Professional Documents
Culture Documents
Chap 001
Chap 001
Chapter 1
Introducing Accounting in Business
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C1
Importance of Accounting
is a Accounting system that Identifies
Communicates
C1
Accounting Activities
Identifying Business Activities Recording Business Activities Communicating Business Activities
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C2
Lenders
Consumer Groups
Managers Officers
C2
C3
Opportunities in Accounting
Financial Managerial
General accounting Cost accounting Budgeting Internal auditing Consulting Controller Treasurer Strategy Lenders Consultants Analysts Traders Directors Underwriters Planners Appraisers
Taxation
Preparation Planning Regulatory Investigations Consulting Enforcement Legal services Estate plans FBI investigators Market researchers Systems designers Merger services Business valuation Forensic accountant Litigation support Entrepreneurs
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Accountingrelated
C3
C4
Ethics
Beliefs that distinguish right from wrong Accepted standards of good and bad behavior
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C4
Use personal Consider all good and bad ethics to recognize ethical consequences. concern.
C5
Comparable Information
C5
The International Accounting Standards Board (IASB) issues international standards that identify preferred accounting practices in other countries. The IASB does not have authority to impose its standards on companies.
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C5
Principles of Accounting
Revenue recognition principle provides guidance on when a company must recognize revenue. Business entity means that a business is accounted for separately from its owner or other business entities. Matching Principle prescribes that a company must record its expenses incurred to generate the revenue.
Cost principle means that accounting information is based on actual cost. Going-concern means that accounting information reflects a presumption the business will continue operating. Monetary unit means we can express transactions in money.
Full disclosure principle requires a company to report the details behind financial statements that would impact users decisions.
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C5
Partnership
Corporation
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A1
Accounting Equation
Assets
Liabilities
Equity
Assets
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A1
Assets
Cash Accounts Receivable Notes Receivable
Vehicles
Land
Store Supplies
Buildings Equipment
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A1
Liabilities
Accounts Payable Notes Payable
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A1
Equity
Contributed Capital Retained Earnings
Dividends
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A1
= =
_
Liabilities Liabilities
+ +
Revenues
Equity Equity
Common Stock
Dividends
_ Expenses
Retained Earnings
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A2
Transaction Analysis
J. Scott invests $20,000 cash to start the business in return for stock.
Assets Cash Supplies Equipment (1) $ 20,000 = Liabilities Accounts Notes Payable Payable + Equity Common Stock $ 20,000
$ 20,000 $
$ $
20,000
$ 20,000
$ 20,000
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A2
Transaction Analysis
Purchased supplies paying $1,000 cash.
Assets = uipment Lia ilities Acc unts tes Paya le Paya le + uity mm n t c $ 20,000
$ $
20,000
$ 20,000
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A2
Transaction Analysis
Purchased equipment for $15,000 cash.
Assets = Liabilities Accounts Notes Payable Payable + Equity Common Stock $ 20,000
Cash Supplies Equipment (1) $ 20,000 (2) (1,000) $ 1,000 (3) (15,000) $ 15,000
15,000 =
$ $
20,000
$ 20,000
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A2
Transaction Analysis
Purchased Supplies of $200 and Equipment of $1,000 on account.
Assets =
Cash Supplies Equipment (1) $ 20,000 (2) (1,000) $ 1,000 (3) (15,000) $ 15,000 (4) 200 1,000 $ 4,000 $ 1,200 $ $ 21,200 16,000 =
$ 20,000
A2
Transaction Analysis
$ 20,000
A2
Transaction Analysis
The balances so far appear below. Note that the Balance Sheet Equation is still in balance.
Assets Cash Supplies Equipment Bal. $ 8,000 $ 1,200 $ 16,000 = Liabilities Accounts Notes Payable Payable $ 1,200 $ 4,000 + Equity Common Stock $ 20,000
16,000 =
1,200 $
4,000
$ 20,000
$ 25,200
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A2
Transaction Analysis
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A2
Transaction Analysis
$ 11,000 $
1,200 $
16,000 =
$ 20,000 $ 3,000
$ 28,200
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A2
Transaction Analysis
P aid salaries o f $800 to em p lo yees.
Assets = Liabilities Accounts Notes Payable Payable $ 1,200 $ 4,000 + Equity Common Stock Revenue Expenses $ 20,000 $ 3,000 $ (800) $ 20,000 $ 3,000 $ (800)
Cash Supplies Equipment Bal. $ 8,000 $ 1,200 $ 16,000 (6) 3,000 (7) (800) $ 10,200 $ 1,200 $ 16,000 =
$ 1,200 $
4,000
$ 27,400
$ 27,400
A2
Transaction Analysis
$ 1,200 $
4,000
$ 26,900
P1
Financial Statements
Lets prepare the Financial Statements reflecting the transactions we have recorded.
1. Income Statement 2. Statement of Retained Earnings 3. Balance Sheet 4. Statement of Cash Flows
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P1
Income Statement
cott om pa n ncom e ta te m e nt onth Ende d e ce m be r 3
For
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The income statement describes a compan s revenues and expenses a on with the resu tin net income or oss over a period of time due to earnin s activities.
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P1
Re e n e s o n s tin g re e n e E e n se s a a rie s e e n se e t in co m e
,000 00 , 00
Retained Earnings, ec. , 009 $ s et income ess i idends Retained Earnings, ec. , 009 $
, 00 500 ,700
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P1
Balance Sheet
The Balance Sheet describes a companys financial position at a point in time.
Scott Company Balance Sheet December 31, 2009 Assets $
Scott Company Statement of Retained Earnings For Month Ended December 31, 2009 Retained Earnings, Dec. 1, 2009 Plus: Net income Less: Dividends Retained Earnings, Dec. 31, 2009 $ 2,200 500 1,700
Total assets
26,900
Liabilities Accounts payable Notes payable Total liabilities Equity Common stock Retained earnings Total liabilities and equity
26,900
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P1
1,200
(15,000)
$ $
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A3
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End of Chapter 1
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