Power Notes: Introduction To Accounting and Business

Chapter 1 Power Notes
Introduction to Accounting and Business
Learning Objectives
1. Nature of a Business
2. The Role of Accounting in Business
3. Business Ethics
4. Profession of Accounting
5. Generally Accepted Accounting Principles
6. Assets, Liabilities, and Owner’s Equity
7. Business Transactions
8. Financial Statements
9. Financial Analysis and Interpretation
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Slide # Power Note Topics

3 • Accounting – An Information Process
9 • Users of Accounting Information
11 • Profession of Accounting
16 • The Accounting Equation
19 • Business Transactions
53 • Financial Statements
70 • Ratio of Liabilities to Owner’s Equity
Note: To select a topic, type the slide # and press Enter.

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Accounting
Accounting —
— An
An Information
Information Process
Process
Identification
of Users
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Accounting
Accounting —
— An
An Information
Information Process
Process
Identification
of Users
User
Information
Needs
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Accounting
Accounting —
— An
An Information
Information Process
Process
Identification
of Users
User
Information
Needs
Accounting
System
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Accounting
Accounting —
— An
An Information
Information Process
Process
Identification
of Users
User
Information
Needs
Economic Data Accounting

and Activities System
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Accounting
Accounting —
— An
An Information
Information Process
Process
Identification
of Users
User
Information
Needs

Reports
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Accounting
Accounting —
— An
An Information
Information Process
Process
Identification
of Users
User
Information
Needs

User
Reports
Decisions
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Users
Users of
of Accounting
Accounting Information
Information
• investors
Financial Accounting • creditors
EXTERNAL USERS
• regulators
• customers
• competitors
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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
Staff Junior
Auditor Accountant Accountant
College Graduates
What are the starting rates for new graduates?

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Chief Senior
Supervisor Accountant Accountant
Staff Junior
College Graduates
How soon would I get promoted?

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Director Controller Manager
Senior
Supervisor Chief Accountant
Accountant
Staff Junior
College Graduates
What are the top positions in each category?

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Vice President
Administrator Finance Partner
Director Manager
Controller
Senior
Accountant
Staff Junior
College Graduates
What is the fastest path to top management?

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Administrator Vice President Partner

Finance
1 2
Director Manager
Controller
Senior
Accountant
Staff Junior
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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Resources = Sources
Assets
Cost of What are the

resources used sources of the
in the business assets?
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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 $25,000 in a bank account

for NetSolutions.
ASSETS LIABILITIES
= OWNER’S EQUITY
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Business
Transactions

for NetSolutions.
ASSETS LIABILITIES
Cash
25,000
= OWNER’S EQUITY
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Business
Transactions

for NetSolutions.
ASSETS LIABILITIES
Cash
25,000
= OWNER’S EQUITY
Chris Clark,
Capital
25,000
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Business
Transactions
b. NetSolutions buys land for $20,000.
ASSETS LIABILITIES
= OWNER’S EQUITY
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Business
Transactions
ASSETS LIABILITIES
Cash
(20,000)
= OWNER’S EQUITY
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Business
Transactions
ASSETS LIABILITIES
Cash
(20,000)
= OWNER’S EQUITY
Land
20,000
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Business
Transactions
c. NetSolutions buys supplies for $1,350, agreeing to

pay the supplier in the near future.
ASSETS LIABILITIES
= OWNER’S EQUITY
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Business
Transactions

ASSETS LIABILITIES
Supplies
1,350 = OWNER’S EQUITY
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Business
Transactions

ASSETS LIABILITIES
Accounts Payable
1,350
Supplies
1,350 = OWNER’S EQUITY
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Business
Transactions
d. NetSolutions earns fees of $7,500, receiving cash.
ASSETS LIABILITIES
= OWNER’S EQUITY
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Business
Transactions
ASSETS LIABILITIES
Cash
7,500
= OWNER’S EQUITY
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Business
Transactions
ASSETS LIABILITIES
Cash
7,500
= OWNER’S EQUITY
Fees Earned
7,500
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Business
Transactions
e. NetSolutions paid: wages, $2,125; rent, $800;

utilities, $450; and miscellaneous, $275.
ASSETS LIABILITIES
= OWNER’S EQUITY
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Business
Transactions

ASSETS LIABILITIES
Cash
(3,650)
= OWNER’S EQUITY
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Business
Transactions

ASSETS LIABILITIES
Cash
(3,650)
= OWNER’S EQUITY
Expenses
(3,650)
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Business
Transactions
f. NetSolutions pays $950 to creditors on account.
ASSETS LIABILITIES
= OWNER’S EQUITY
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Business
Transactions
ASSETS LIABILITIES
Cash
(950)
= OWNER’S EQUITY
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Business
Transactions
ASSETS LIABILITIES
Accounts Payable
(950)
Cash
(950)
= OWNER’S EQUITY
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Business
Transactions
g. At the end of the month, the cost of supplies on

hand is $550.
ASSETS LIABILITIES
= OWNER’S EQUITY
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Business
Transactions

hand is $550.
ASSETS LIABILITIES
Supplies
(800)
= OWNER’S EQUITY
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Business
Transactions

hand is $550.
ASSETS LIABILITIES
Supplies
(800)
= OWNER’S EQUITY
Supplies Expense
(800)
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Business
Transactions
h. Chris Clark withdraws $2,000 in cash.
ASSETS LIABILITIES
= OWNER’S EQUITY
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Business
Transactions
ASSETS LIABILITIES
Cash
(2,000)
= OWNER’S EQUITY
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Business
Transactions
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

