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WildFAP24e Ch01 PPT Final
WildFAP24e Ch01 PPT Final
in Business
Chapter 1
Wild and Shaw
Fundamental Accounting Principles
24th Edition
Copyright ©2019 McGraw‐Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw‐Hill Education.
Chapter 1 Learning Objectives
CONCEPTUAL
C1 Explain the purpose and importance of accounting.
C2 Identify users and uses of, and opportunities in, accounting.
C3 Explain why ethics are crucial to accounting.
C4 Explain generally accepted accounting principles and define and apply several accounting
principles.
C5 Appendix 1B Identify and describe the three major activities of organizations.
ANALYTICAL
A1 Define and interpret the accounting equation and each of its components.
A2 Compute and interpret return on assets.
A3 Appendix 1A—Explain the relation between return and risk.
PROCEDURAL
P1 Analyze business transactions using the accounting equation.
P2 Identify and prepare basic financial statements and explain how they interrelate.
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Learning Objective C1
Explain the purpose and
importance of accounting.
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Importance of Accounting Exhibit
1.1
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Learning Objective C1: Explain the purpose and importance of accounting.
Learning Objective C2
Identify users and uses of, and
opportunities in, accounting.
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Users of Financial Information
Accounting is called the language of business because all organizations
set up an accounting information system to communicate data to help
people make better decisions. Accounting serves many users who can be
divided into two groups: external users and internal users.
Opportunities in Accounting Exhibit
1.2
Learning Objective C2: Identify users and uses of, and opportunities in, accounting.
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Learning Objective C3
Explain why ethics
are crucial to accounting.
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The goal of accounting is to provide useful information for
decisions. For information to be useful, it must be trusted.
This demands ethics in accounting. Ethics are beliefs that
distinguish right from wrong. They are accepted standards of
good and bad behavior.
Fraud Triangle
Three factors must exist for a person to commit fraud:
opportunity, pressure, and rationalization.
Sarbanes–Oxley (SOX)
• Congress passed the Sarbanes–Oxley Act to help stop financial
abuses at companies that issue public stock.
• SOX requires documentation and verification of internal controls
and emphasizes effective internal controls.
• Failure to comply can lead to penalties and criminal prosecution of
executives.
Dodd‐Frank Wall Street Reform and
Consumer Protection Act
This act has two important provisions:
1. Clawback provision which mandates
recovery of excessive pay
and
2. Whistleblower provision whereby the SEC
will pay whistleblowers 10% to 30% of
sanctions exceeding $1,000,000.
Explain generally accepted
accounting principles and
define and apply several
accounting principles.
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Generally Accepted
Accounting Principles (GAAP)
Financial accounting is governed by concepts and rules known
as generally accepted accounting principles (GAAP). GAAP aims
to make information relevant, reliable, and comparable.
Reliable information is
trusted by users.
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Learning Objective C4: Explain generally accepted accounting principles and define and apply several accounting principles.
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International Standards
In today’s global economy, there is increased demand by external
users for comparability in accounting reports.
International Accounting
Standards Board (IASB)
Identifies preferred
accounting practices
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Learning Objective C4: Explain generally accepted accounting principles and define and apply several accounting principles.
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Exhibit
Conceptual Framework 1.6
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Learning Objective C4: Explain generally accepted accounting principles and define and apply several accounting principles.
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Principles, Assumptions and
Constraint
Exhibit
1.7
General principles are the Specific principles are detailed rules
assumptions, concepts, and used in reporting business
guidelines for preparing financial transactions and events.
statements.
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Learning Objective C4: Explain generally accepted accounting principles and define and apply several accounting principles.
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Accounting Principles
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Learning Objective C4: Explain generally accepted accounting principles and define and apply several accounting principles.
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Accounting Assumptions
Going-Concern Assumption Monetary Unit Assumption
The business is presumed to Transactions and events are
continue operating instead of being expressed in monetary, or money,
closed or sold. units.
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Learning Objective C4: Explain generally accepted accounting principles and define and apply several accounting principles.
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Proprietorship, Partnership, Corporation,
and Limited Liability Company
Here are some of the major attributes of sole proprietorships,
partnerships, corporations and limited liability companies (LLC):
Exhibit
1.8
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Learning Objective C4: Explain generally accepted accounting principles and define and apply several accounting principles.
Accounting Constraint
Cost-benefit
Only information with benefits of
disclosure greater than their cost
need to be disclosed.
