პირველი თავი ფინანსური აღრიცხვა

John J.
Wild
Financial Accounting
Fundamentals
6th Edition
©McGraw-Hill Education.
Chapter 1
Accounting in Business
Importance of Accounting
is a
Accounting Identifies
system that
Records
information
Relevant Communicates
that is
Reliable
to help users make
Comparable better decisions.
Financial Accounting Fundamentals 1-3

Accounting Activities
For example, the Keep a Prepare reports

sale by Apple of chronological log such as financial
an iPhone. of transactions. statements.

Users of Financial Information
Accounting is called the language of business because all organizations set
up an accounting information system to communicate data to help people
make better decisions. Accounting serves many users who can be divided
into two groups:
Financial accounting provides external Managerial accounting provides information

users with financial statements. needs for internal decision makers.
Generally Accepted Accounting Principles
Financial accounting practice is governed by concepts and rules
known as generally accepted accounting principles (GAAP).
GAAP aims to make information relevant, reliable, and
comparable.
Affects the decision of its

Relevant Information users.
Reliable Information Is trusted by users.
Comparable Used in comparisons across

Information years & companies.

International Standards
In today’s global economy, there is increased demand by external
users for comparability in accounting reports. This demand often
arises when companies wish to raise money from lenders and
investors in different countries.
International Accounting International Financial Reporting
Standards Board (IASB) Standards (IFRS)
An independent group (consisting

of individuals from many Identify preferred accounting
countries), issues International practices
Financial Reporting Standards
Differences between U.S. GAAP and IFRS are decreasing as the

FASB and IASB pursue a convergence process aimed to achieve a single set of
accounting standards for global use.
Accounting Principles
Measurement Principle Revenue Recognition Principle

(or Cost Principle)
1. Recognize revenue when it is
earned.
Accounting information is based on 2. Proceeds need not be in cash.
actual cost. Actual cost is considered 3. Measure revenue by cash received
objective. plus cash value of items received
Expense Recognition Principle Full Disclosure Principle

(or Matching Principle)
A company must record its expenses A company is required to report the

incurred to generate the revenue details behind financial statements
reported. that would impact users’ decisions.

Accounting Assumptions
Going-Concern Assumption Monetary Unit Assumption
Reflects assumption that the

business will continue operating Express transactions and events in
instead of being closed or sold. monetary, or money, units.
Business Entity Assumption Time Period Assumption
A business is accounted for Presumes that the life of a company

separately from other business can be divided into time periods,
entities, including its owner. such as months and years.

Business Entity Forms
Sole Partnership Corporation

Proprietorship
Financial Accounting Fundamentals 1 - 10

Accounting Equation
Assets = Liabilities + Equity
Liabilities
Assets & Equity

Assets
Cash
Accounts Notes
Receivable Receivable
Resources
owned
Vehicles or controlled Land
by a company
Store
Buildings
Supplies Equipment

Liabilities
Accounts Notes
Payable Payable
Creditors’
claims on
assets
Taxes Wages
Payable Payable

Equity
Contributed
Retained
Capital /
Earnings
Common Stock
Owner’s
claim on
assets
Dividends

Expanded Accounting Equation
Common _ Dividends + Revenues _ Expenses

Stock
Retained Earnings
Accounting Equation – practice
Use the accounting equation to compute the missing financial statement amounts.
Bose 150 30 120
Vogue 400 100 300
Use the expanded accounting equation to compute the missing financial

statement amounts.
Assets = Liabilities + Equity Common - Div- + -
Stock ds Revenue Expenses
Tesla 200 80 120 100 0 60 (40)
YouTube 400 160 240 220 (10) 120 (90)

Transaction Analysis and the
Accounting Equation
Transaction 1:
Chas Taylor invests $30,000 cash to start a company.
The accounts involved are:
(1) Cash (asset)

(2) Common Stock (equity)

Accounting Equation
Chas Taylor invests $30,000 cash to start the business,
Fast Forward.
Accounts Notes Common
Cash Supplies Equipment Payable Payable Stock
(1) $ 30,000 $ 30,000
$ 30,000 $ - $ - $ - $ - $ 30,000
$ 30,000 = $ 30,000