Supplies
Land
550
20,000
=
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Transaction
Transaction Summary
Summary
ASSETS LIABILITIES
Accts. Payable 400

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 $7,500

Operating expenses:
Wages expense $2,125
Rent expense 800
Supplies expense 800
Utilities expense 450
Miscellaneous expense 275
Total operating expenses 4,450
Net income $3,050
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Financial
Statements
NetSolutions
Income Statement
Fees earned $7,500

Operating expenses:
Rent expense 800
Net income $3,050
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Financial
Statements
NetSolutions
Income Statement
Fees earned $7,500

Operating expenses:
Rent expense 800
Net income $3,050
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Financial
Statements
NetSolutions
Income Statement
Fees earned $7,500

Operating expenses:
Rent expense 800
Net income $3,050
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Financial
Statements
NetSolutions
Statement of Owner’s Equity
Chris Clark, capital, November 1, 2002 $ 0

Investment on November 1, 2002 $25,000
Net income for November 3,050
$28,050
Less withdrawals 2,000
Increase in owner’s equity 26,050
Chris Clark, capital, November 30, 2002 $26,050
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Financial
Statements
NetSolutions

$28,050
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Financial
Statements
NetSolutions

$28,050
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Financial
Statements
NetSolutions

$28,050
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Financial
Statements
NetSolutions

$28,050
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Financial
Statements
NetSolutions
Balance Sheet
November 30, 2002
Assets
Cash $5,900
Supplies 550
Land 20,000
Total assets $26,450
Liabilities
Accounts payable $ 400
Owner’s Equity
Chris Clark, capital 26,050
Total liabilities and
owner’s equity $26,450
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Financial
Statements
NetSolutions
Balance Sheet
November 30, 2002
Assets
Cash $5,900
Supplies 550
Land 20,000
Liabilities
Owner’s Equity
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Financial
Statements
NetSolutions
Balance Sheet
November 30, 2002
Assets
Cash $5,900
Supplies 550
Land 20,000
Liabilities
Owner’s Equity
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Financial
Statements
NetSolutions
Balance Sheet
November 30, 2002
Assets
Cash $5,900
Supplies 550
Land 20,000
Liabilities
Owner’s Equity
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Financial
Statements
NetSolutions
Statement of Cash Flows
Cash flows from operating activities:

Cash received from customers $ 7,500
Deduct cash payments for expenses
and payments to creditors 4,600
Net cash flow from operating activities $ 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 $25,000
Deduct cash withdrawal by owner 2,000
Net cash flow from financing activities 23,000
Net cash flow and Nov. 30, 2002 cash balance $5,900
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Financial
Statements
NetSolutions

Cash payments for acquisition of land (20,000 )
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Financial
Statements
NetSolutions

Cash payments for acquisition of land (20,000) )
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Financial
Statements
NetSolutions

Cash payments for acquisition of land (20,000 )
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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
$400
NetSolutions
$16,050
= .025 or 2.5%
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This is the last slide in Chapter 1.

Note: To see the topic slide, type 2 and press Enter.
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Power Notes: Introduction To Accounting and Business

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Chapter 1 Power Notes

Introduction to Accounting and Business

Slide # Power Note Topics

Note: To select a topic, type the slide # and press Enter.

Economic Data Accounting

Economic Data Accounting

Economic Data Accounting

INTERNAL USERS • managers

What are the starting rates for new graduates?

How soon would I get promoted?

Director Controller Manager

What are the top positions in each category?

What is the fastest path to top management?

Administrator Vice President Partner

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

What are an organization’s resources called?

Cost of What are the

a. Chris Clark deposits $25,000 in a bank account

a. Chris Clark deposits $25,000 in a bank account

a. Chris Clark deposits $25,000 in a bank account

b. NetSolutions buys land for $20,000.

b. NetSolutions buys land for $20,000.

b. NetSolutions buys land for $20,000.

c. NetSolutions buys supplies for $1,350, agreeing to

c. NetSolutions buys supplies for $1,350, agreeing to

c. NetSolutions buys supplies for $1,350, agreeing to

d. NetSolutions earns fees of $7,500, receiving cash.

d. NetSolutions earns fees of $7,500, receiving cash.

d. NetSolutions earns fees of $7,500, receiving cash.

e. NetSolutions paid: wages, $2,125; rent, $800;

e. NetSolutions paid: wages, $2,125; rent, $800;

e. NetSolutions paid: wages, $2,125; rent, $800;

f. NetSolutions pays $950 to creditors on account.

f. NetSolutions pays $950 to creditors on account.

f. NetSolutions pays $950 to creditors on account.

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

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

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

h. Chris Clark withdraws $2,000 in cash.

h. Chris Clark withdraws $2,000 in cash.

h. Chris Clark withdraws $2,000 in cash.

Cash 5,900 OWNER’S EQUITY

Cash 5,900 OWNER’S EQUITY

Cash 5,900 OWNER’S EQUITY

Owner’s withdrawals Owner’s investments

Owner’s withdrawals Owner’s investments

Fees earned $7,500

Fees earned $7,500

Fees earned $7,500

Fees earned $7,500

Chris Clark, capital, November 1, 2002 $ 0

Chris Clark, capital, November 1, 2002 $ 0

Chris Clark, capital, November 1, 2002 $ 0

Chris Clark, capital, November 1, 2002 $ 0

Chris Clark, capital, November 1, 2002 $ 0

Cash flows from operating activities:

Cash flows from operating activities:

Cash flows from operating activities:

Cash flows from operating activities:

This is the last slide in Chapter 1.

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