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ch01 WFR
ch01 WFR
ch01 WFR
Introduction to Accounting
and Business
Objectives
1. Describe the nature of a business.
After studying this
2. Describe the role of accounting
chapter, you shouldin business.
3. Describe the importance
be ableof to:
business ethics and the
basic principles of proper ethical conduct.
4. Describe the profession of accounting.
5. Summarize the development of accounting
principles and relate them to practice.
6. State the accounting equation and define each
element of the equation.
Objectives
7. Explain how business transactions can be
stated in terms of the resulting change in the
basic elements of the accounting equation.
8. Describe the financial statements of a
proprietorship and explain how they interrelate.
9. Use the ratio of liabilities to owner’s equity to
analyze the ability of a business to withstand
poor business conditions.
STEP ONE
ANALYZING
RECORDING
ENTERING FINANCIAL
INFORMATION ABOUT EVENTS
INTO THE ACCOUNTING SYSTEM
STEP THREE
CLASSIFYING
SUMMARIZING
REPORTING
INTERPRETING
Product
Triwasana Entertainment
Garuda Indonesia Transportation
Hilton Hotels Hospitality and lodging
Bank BRI Financial
Telkomsel Telecommunication
Types of Businesses
Merchandising Business
Product
Matahari General merchandise
Toys City Toys
Electronic City Consumer electronics
Amazon.com Internet books, music, video
retailer
Types of Businesses
Manufacturing Business
Product
Toyota Astra Motor Cars, trucks, vans
Intel Computer chips
Boeing Jet aircraft
Adidas Athletic shoes and apparel
Coca-Cola Beverages
Polytron Stereos and television
There are three types of
business organizations
Proprietorship
Partnership
Corporation
A proprietorship Advantages
is owned by one • Ease in organizing
individual. • Low cost of
organizing
Disadvantage
Joe’s • Limited source of
financial resources
• Unlimited liability
Advantages
A partnership is • More financial
owned by two or resources than a
more individuals. proprietorship.
• Additional
management skills.
Joe and Marty’s Disadvantage
• Unlimited liability.
A corporation is
organized under state Advantage
or federal statutes as a • The ability to obtain
separate legal entity. large amounts of
resources by issuing
stocks.
J & M, Inc. Disadvantage
• Double taxation.
Business Strategies
Assess
stakeholders’
2 informational
needs.
The Process of
Providing Information
Design the
Record accounting
economic Accounting
4 data about
business
Information
System
3 information
system to meet
stakeholders’
activities needs.
and events.
The Process of
Providing Information
STAKEHOLDERS
Internal: External:
Owners, Customers,
managers, creditors,
employees government
Prepare
5
accounting
reports for
stakeholders.
Accounting
Information
System
Business Ethics
The resources
owned by a
business
The Accounting Equation
Owner’s
Assets = Liabilities + Equity
Accounts Chris Clark,
Cash + Supplies + Land Payable Capital
Bal. 8,850 1,350 20,000 = 1,350 28,850
f. – 950 – 950
Bal. 7,900 1,350 20,000 400 28,850
g. At the end of the month, the cost
of supplies on hand is $550, so
$800 of supplies were used.
Owner’s
Assets = Liabilities + Equity
Accounts Chris Clark,
Cash + Supplies + Land Payable Capital
Bal. 7,900 1,350 20,000 = 400 28,850
g. – 800 – 800 Supplies
expense
Bal. 7,900 550 20,000 400 28,050
h. At the end of the month, Chris
withdrew $2,000 in cash from the
business for personal use.
Owner’s
Assets = Liabilities + Equity
Accounts Chris Clark,
Cash + Supplies + Land Payable Capital
Bal. 7,900 550 20,000 = 400 28,050
h. –2,000 –2,000 With-
drawal
Bal. 5,900 550 20,000 400 26,050
Effects of Transactions on Owner’s Equity
Owner’s Equity
Decreased by Increased by
Owner’s Owner’s
withdrawals investments
Expenses Revenues
Net
income
Accounting reports, called
financial statements,
provide summarized
information to the owner.
Financial Statements
• Income statement—A summary of the revenue and
expenses for a specific period of time.
• Statement of owner’s equity—A summary of the
changes in the owner’s equity that have occurred
during a specific period of time.
• Balance sheet—A list of the assets, liabilities, and
owner’s equity as of a specific date.
• Statement of cash flows—A summary of the cash
receipts and disbursements for a specific period of time.
NetSolutions
Income Statement
For the Month Ended November 30, 2005
Fees earned $7 500 00
Operating expenses:
Wages expense $2 125 00
Rent expense 800 00
Supplies expense 800 00
Utilities expense 450 00
Miscellaneous expense 275 00
Total operating expenses 4 450 00
To the statement
Net income $3 050 00
of owner’s equity
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2005
Chris Clark, capital, November 1, 2005 $ 0
Investment on November 1 $25 000 00
From the income
Net income for November 3 050 00
statement
$28 050 00
Less withdrawals 2 000 00
Increase in owner’s equity 26 050 00
To the
Chris Clark, capital, November 30, 2005 $26 050 00
balance sheet
NetSolutions
Balance Sheet From the
November 30, 2005 statement of
Assets Liabilities owner’s equity
Cash $ 5 900 00 Accounts Payable $ 400 00
Supplies 550 00 Owner’s Equity
Land 20 000 00 Chris Clark, cap. 26 050 00
Total liabilities and
Total assets $26 450 00 owner’s equity $26 450 00
Ratio of
liabilities to = 0.015
owner’s equity
Chapter 1
The End