Accounting

Accounting —
— An
An Information
Information Process
Process
Identification
of Users

User
Information
Needs

Economic Data Accounting

and Activities System

User
Reports
Decisions

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 Users
Users of
of Accounting
Accounting Information
Information

• investors
Financial Accounting • creditors
EXTERNAL USERS
• regulators
• customers
• competitors
Managerial Accounting
• owners

INTERNAL USERS • managers

• employees

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 The Accounting Profession
Government Industry CPA Firms

Administrator Vice President Partner

Finance
1 2
Director Manager
Controller

Senior
Supervisor Chief Accountant
Accountant

Staff Junior
Auditor Accountant Accountant

College Graduates

1 10 to 20 years of experience 2 6 to 8 years of experience

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 The Accounting Equation
Resources

What are an organization’s resources called?

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 The Accounting Equation
Resources = Sources

Assets

Cost of What are the

resources used sources of the
in the business assets?

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 The Accounting Equation
Resources = Sources

Liabilities
Assets
Owner’s
Equity

Cost of Resources
resources used supplied by
in the business creditors and
owners

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 Business
Business Transactions
Transactions

a. Chris Clark deposits P25,000 in a bank account

for NetSolutions.

ASSETS LIABILITIES

= OWNER’S EQUITY

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 Business
Business Transactions
Transactions

a. Chris Clark deposits P25,000 in a bank account

for NetSolutions.

ASSETS LIABILITIES

Cash
25,000
= OWNER’S EQUITY

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 Business
Business Transactions
Transactions

a. Chris Clark deposits P25,000 in a bank account

for NetSolutions.

ASSETS LIABILITIES

Cash
25,000
= OWNER’S EQUITY

Chris Clark,
Capital
25,000

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 Business
Business Transactions
Transactions

b. NetSolutions buys land for P20,000.

ASSETS LIABILITIES

= OWNER’S EQUITY

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 Business
Business Transactions
Transactions

b. NetSolutions buys land for P20,000.

ASSETS LIABILITIES

Cash
(20,000)
= OWNER’S EQUITY

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 Business
Business Transactions
Transactions

b. NetSolutions buys land for P20,000.

ASSETS LIABILITIES

Cash
(20,000)
= OWNER’S EQUITY
Land
20,000

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 Business
Business Transactions
Transactions

c. NetSolutions buys supplies for P1,350, agreeing to

pay the supplier in the near future.

ASSETS LIABILITIES

= OWNER’S EQUITY

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 Business
Business Transactions
Transactions

c. NetSolutions buys supplies for P1,350, agreeing to

pay the supplier in the near future.

ASSETS LIABILITIES

Supplies
1,350 = OWNER’S EQUITY

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 Business
Business Transactions
Transactions

c. NetSolutions buys supplies for P1,350, agreeing to

pay the supplier in the near future.

ASSETS LIABILITIES
Accounts Payable
1,350
Supplies
1,350 = OWNER’S EQUITY

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 Business
Business Transactions
Transactions

d. NetSolutions earns fees of P7,500, receiving cash.

ASSETS LIABILITIES

= OWNER’S EQUITY

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 Business
Business Transactions
Transactions

d. NetSolutions earns fees of P7,500, receiving cash.

ASSETS LIABILITIES

Cash
7,500
= OWNER’S EQUITY

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 Business
Business Transactions
Transactions

d. NetSolutions earns fees of P7,500, receiving cash.

ASSETS LIABILITIES

Cash
7,500
= OWNER’S EQUITY

Fees Earned
7,500

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 Business
Business Transactions
Transactions

e. NetSolutions paid: wages, P2,125; rent, P800;

utilities, P450; and miscellaneous, P275.

ASSETS LIABILITIES

= OWNER’S EQUITY

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 Business
Business Transactions
Transactions

e. NetSolutions paid: wages, P2,125; rent, P800;

utilities, P450; and miscellaneous, P275.

ASSETS LIABILITIES

Cash
(3,650)
= OWNER’S EQUITY

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 Business
Business Transactions
Transactions

e. NetSolutions paid: wages, P2,125; rent, P800;

utilities, P450; and miscellaneous, P275.

ASSETS LIABILITIES

Cash
(3,650)
= OWNER’S EQUITY

Expenses
(3,650)

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 Business
Business Transactions
Transactions

f. NetSolutions pays P950 to creditors on account.

ASSETS LIABILITIES

= OWNER’S EQUITY

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 Business
Business Transactions
Transactions

f. NetSolutions pays P950 to creditors on account.

ASSETS LIABILITIES

Cash
(950)
= OWNER’S EQUITY

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 Business
Business Transactions
Transactions

f. NetSolutions pays P950 to creditors on account.

ASSETS LIABILITIES
Accounts Payable
(950)
Cash
(950)
= OWNER’S EQUITY

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 Business
Business Transactions
Transactions

g. At the end of the month, the cost of supplies on

hand is P550.

ASSETS LIABILITIES

= OWNER’S EQUITY

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 Business
Business Transactions
Transactions

g. At the end of the month, the cost of supplies on

hand is P550.

ASSETS LIABILITIES

Supplies
(800)
= OWNER’S EQUITY

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 Business
Business Transactions
Transactions

g. At the end of the month, the cost of supplies on

hand is P550.

ASSETS LIABILITIES

Supplies
(800)
= OWNER’S EQUITY

Supplies Expense
(800)

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 Business
Business Transactions
Transactions

h. Chris Clark withdraws P2,000 in cash.

ASSETS LIABILITIES

= OWNER’S EQUITY

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 Business
Business Transactions
Transactions

h. Chris Clark withdraws P2,000 in cash.

ASSETS LIABILITIES

Cash
(2,000)
= OWNER’S EQUITY

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 Business
Business Transactions
Transactions

h. Chris Clark withdraws P2,000 in cash.

ASSETS LIABILITIES

Cash
(2,000)
= OWNER’S EQUITY

Chris Clark,
Drawing
(2,000)

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 Transaction
Transaction Summary
Summary

ASSETS LIABILITIES

Cash 5,900 OWNER’S EQUITY

Supplies
Land
550
20,000
=

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 Transaction
Transaction Summary
Summary

ASSETS LIABILITIES
Accts. Payable 400

Cash 5,900 OWNER’S EQUITY

Supplies
Land
550
20,000
=

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 Transaction
Transaction Summary
Summary

ASSETS LIABILITIES
Accts. Payable 400

Cash 5,900 OWNER’S EQUITY

Supplies
Land
550
20,000
= C. Clark, Capital 25,000
C. Clark, Drawing (2,000)
Fees Earned 7,500
Wages Expense (2,125)
Rent Expense (800)
Supplies Expense (800)
Utilities Expense (450)
Misc. Expense (275)

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Effects
Effects of
of Transactions
Transactions on
on Owner’s
Owner’s Equity
Equity

OWNER’S EQUITY

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Effects
Effects of
of Transactions
Transactions on
on Owner’s
Owner’s Equity
Equity

OWNER’S EQUITY

decreased by

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Effects
Effects of
of Transactions
Transactions on
on Owner’s
Owner’s Equity
Equity

OWNER’S EQUITY

decreased by

Owner’s withdrawals

Expenses

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Effects
Effects of
of Transactions
Transactions on
on Owner’s
Owner’s Equity
Equity

OWNER’S EQUITY

increased by

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Effects
Effects of
of Transactions
Transactions on
on Owner’s
Owner’s Equity
Equity

OWNER’S EQUITY

increased by

Owner’s investments

Revenues

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Effects
Effects of
of Transactions
Transactions on
on Owner’s
Owner’s Equity
Equity

OWNER’S EQUITY

decreased by increased by

Owner’s withdrawals Owner’s investments

Expenses Revenues

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Effects
Effects of
of Transactions
Transactions on
on Owner’s
Owner’s Equity
Equity

OWNER’S EQUITY

decreased by increased by

Owner’s withdrawals Owner’s investments

Expenses Revenues

NET INCOME

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 Financial
Financial Statements
Statements
NetSolutions
Income Statement
For the Month Ended November 30, 2002

Fees earned P7,500

Operating expenses:
Wages expense P2,125
Rent expense 800
Supplies expense 800
Utilities expense 450
Miscellaneous expense 275
Total operating expenses 4,450
Net income P3,050

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 Financial
Financial Statements
Statements
NetSolutions
Income Statement
For the Month Ended November 30, 2002

Fees earned P7,500

Operating expenses:
Wages expense P2,125
Rent expense 800
Supplies expense 800
Utilities expense 450
Miscellaneous expense 275
Total operating expenses 4,450
Net income P3,050

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 Financial
Financial Statements
Statements
NetSolutions
Income Statement
For the Month Ended November 30, 2002

Fees earned P7,500

Operating expenses:
Wages expense P2,125
Rent expense 800
Supplies expense 800
Utilities expense 450
Miscellaneous expense 275
Total operating expenses 4,450
Net income P3,050

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 Financial
Financial Statements
Statements
NetSolutions
Statement of Comprehensive income
For the Month Ended November 30, 2002

Fees earned P7,500

Operating expenses:
Wages expense P2,125
Rent expense 800
Supplies expense 800
Utilities expense 450
Miscellaneous expense 275
Total operating expenses 4,450
Net income P3,050

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 Financial
Financial Statements
Statements
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002

Chris Clark, capital, November 1, 2002 P 0

Investment on November 1, 2002 P25,000
Net income for November 3,050
P28,050
Less withdrawals 2,000
Increase in owner’s equity 26,050
Chris Clark, capital, November 30, 2002 P26,050

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 Financial
Financial Statements
Statements
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002

Chris Clark, capital, November 1, 2002 P 0

Investment on November 1, 2002 P25,000
Net income for November 3,050
P28,050
Less withdrawals 2,000
Increase in owner’s equity 26,050
Chris Clark, capital, November 30, 2002 P26,050

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 Financial
Financial Statements
Statements
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002