Materiality
Only information that would
influence the decisions of a
reasonable person need to be
disclosed.
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Learning Objective C4: Explain generally accepted accounting principles and define and apply several accounting principles.
Learning Objective A1
Define and interpret the
accounting equation and each
of its components.
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Business Transaction and Accounting
The Accounting Equation
Net Income
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Learning Objective A1: Define and interpret the accounting equation and each of its components.
Learning Objective P1
Analyze business transactions
using the accounting equation.
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Transaction 1:
Investment by Owner
Chas Taylor invests $30,000 cash to
start a business named FastFoward.
The accounts involved are:
(1) Cash (asset)
(2) C. Taylor, Capital (equity)
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Learning Objective P1: Analyze business transactions using the accounting equation.
Accounting Equation 1
Chas Taylor invests $30,000 cash to start
the business, Fast Forward.
Assets = Liabilities + Equity
Accounts Notes C.Taylor,
Cash Supplies Equipment Payable Payable Capital
(1) $ 30,000 $ 30,000
$ 30,000 $ - $ - $ - $ - $ 30,000
$ 30,000 = $ 30,000
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Learning Objective P1: Analyze business transactions using the accounting equation.
Transaction 2:
Purchase Supplies for Cash
Company purchased supplies by
paying $2,500 cash.
The accounts involved are:
(1) Cash (asset)
(2) Supplies (asset)
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Learning Objective P1: Analyze business transactions using the accounting equation.
Accounting Equation 2
Company purchased supplies by paying
$2,500 cash.
Assets = Liabilities + Equity
Accounts Notes C.Taylor,
Cash Supplies Equipment Payable Payable Capital
(1) $ 30,000 $ 30,000
(2) (2,500) $ 2,500
Accounting Equation
must remain in
balance!!
$ 30,000 = $ 30,000
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Learning Objective P1: Analyze business transactions using the accounting equation.
Transaction 3:
Purchase Equipment for Cash
Purchased equipment for $26,000 cash.
The accounts involved are:
(1) Cash (asset)
(2) Equipment (asset)
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Learning Objective P1: Analyze business transactions using the accounting equation.
Accounting Equation 3
Purchased equipment for $26,000 cash.
$ 30,000 = $ 30,000
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Learning Objective P1: Analyze business transactions using the accounting equation.
Transaction 4:
Purchase Supplies on Credit
Purchased supplies of $7,100 on credit.
The accounts involved are:
(1) Supplies (asset)
(2) Accounts Payable (liability)
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Learning Objective P1: Analyze business transactions using the accounting equation.
Accounting Equation 4
Purchased Supplies of $7,100 on credit.
Assets = Liabilities Equity+
C.
Accounts Notes Taylor,
Cash Supplies Equipment Payable Payable Capital
(1) $ 30,000 $ 30,000
Accounting Equation still
(2) (2,500) $ 2,500 remains in balance!!
(3) (26,000) $ 26,000
(4) 7,100 $ 7,100
$ 37,100 = $ 37,100
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Learning Objective P1: Analyze business transactions using the accounting equation.
Transaction Analysis: Revenues,
Expenses and Withdrawals
Now, let’s look at transactions involving
revenues, expenses and withdrawals.
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Learning Objective P1: Analyze business transactions using the accounting equation.
Transaction 5:
Provide Services for Cash
Provided consulting services to a customer
and received $4,200 cash right away.
The accounts involved are:
(1) Cash (asset)
(2) Revenues (equity)
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Learning Objective P1: Analyze business transactions using the accounting equation.
Accounting Equation 5
Provided consulting services to a customer
and received $4,200 cash right away.
$ 41,300 = $ 41,300
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Learning Objective P1: Analyze business transactions using the accounting equation.
Transactions 6 and 7:
Payment of Expenses in Cash
Paid rent of $1,000 and
salaries of $700 to employees.
The accounts involved are:
(1) Cash (asset)
(2) Rent expense (equity)
(3) Salaries expense (equity)
Remember that the balance in the Expense accounts actually increase.
But, total Equity decreases, because expenses reduce equity.
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Learning Objective P1: Analyze business transactions using the accounting equation.
Accounting Equation 6 and 7
Paid rent of $1,000 and
salaries of $700 to employees.