Accounting Equation
Transaction 2:
Company purchased supplies paying $2,500 cash.
(1) Cash (asset)

(2) Supplies (asset)

Accounting Equation
Purchased supplies paying $2,500 cash.
(1) $ 30,000 $ 30,000
(2) (2,500) $ 2,500
Accounting Equation
must remain in
balance!!
$ 27,500 $ 2,500 $ - $ - $ - $ 30,000
$ 30,000 = $ 30,000

Accounting Equation
Transaction 3:
Purchased equipment for $26,000 cash.
(1) Cash (asset)

(2) Equipment (asset)

Accounting Equation
Purchased equipment for $26,000 cash.

(1) $ 30,000 $ 30,000
(2) (2,500) $ 2,500 Accounting Equation
(3) (26,000) $ 26,000 still remains in
balance!!
$ 1,500 $ 2,500 $ 26,000 $ - $ - $ 30,000
$ 30,000 = $ 30,000
Accounting Equation
Transaction 4:
Purchased supplies of $7,100 on credit.
(1) Supplies (asset)

(2) Accounts Payable (liability)

Accounting Equation
Purchased supplies of $7,100 on credit.

(1) $ 30,000 $ 30,000
(2) (2,500) $ 2,500
(3) (26,000) $ 26,000 Accounting Equation
(4) 7,100 $ 7,100 still remains in
balance!!
$ 1,500 $ 9,600 $ 26,000 $ 7,100 $ - $ 30,000
$ 37,100 = $ 37,100

Accounting Equation
The balances so far appear below. Note that the
Balance Sheet Equation is still in balance.
Bal. $ 1,500 $ 9,600 $ 26,000 $ 7,100 $ 30,000
$ 1,500 $ 9,600 $ 26,000 $ 7,100 $ - $ 30,000
$ 37,100 = $ 37,100

Accounting Equation
Now, let’s look at transactions involving

revenue, expenses and dividends.

Accounting Equation
Transaction 5:
Provided consulting services to a customer
and received $4,200 cash right away.
(1) Cash (asset)

(2) Revenue (equity)

Accounting Equation
Provided consulting services receiving $4,200 cash.

Cash Supplies Equipment Payable Payable Stock Revenue
Bal. $ 1,500 $ 9,600 $ 26,000 $ 7,100 $ 30,000
(5) 4,200 $ 4,200
$ 5,700 $ 9,600 $ 26,000 $ 7,100 $ - $ 30,000 $ 4,200
$ 41,300 = $ 41,300

Accounting Equation
Transactions 6 and 7:
Paid rent of $1,000 and
salaries of $700 to employees.
(1) Cash (asset)

(2) Rent expense (equity )
(3) Salaries expense (equity )
The balance in the Expense But, total Equity decreases,

accounts increase. because expenses reduce equity.
Accounting Equation
Paid rent of $1,000 and salaries of $700 to employees.
Cash Supplies Equipment Payable Payable Stock Revenue Expenses
Bal. $ 5,700 $ 9,600 $ 26,000 $ 7,100 $ 30,000 $ 4,200
(6) (1,000) (1,000)
(7) (700) $ (700)
$ 4,000 $ 9,600 $ 26,000 $ 7,100 $ - $ 30,000 $ 4,200 $ (1,700)
$ 39,600 = $ 39,600
Remember that expenses decrease equity.

Accounting Equation
Transaction 8:
Provided consulting services of $1,600 and rented
facilities for $300 to a customer for credit.
(1) Accounts receivable (asset)

(2) Consulting Revenues (equity)
(3) Rental Revenue (equity)

Accounting Equation
Provided consulting services of $1,600 and rented
facilities for $300 to a customer for credit.
Accounts Accounts Common
Cash Receivable Supplies Equipment Payable Stock Revenue Expenses
Bal. $ 4,000 $ 9,600 $ 26,000 $ 7,100 $ 30,000 $ 4,200 (1,700)
(8) 1,900 $ 1,600
300
$ 4,000 $ 1,900 $ 9,600 $ 26,000 $ 7,100 $ 30,000 $ 6,100 $ (1,700)
$ 41,500 = $ 41,500