Chris Clark, capital, November 1, 2002 P 0

Investment on November 1, 2002 P25,000
Net income for November 3,050
P28,050
Less withdrawals 2,000
Increase in owner’s equity 26,050
Chris Clark, capital, November 30, 2002 P26,050

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 Financial
Financial Statements
Statements
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002

Chris Clark, capital, November 1, 2002 P 0

Investment on November 1, 2002 P25,000
Net income for November 3,050
P28,050
Less withdrawals 2,000
Increase in owner’s equity 26,050
Chris Clark, capital, November 30, 2002 P26,050

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 Financial
Financial Statements
Statements
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002

Chris Clark, capital, November 1, 2002 P 0

Investment on November 1, 2002 P25,000
Net income for November 3,050
P28,050
Less withdrawals 2,000
Increase in owner’s equity 26,050
Chris Clark, capital, November 30, 2002 P26,050

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 Financial
Financial Statements
Statements
NetSolutions
Statement of Financial position
November 30, 2002

Assets
Cash P5,900
Supplies 550
Land 20,000
Total assets P26,450
Liabilities
Accounts payable P 400
Owner’s Equity
Chris Clark, capital 26,050
Total liabilities and
owner’s equity P26,450

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 Financial
Financial Statements
Statements
NetSolutions
Balance Sheet
November 30, 2002

Assets
Cash P5,900
Supplies 550
Land 20,000
Total assets P26,450
Liabilities
Accounts payable P 400
Owner’s Equity
Chris Clark, capital 26,050
Total liabilities and
owner’s equity P26,450

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 Financial
Financial Statements
Statements
NetSolutions
Balance Sheet
November 30, 2002

Assets
Cash P5,900
Supplies 550
Land 20,000
Total assets P26,450
Liabilities
Accounts payable P 400
Owner’s Equity
Chris Clark, capital 26,050
Total liabilities and
owner’s equity P26,450

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 Financial
Financial Statements
Statements
NetSolutions
Balance Sheet
November 30, 2002

Assets
Cash P5,900
Supplies 550
Land 20,000
Total assets P26,450
Liabilities
Accounts payable P 400
Owner’s Equity
Chris Clark, capital 26,050
Total liabilities and
owner’s equity P26,450

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 Financial
Financial Statements
Statements
NetSolutions
Statement of Cash Flows
For the Month Ended November 30, 2002

Cash flows from operating activities:

Cash received from customers P 7,500
Deduct cash payments for expenses
and payments to creditors 4,600
Net cash flow from operating activities P 2,900
Cash flows from investing activities:
Cash payments for acquisition of land (20,000)
Cash flows from financing activities:
Cash received as owner’s investment P25,000
Deduct cash withdrawal by owner 2,000
Net cash flow from financing activities 23,000
Net cash flow and Nov. 30, 2002 cash balance P5,900

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 Financial
Financial Statements
Statements
NetSolutions
Statement of Cash Flows
For the Month Ended November 30, 2002

Cash flows from operating activities:

Cash received from customers P 7,500
Deduct cash payments for expenses
and payments to creditors 4,600
Net cash flow from operating activities P 2,900
Cash flows from investing activities:
Cash payments for acquisition of land (20,000 )
Cash flows from financing activities:
Cash received as owner’s investment P25,000
Deduct cash withdrawal by owner 2,000
Net cash flow from financing activities 23,000
Net cash flow and Nov. 30, 2002 cash balance P5,900

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 Financial
Financial Statements
Statements
NetSolutions
Statement of Cash Flows
For the Month Ended November 30, 2002

Cash flows from operating activities:

Cash received from customers P 7,500
Deduct cash payments for expenses
and payments to creditors 4,600
Net cash flow from operating activities P 2,900
Cash flows from investing activities:
Cash payments for acquisition of land (20,000) )
Cash flows from financing activities:
Cash received as owner’s investment P25,000
Deduct cash withdrawal by owner 2,000
Net cash flow from financing activities 23,000
Net cash flow and Nov. 30, 2002 cash balance P5,900

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 Financial
Financial Statements
Statements
NetSolutions
Statement of Cash Flows
For the Month Ended November 30, 2002

Cash flows from operating activities:

Cash received from customers P 7,500
Deduct cash payments for expenses
and payments to creditors 4,600
Net cash flow from operating activities P 2,900
Cash flows from investing activities:
Cash payments for acquisition of land (20,000 )
Cash flows from financing activities:
Cash received as owner’s investment P25,000
Deduct cash withdrawal by owner 2,000
Net cash flow from financing activities 23,000
Net cash flow and Nov. 30, 2002 cash balance P5,900

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 Ratio
Ratio of
of Liabilities
Liabilities to
to Owner’s
Owner’s Equity
Equity
Objective: Use the ratio of liabilities to owner’s equity to
analyze the ability of a business to withstand poor
business conditions and to pay its creditors.

Formula
Ratio of liabilities Total liabilities
to owner’s equity = Total owner’s equity

Example
P400
NetSolutions
P16,050
= .025 or 2.5%

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