Assets = Liabilities + Equity
Accounts Notes C. Taylor
Cash Supplies Equipment Payable Payable Capital Revenue Expenses
Bal. $ 5,700 $ 9,600 $ 26,000 $ 7,100 $ 30,000 $ 4,200
(6) (1,000) (1,000)
(7) (700) $ (700)
$ 39,600 = $ 39,600
The accounts involved are:
(1) Accounts receivable (asset)
(2) Consulting Revenues (equity)
(3) Rental Revenue (equity)
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Learning Objective P1: Analyze business transactions using the accounting equation.
Accounting Equation 8
Provided consulting services of $1,600 and rents
facilities for $300 to a customer for credit.
$ 41,500 = $ 41,500
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Learning Objective P1: Analyze business transactions using the accounting equation.
Transaction 9:
Receipt of Cash from Accounts Receivable
Client in transaction 8 pays $1,900 for
consulting services.
The accounts involved are:
(1) Cash (asset)
(2) Accounts receivable (asset)
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Learning Objective P1: Analyze business transactions using the accounting equation.
Accounting Equation 9
Client in transaction 8 pays $1,900 for consulting services.
$ 41,500 = $ 41,500
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Learning Objective P1: Analyze business transactions using the accounting equation.
Transaction 10:
Payment of Accounts Payable
FastForward pays $900 as partial payment for
supplies purchased in transaction 4.
The accounts involved are:
(1) Cash (asset)
(2) Accounts payable (liability)
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Learning Objective P1: Analyze business transactions using the accounting equation.
Accounting Equation 10
FastForward pays $900 as partial payment for supplies
purchased in transaction 4.
Assets = Liabilities + Equity
Accounts Accounts C. Taylor,
Cash Receivable Supplies Equipment Payable Capital Revenue Expenses
Bal. $ 5,900 0 $ 9,600 $ 26,000 $ 7,100 $ 30,000 $ 4,200 (1,700)
(10) (900) (900) $ 1,600
300
$ 40,600 = $ 40,600
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Learning Objective P1: Analyze business transactions using the accounting equation.
Transaction 11:
Withdrawal of Cash by Owner
Owner withdraws $200 cash for personal use.
The accounts involved are:
(1) Cash (asset)
(2) C. Taylor, Withdrawals (equity)
$ 40,400 = $ 40,400
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Learning Objective P1: Analyze business transactions using the accounting equation.
Summary of Transactions Exhibit
1.9
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Learning Objective P1: Analyze business transactions using the accounting equation.
Learning Objective P2
Identify and prepare basic
financial statements and explain
how they interrelate.
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Financial Statements
The four financial statements and their purposes are:
1. Income statement — describes a company’s revenues and
expenses and computes net income or loss over a period of
time.
2. Statement of owner’s equity— explains changes in equity
from owner investments and net income (or loss) and from
any withdrawals over a period of time.
3. Balance sheet — describes a company’s financial position
(types and amounts of assets, liabilities, and equity) at a point
in time.
4. Statement of cash flows — identifies cash inflows (receipts)
and cash outflows (payments) over a period of time.
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Learning Objective P2: Identify and prepare basic financial statements and explain how they interrelate.
Exhibit 1.10: Financial Statements and Their Links – Part 1 1 ‐ 49
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Learning Objective P2: Identify and prepare basic financial statements and explain how they interrelate.
Learning Objective A2
Compute and interpret return
on assets.
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Return on Assets
Return on assets (ROA) is stated in ratio form as net
income divided by the average total assets invested.
Net income
Return on assets =
Average total assets
Where Average total assets = (Beginning total assets + Ending total assets) / 2
Exhibit
1.12
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Learning Objective A2: Compute and interpret return on assets.
Learning Objective A3
Appendix 1A
Explain the relation
between return and risk.
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Appendix 1A
Return and Risk Analysis
Many different Exhibit
Risk is the uncertainty about 1A.1
returns may be
the return we will earn.
reported.
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Learning Objective A3: Explain the relation between return and risk.
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Learning Objective C5
Appendix 1B
Identify and describe the
three major activities of
organizations.
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Activities of Organizations
Exhibit
1B.1
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Learning Objective C5: Identify and describe the three major activities of organizations.
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Investing Activities
One of the three major types of business activities:
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Learning Objective C5: Identify and describe the three major activities of organizations.
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Financing Activities
One of the three major types of business activities:
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Learning Objective C5: Identify and describe the three major activities of organizations.
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Operating Activities
One of the three major types of business activities:
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Learning Objective C5: Identify and describe the three major activities of organizations.
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End of Chapter 1
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