Accounting Equation
Transaction 9:
Client in transaction 8 pays $1,900 for consulting
services an facilities.
(1) Cash (asset)

(2) Accounts receivable (asset)

Accounting Equation
Client in transaction 8 pays $1,900
Bal. $ 4,000 1,900 $ 9,600 $ 26,000 $ 7,100 $ 30,000 $ 4,200 (1,700)
(9) 1,900 (1,900) $ 1,600
300
$ 5,900 0 $ 9,600 $ 26,000 $ 7,100 $ 30,000 $ 6,100 $ (1,700)
$ 41,500 = $ 41,500

Accounting Equation
Transaction 10:
FastForward pays $900 as partial payment for
supplies purchased in transaction 4.
(1) Cash (asset)

(2) Accounts payable (liability)

Accounting Equation
FastForward pays $900 as partial payment for supplies
purchased in transaction 4.
Bal. $ 5,900 0 $ 9,600 $ 26,000 $ 7,100 $ 30,000 $ 4,200 (1,700)
(10) (900) (900) $ 1,600
300
$ 5,000 0 $ 9,600 $ 26,000 $ 6,200 $ 30,000 $ 6,100 $ (1,700)
$ 40,600 = $ 40,600

Accounting Equation
Transaction 11:
Dividends of $200 are paid to shareholders.
(1) Cash (asset)

(2) Dividends (equity )
Remember that the Dividend But, total Equity decreases

account actually increases because dividends cause
(just like Expenses account) equity to go down!

Accounting Equation
Dividends of $200 are paid to shareholders.

Cash Receivable Supplies Equipment Payable Stock Dividends Revenue Expenses
Bal. $ 5,000 0 $ 9,600 $ 26,000 $ 6,200 $ 30,000 $ 4,200 (1,700)
(11) (200) (200) $ 1,600
300
$ 4,800 0 $ 9,600 $ 26,000 $ 6,200 $ 30,000 $ (200) $ 6,100 $ (1,700)
$ 40,400 = $ 40,400

Accounting Equation: more practice
Assume Tata Company began operations on January 1 and completed the following transactions during its first
month of operations.
Jan. 1 Jamsetji invested $4,000 cash in the Tata company in exchange for its common stock.
Jan. 5 The company purchased $2,000 of equipment on credit.
Jan. 14 The company provided $540 of services for a client on credit.
Jan. 21 The company paid $250 cash for an employee’s salary
Arrange the following asset, liability, and equity titles in a table: Cash; Accounts Receivable; Equipment;
Accounts Payable; Common Stock; Dividends; Revenues; and Expenses.

Cash Accounts Equipment Accounts + Common - Dividends + Revenues - Expenses
Receivable Payable Stock
Jan. 1 $4,000 $4,000
Jan. 5 $2,000 $2,000
Jan. 14 $540 $540
Jan. 21 ($250) ($250)
$3,750 $540 $2,000 $2,000 $4,000 $0 $540 ($250)
Total Assets $6,290

Total Liabilities 2,000
Total Equity $4,290
Financial Statements
The four financial statements and their purposes are:

1. Income statement — describes a company’s revenues and
expenses along with the resulting net income or loss over a
period of time due to earnings activities.
2. Statement of retained earnings— explains changes in
equity from net income (or loss) and from any dividends
over a period of time.
3. Balance sheet — describes a company’s financial position
(types and amounts of assets, liabilities, and equity) at a
point in time.
4. Statement of cash flows — identifies cash inflows (receipts)
and cash outflows (payments) over a period of time.
Financial
Statements
and their
links

Financial
Statements
and their
links

Financial Statements – Practice
Prepare the (a) income statement, (b) statement of retained earnings, and (c)
balance sheet, for Apple using the following condensed data from its fiscal year
ended September 26, 20X2.
Accounts payable $35,490 Investments and other assets $230,039

Other liabilities 135,634 Land and equipment 22,471
Cost of sales (expense) 140,089 Selling and other expense 40,232
Cash 21,120 Accounts receivable 16,849
Retained earnings, September 29, 20X1 87,152 Net income 53,394
Dividends in fiscal year 20X2 48,262 Retained earnings, Sept.26, 20X2 92,284
Revenues 233,715 Common stock 27,071

