabilities
$950
=
$7,050
$ 18,900
Introductory Accounting
Owner's
+ Equity
Owner's
capital
$12,100
-$1,200
$10,900
Financial Statements
Financial statements
are now prepared to
reflect the
transactions we have
recorded.
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Introductory Accounting
Income Statement
Service Company
Income Statement
For Month Ended January 31, 2005
Revenues:
Consulting revenue
$
Rental revenue
Total revenues
$
Operating expenses:
Rent expense
$ 1,200
Salaries expense
900
Total operating expenses
$
Net income
$
4,400
300
4,700
2,100
2,600
Introductory Accounting
Service Company
Statement of Owner's Equity
For Month Ended January 31, 2005
Service, capital, January 1
Plus: Investment by owner
Net income
Less: Withdrawal by owner
Service, capital, January 31
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$
$ 9,500
2,600
12,100
$ 12,100
1,200
$ 10,900
Introductory Accounting
Balance Sheet
Service Company
Balance Sheet
January 31, 2005
Assets
Cash
Supplies
Equipment
Total assets
$ 7,450
4,400
7,050
$ 18,900
Liabilities
Accounts payable
$
Notes payable
Total liabilities
$
Owner's equity
Service, capital
Total liabilities and
owner's equity
$
950
7,050
8,000
10,900
18,900
Introductory Accounting