201Lec01.

PPT
Introduction to Financial Accounting BUS ADM-201

O N K O L
U C K K
C H N 3 2 8
i c e : L UB
 Off o u r s :
f f i ce h 0
 O 30 - 5 : 3
M , W 3 : K e l l y,
, A n na ,
A s : D J a ra
T / h i , K
 Kelec s i t e fo r
u s / w e b
s y lla b
 See details.
other

1
 DEFINITION OF ACCOUNTING

Accounting is aa process
Accounting is process used
used to
to
record economic
record economic (business)
(business)
activities
activities of an organization
of an organization in
in
order
order to generate reports
to generate reports for
for use
use
by decision
by decision makers
makers..

2
Process
Process
-- Systematic
Systematic
-- Uniform
Uniform method
method
-- Assemble,
Assemble, aggregate
aggregate and
and analyze
analyze huge
huge
volumes
volumes of
of data
data
Related
Related disciplines:
disciplines:
-- Management
Management (Accounting)
(Accounting) Info
Info
Systems
Systems (AIS
(AIS or
or MIS)
MIS)
-- Industrial
Industrial Engineering
Engineering

3
Process
Process
-- Objective.
Objective. Many
Many rules.
rules.
•• Rules
Rules are
are created
created by
by the
the FFinancial
inancial
AAccounting
ccounting SStandards
tandards BBoard
oard ((FASB).
FASB
FASB).
FASB
•• Rules
Rules are
are called
called GAAP.
GAAP
GAAP.
GAAP
(Generally
(Generally AAccepted
ccepted AAccounting
ccounting PPrinciples)
rinciples)
•• Publicly
Publicly traded
traded companies
companies are
are also
also ruled
ruled by
by
the
the SSecurities
ecurities and
and EExchange
xchange
CCommission
ommission ((SEC).
SEC
SEC).
SEC

4
Business Activities -- 33 types
Business Activities types

1- Financing Activities
 Borrowing creates
liabilities (debts)
 Notes payable
 Accounts payable

 Issuing or Selling
stock creates
stockholders’
equity
5
Business Activities -- 33 types
Business Activities types

2 - Investing Activities
 Obtaining resources
or assets to operate
the business
 Cash
 Inventory
 Accounts receivable
 Buildings
 Equipment, etc

6
Business Activities -- 33 types
Business Activities types
3 - Operating Activities
 Primary way business
makes money
 Revenues are the increases in
assets resulting from the
sale of a product or service
 Expenses are the cost of assets consumed

or services used in generating revenue.

 Advertising
 Paying employees
 Paying utilities, etc
7
 Forms
Forms of
of Business
Business Organizations
Organizations

Proprietorship Partnership Corporation

Owned/controlled Owned by two or Separate legal

by one person. more persons. entity owned by
(sole proprietorship) stockholders
Same legal
Easy to start liability to all Company
Considered a legal partners as ownership divided
extension of proprietorship. in shares of
(joint and several) stock.
owner
Owner personally Stockholder’s risk
liable for debts limited to their
of the business investment in
shares of stock
8
 FOUR
FOUR Reports
Reportsrequired
requiredby
byGAAP
GAAP

Retained Statement
Income Balance
Earnings of Cash
Statement Sheet
Statement Flows

* Detailed footnotes also required.

SEC requires an audited 10 K annual report & 10 Q
quarterly reports be made available to the public.
Includes the above plus management comments.

9
First
First report
report required
required by
by GAAP
GAAP

Income Statement (or Profit & Loss)

Illustration 1-4

Reports operating
success or failure for
a time period

Net income if
revenues > expenses.

Net loss if
expenses > revenues.

Prepare this
statement first 10
 Second
Second report
report required
required by
by GAAP
GAAP

Retained Earnings Statement

Shows changes in part of
Illustration 1-5

stockholder’s equity for

a period (like an income
statement)

Also see Stockholders’

equity on Balance Sheet
discussed next

Prepare this statement

second
From income statement

11
Third
Third report
report required
required by
by GAAP
GAAP

Balance Sheet Specific date – one

point in time!
Illustration 1-8

Reports assets owned

by the business and
claims to assets by:
 Creditors (liabilities)
 Owners (stock
investment + retained
earnings = stockholders’
equity)

Ending Retained earnings

12
More on the Balance Sheet
Formula of Balance sheet:
Assets = Liabilities + Stockholders’ Equity
Known as the “Accounting Equation”
An equivalent common view is:
“Net Worth” =Assets - Debts

13
Fourth
Fourth report
report required
required by
by GAAP
GAAP

Statement of Cash Flows

Illustration 1-8 Provides information
where a company gets
cash and spends cash

Summarizes for a
time period like an
income statement.

3 groups: Cash from

operating, investing,
and financing
activities.
14
 Users
Users and
and Uses
Uses of
of Financial
Financial Information
Information
Internal Users
Management IRS

Individuals Investors
(you and I)

Bankers
Finance Common Questions

Creditors
Marketing
SEC
Customers External
Users
15
 Users
Users and
and Uses
Uses of
of Financial
Financial Information
Information
Common Questions Asked? User
1. Can we afford a pay raise
for employees? Do we need HR, Management,
to cut salaries? Layoffs? Labor unions
2. Did the company earn a
satisfactory income? Investors
3. Which product line is most
profitable? Management
4. What price for our product
will maximize net income? Marketing,
Finance
5. Will the company be able to
pay its short-term debts? Creditors
6. At what age can I retire and
live on savings and pension? Individuals
16
 Do It Problem: CSU Corporation In text, end of sec 1.4

Service revenue 17,000

Accounts receivable 1,800  CSU begins on
Accounts payable 2,000 Jan. 1, 2011
Building rental expense 9,000  For year ended
Notes payable 5,000 Dec. 31, 2011,
Common stock 10,000
prepare
Retained earnings-Beginning ????  Income
Equipment 16,000
statement
Insurance expense 1,000  Retained
Supplies 4,000
earnings
Supplies expense 200 statement
Cash 1,400  Balance sheet
Dividends 600
17
 Do It
Service revenue 17,000  Step 1: Prepare
Accounts receivable 1,800 the Income
Accounts payable 2,000 Statement
Building rental expense 9,000
Notes payable 5,000
Common stock 10,000
Retained earnings-Beginning
Equipment 16,000
Insurance expense 1,000
Supplies 4,000
Supplies expense 200
Cash 1,400
Dividends 600
18
Do It
CSU Corporation
Income Statement
For the Year Ended December 31, 2011
Revenues
Service revenue $17,000
Expenses
Rent expense $9,000
Insurance expense 1,000
________
Supplies expense 200 ________
Total expenses 10,200
________
________
Net Income $ 6,800

19
 Do It
 Step 2: Prepare
Service revenue 17,000
the Retained
Accounts receivable 1,800
Earnings
Accounts payable 2,000
Building rental expense 9,000
Statement
Notes payable 5,000 Need net income
Common stock 10,000 from previous
Retained earnings-Beginning 0 statement.
Equipment 16,000
Insurance expense 1,000
Supplies 4,000
Supplies expense 200
Cash 1,400
Dividends 600
20
Do It CSU Corporation
Retained Earnings Statement
For the Year Ended December 31, 2011

Retained earnings, January 1 $ 0

________
Add: Net income 6,800
6,800
________
Less: Dividends 600
________
________
Retained earnings, Dec. 31 $ 6,200

21
 Do It  Step 3: Prepare
Service revenue 17,000 the Balance
Accounts receivable 1,800 Sheet
Accounts payable 2,000 Need ENDING
Building rental expense 9,000 Retained
Notes payable 5,000 earnings from
Common stock 10,000 previous
Retained earnings-Beginning 0 statement!
Equipment 16,000
Insurance expense 1,000
Supplies 4,000
Supplies expense 200
Cash 1,400
Dividends 600
22
 CSU Corporation
Do It Balance Sheet
December 31, 2011
Assets
Cash $ 1,400
Accounts receivable 1,800
Supplies 4,000
Equipment 16,000
Total Assets $23,200
Liabilities and Stockholders’ Equity
Liabilities
Notes payable $5,000
Accounts payable 2,000
Total liabilities $7,000
Stockholders’ equity
Common stock $10,000
Retained earnings 6,200
Total stockholders’ equity 16,200
Total liabilities and stockholders’ equity $23,200

23