Financial Statements – Practice
APPLE APPLE
Income Statement Statement of Retained Earnings
For Fiscal Year Ended September 26, 20X2 For Fiscal Year Ended September 26, 20X2
Revenues $233,715 Retained earnings, September 29, 20X1 $ 87,152
Expenses Plus: Net income 53,394
Cost of sales (expense) $140,089 Less: Dividends 48,262
Selling and other expense 40,232 Retained earnings, September 28, 20X2 $ 92,284
Total expenses 180,321
Net income $53,394
APPLE
Balance Sheet
September 26, 20X2
Assets Liabilities
Cash $21,120 Accounts payable $35,490
Accounts receivable 16,849 Other liabilities 135,634
Land and equipment 22,471 Total liabilities 171,124
Investments and other assets 230,039 Equity
Common Stock 27,071
Retained earnings $ 92,284
Total assets $290,479 Total equity 119,355
Total liabilities and equity $290,479
Return on Assets
Return on assets (ROA) is stated in ratio form as net

income divided by the average total assets invested.
Net income
Return on assets =
Average total assets

End of Chapter 1

პირველი თავი ფინანსური აღრიცხვა

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

პირველი თავი ფინანსური აღრიცხვა

Uploaded by

Copyright:

Available Formats

John J.

Financial Accounting Fundamentals 1-3

For example, the Keep a Prepare reports

Financial Accounting Fundamentals 1-4

Financial accounting provides external Managerial accounting provides information

Affects the decision of its

Reliable Information Is trusted by users.

Comparable Used in comparisons across

Financial Accounting Fundamentals 1-6

An independent group (consisting

Differences between U.S. GAAP and IFRS are decreasing as the

Measurement Principle Revenue Recognition Principle

Expense Recognition Principle Full Disclosure Principle

A company must record its expenses A company is required to report the

Financial Accounting Fundamentals 1-8

Going-Concern Assumption Monetary Unit Assumption

Reflects assumption that the

Business Entity Assumption Time Period Assumption

A business is accounted for Presumes that the life of a company

Financial Accounting Fundamentals 1-9

Sole Partnership Corporation

Financial Accounting Fundamentals 1 - 10

Assets = Liabilities + Equity

Financial Accounting Fundamentals 1 - 11

Financial Accounting Fundamentals 1 - 12

Financial Accounting Fundamentals 1 - 13

Financial Accounting Fundamentals 1 - 14

Assets = Liabilities + Equity

Common _ Dividends + Revenues _ Expenses

Use the expanded accounting equation to compute the missing financial

Financial Accounting Fundamentals 1 - 16

Chas Taylor invests $30,000 cash to start a company.

The accounts involved are:

(1) Cash (asset)

Financial Accounting Fundamentals 1 - 17

Financial Accounting Fundamentals 1 - 18

The accounts involved are:

(1) Cash (asset)

Financial Accounting Fundamentals 1 - 19

Financial Accounting Fundamentals 1 - 20

The accounts involved are:

(1) Cash (asset)

Financial Accounting Fundamentals 1 - 21

Purchased equipment for $26,000 cash.

The accounts involved are:

(1) Supplies (asset)

Financial Accounting Fundamentals 1 - 23

Purchased supplies of $7,100 on credit.

Financial Accounting Fundamentals 1 - 24

$ 1,500 $ 9,600 $ 26,000 $ 7,100 $ - $ 30,000

Financial Accounting Fundamentals 1 - 25

Now, let’s look at transactions involving

Financial Accounting Fundamentals 1 - 26

The accounts involved are:

(1) Cash (asset)

Financial Accounting Fundamentals 1 - 27

Assets = Liabilities + Equity

$ 5,700 $ 9,600 $ 26,000 $ 7,100 $ - $ 30,000 $ 4,200

Financial Accounting Fundamentals 1 - 28

(1) Cash (asset)

The balance in the Expense But, total Equity decreases,

$ 4,000 $ 9,600 $ 26,000 $ 7,100 $ - $ 30,000 $ 4,200 $ (1,700)

Remember that expenses decrease equity.

The accounts involved are: