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Chapter 1
Chapter 1
Chapter 1
Frank Wood’s
Business Accounting 1
Twelfth Edition
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.2
Chapter 1
The accounting equation
and the statement of
financial position
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.3
Learning objectives
After you have studied this chapter, you
should be able to:
Explain what accounting is about
Explain the relationship between
bookkeeping and accounting
List the main users of accounting
information and what accounting information
they are interested in
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.4
Learning objectives
(Continued)
Present and explain the accounting equation
Explain the relationship between the
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.5
Learning objectives
(Continued)
Describe how accounting transactions affect
the items in the accounting equation
Draw up statements of financial position
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.6
What is accounting?
Accounting can be defined as:
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.7
What is bookkeeping?
Bookkeeping is the process of recording
data relating to accounting transactions
in the accounting books.
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.8
Managers
Owner(s) of the business
A prospective buyer
The bank
Tax inspectors
A prospective partner
Investors
Creditors
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.9
STAKEHOLDERS
Internal: External:
Owners, Customers,
managers, creditors,
employees government
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.10
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.11
Capital = Assets
The
The Accounting
Accounting Equation
Equation
The
The resources
resources
owned
owned by
by aa
business
business
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.13
The
The Accounting
Accounting Equation
Equation
The
The rights
rights of
of the
the
creditors,
creditors, which
which
represent
represent debts
debts of
of
the
the business
business
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.14
The
The Accounting
Accounting Equation
Equation
The
The rights
rights of
of the
the
owners
owners
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.15
Assets
Assets are
are Liabilities
Liabilities are
are debts
debts
resources
resources owned
owned owed
owed toto outsiders
outsiders
by
by the
the business.
business. (creditors).
(creditors).
Cash Accounts
Supplies payable
Building Notes payable
Accounts Wages payable
receivable
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.16
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.17
What is a business
transaction?
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.20
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
The statement of financial position
Slide 1.21
Shop 32,000
Cash at bank (60,000-32,000) 28,000
60,000
Capital 60,000
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
The statement of financial position and
Slide 1.22
Capital 60,000
Account payable-Smith 7,000
67,000
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
The statement of financial position and
Slide 1.23
Shop 32,000
Inventory 6,400
Account receivable 600
Cash at bank 28,000
67,000
Capital 60,000
Account payable 7,000
67,000
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
The statement of financial position and
Slide 1.24
Capital 60,000
Account payable 7,000
67,000
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
The statement of financial position and
Slide 1.25
Capital 60,000
Account payable 4,000
64,000
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
The statement of financial position and
Slide 1.26
Capital 60,000
Account payable 4,000
64,000
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.27
Learning outcomes
You should have now learnt:
1. Accounting is concerned with the
recording, classifying and summarising
of data, and then communicating what
has been learnt from it
2. It may not only be the owner of a
business who will need the accounting
information. It may need to be shown to
others, e.g. the bank or the Inspector of
Taxes.
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.28
Learning outcomes
(Continued)
3. Accounting information can help the
owner(s) of a business to plan for the
future.
4. The accounting equation is:
Capital = Assets − Liabilities
6. The two sides of the accounting
equation are represented by the two
parts of the statement of financial
position.
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012
Slide 1.29
Learning outcomes
(Continued)
7. The total of one part of the statement
of financial position should always be
equal to the total of the other part.
8. Every transaction affects two items in
the accounting equation. Sometimes
that may involve the same item being
affected twice, once positively (going
up) and once negatively (going down).
9. Every transaction affects two items in
the statement of financial position.
Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012