ACCT 101 Chapter 1 Powerpoint Alt

Learning Objective
C1:
Explain the purpose and
importance of accounting.
1
1-2
Importance of Accounting Exhibit

1.1
For example, the sale Keep a chronological Prepare reports such as

by Apple of an iPhone. log of transactions. financial statements.
Accounting is an information and measurement system that identifies,

records, and communicates information about an organization’s
business activities.
2
Learning Objective C1: Explain the purpose and importance of accounting.
Learning Objective
C2:
Identify users and uses of, and
opportunities in, accounting.
3
1-4
Users of Financial Information Exhibit
1.2
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: external users and internal users.
Learning Objective C2: Identify users and uses of, and opportunities in, accounting. 4
1-5
Opportunities in Accounting Exhibit
1.3
Accounting information is in all aspects of our lives. When

we earn money, pay taxes, invest savings, budget
earnings, and plan for the future, we use accounting.
NEED-TO-KNOW 1-1
Identify the following users of accounting information as either an (a) external or (b) internal user.
Regulator a) External user

CEO b) Internal user
Shareholder a) External user
Controller b) Internal user
Executive Employee b) Internal user
External Auditor a) External user
Production Manager b) Internal user
Nonexecutive Employee a) External user
External users of accounting information are NOT directly involved in running the organization.
Internal users of accounting information ARE directly involved in managing and operating an organization.
Learning Objective C1: Explain the Purpose and Importance of Accounting.

Learning Objective
C3:
Explain why ethics
are crucial to accounting.
7
1-8
Ethics – A Key Concept Exhibit
1.6
The goal of accounting is to provide useful information for
decisions. For information to be useful, it must be trusted.
This demands ethics in accounting. Ethics are beliefs that
distinguish right from wrong. They are accepted standards of
good and bad behavior.
Learning Objective C3: Explain why ethics are crucial to accounting. 8

1-9
Fraud Triangle
Three factors must exist for a person to commit fraud:
opportunity, pressure, and rationalization.
Envision a way to commit Fails to see the criminal

fraud with a low perceived nature of the fraud or
risk of getting caught justifies the action
Must have some pressure to

commit fraud, like unpaid bills
9
Learning Objective C3: Explain why ethics are crucial to accounting.
1 - 10
Sarbanes–Oxley (SOX)
Congress passed the Sarbanes–Oxley Act to help curb financial abuses at
companies that issue their stock to the public. SOX requires that these
public companies apply both accounting oversight and stringent internal
controls. The desired results include more transparency, accountability, and
truthfulness in reporting transactions.

1 - 11
Dodd-Frank Wall Street Reform and

Consumer Protection Act
This act was designed to:

1.promote accountability and transparency in the
financial system,
2. put an end to the notion of “too big to fail,”
3. protect the taxpayer by ending bailouts, and
4. protect consumers from abusive financial services.

Learning Objective
C4:
Explain generally accepted
accounting principles and
define and apply several
accounting principles.
12
1 - 13
Generally Accepted
Accounting Principles (GAAP)
Financial accounting is governed by concepts and rules known
as generally accepted accounting principles (GAAP). GAAP aims
to make information relevant, reliable, and comparable.
Reliable information is
trusted by users.
Relevant information Comparable information

affects decisions is helpful in contrasting
of users. organizations.
13
Learning Objective C4: Explain generally accepted accounting principles and define and apply several accounting principles.
1 - 14
Principles and Assumptions of

Accounting Exhibit
1.7
General principles are the basic Specific principles are detailed rules
assumptions, concepts, and used in reporting business
guidelines for preparing financial transactions and events. Specific
statements. General principles stem principles arise more often from the
from long-used accounting practices. rulings of authoritative groups.
14
1 - 15
Accounting Principles
Measurement Principle
(or Cost Principle)
Accounting information is based on
actual cost. Actual cost is
considered objective.
Expense Recognition Principle

Full Disclosure Principle
(or Matching Principle) A company is required to report the details
A company must record its expenses
behind financial statements that would
incurred to generate the revenue
impact users’ decisions.
reported.
15
1 - 16
Accounting Assumptions
Time Period Assumption

Presumes that the life of a company
can be divided into time periods,
such as months and years.
16
1 - 17
Proprietorship, Partnership, Exhibit
and Corporation 1.8

Here are some of the major attributes of proprietorships, partnerships,
and corporations:
17
Accounting Constraints
18
Learning Objective
A1:
Define and interpret the
accounting equation and each
of its components.
19
1 - 20
Transaction Analysis and the Accounting

Equation
The Accounting Equation
Assets = Liabilities + Equity
Expanded Accounting Equation:
Learning Objective A1: Define and interpret the accounting equation and each of its components.
Net Income 20
NEED-TO-KNOW 1-3
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.
+ Owner, - Owner, + Revenues - Expenses

Capital Withdrawals
Tesla $200 $80 $120 $100 $0 $60 ($40)
YouTube $400 $160 $240 $220 ($10) $120 ($90)
21
Learning Objective A1: Define and interpret the accounting equation and each of its components.
Learning Objective
P1:
Analyze business transactions
using the accounting equation.
22
Transaction 1:
Chas Taylor invests $30,000 cash to
start a company.
The accounts involved are:
(1) Cash (asset)
(2) C. Taylor, Capital (equity)
Learning Objective P1: Analyze business transactions using the accounting equation.
Accounting Equation:
Chas Taylor invests $30,000 cash to start
the business, Fast Forward.
Transaction 2:
Company purchased supplies paying
$2,500 cash.

(1) Cash (asset)
(2) Supplies (asset)
Company purchased supplies paying
$2,500 cash.
Accounting Equation
must remain in
balance!!
Transaction 3:
Purchased equipment for $26,000 cash.

(1) Cash (asset)
(2) Equipment (asset)
Purchased equipment for $26,000 cash.
Accounting Equation
still remains in
balance!!
Transaction 4:
Purchased supplies of $7,100 on credit.

(1) Supplies (asset)
(2) Accounts Payable (liability)
Purchased Supplies of $7,100 on credit.
Accounting Equation
still remains in balance!!
Transaction Analysis
Now, let’s look at transactions involving

revenues, expenses and withdrawals.
Transaction 5:
Provided consulting services to a customer
and received $4,200 cash right away.

(1) Cash (asset)
(2) Revenues (equity)
Provided consulting services to a customer
and received $4,200 cash right away.
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)
Remember that the balance
in the Expense accounts But, total Equity
actually increase. decreases, because
expenses reduce equity.
Paid rent of $1,000 and
salaries of $700 to employees.
Remember that expenses decrease equity.

Transaction 8:
Provided consulting services of $1,600 and rents
facilities for $300 to a customer for credit.

(1) Accounts receivable (asset)
(2) Consulting Revenues (equity)
(3) Rental Revenue (equity)
Provided consulting services of $1,600 and rents
facilities for $300 to a customer for credit.
Transaction 9:
Client in transaction 8 pays $1,900 for consulting
services from account receivable.

(1) Cash (asset)
(2) Accounts receivable (asset)
Client in transaction 8 pays $1,900 for consulting services.
Transaction 10:
FastForward pays $900 as partial payment for
supplies purchased in transaction 4.

(1) Cash (asset)
(2) Accounts payable (liability)
FastForward pays $900 as partial payment for supplies
purchased in transaction 4.
Transaction 11:
Withdrawal of Cash by Owner.

(1) Cash (asset)
(2) Withdrawals (equity)
But, total Equity
Remember that the decreases because
Withdrawal account withdrawals cause
actually increases (just like equity to go down !!
our Expenses account . . . )
$200 cash is withdrawn by owner.
NEED-TO-KNOW 1-4
Assume Tata 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.

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; J. Tata, Capital; J. Tata, Withdrawals; Revenues; and Expenses.

Cash Accounts Equipment Accounts + J. Tata, - J. Tata, + Revenues- Expenses
Receivable Payable Capital Withdrawals
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
44
Learning Objective
P2:
Identify and prepare basic financial
statements and explain how they
interrelate.
45
1 - 46
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 owner’s equity— explains changes in equity
from net income (or loss) and from any owner investments
and withdrawals 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.
46
Learning Objective P2: Identify and prepare basic financial statements and explain how they interrelate.
1 - 47
Exhibit 1.10
Financial
Statements
and Their Links
(cont. next slide)

47
1 - 48
Exhibit 1.10
Financial
Statements
and Their Links
48
NEED-TO-KNOW 1-5
Prepare the (a) income statement, (b) statement of owner's equity, and (c) balance sheet, for Apple using the following
condensed data from its fiscal year ended September 26, 2015.
Accounts payable $35,490 Investments and other assets $230,039
Other liabilities 135,634 Land and equipment (net) 22,471
Cost of sales 140,089 Selling, general and other expenses 40,232
Cash 21,120 Accounts receivable 16,849
Owner, Capital, September 27, 2014 111,547 Net income 53,394
Withdrawals in fiscal year 2015 45,586 Owner, Capital, September 26, 2015 119,355
Revenues 233,715
Income Statement Statement of Owner’s Equity Balance Sheet

Assets Detail of Assets
Liabilities Detail of Liabilities
Equity: Beginning Capital
+ Owner investments + Owner investments
- Owner withdrawals - Owner withdrawals Ending Owner, Capital
+ Revenues Detail of Revenues ± Net income (loss)
- Expenses Detail of Expenses Ending Capital
Net income (loss)
49
NEED-TO-KNOW
Accounts payable $35,490 Investments and other assets $230,039
Other liabilities 135,634 Land and equipment (net) 22,471
Cost of sales 140,089 Selling, general and other expenses 40,232
Cash 21,120 Accounts receivable 16,849
Owner, Capital, September 26, 2014 111,547 Net income 53,394
Withdrawals in fiscal year 2015 45,586 Owner, Capital, September 26, 2015 119,355
Revenues 233,715
APPLE APPLE
Income Statement Statement of Owner's Equity
For Fiscal Year Ended September 26, 2015 For Fiscal Year Ended September 26, 2015
Revenues $233,715 Owner, Capital, September 27, 2014 $111,547
Expenses Plus: Net income 53,394
Cost of sales (expense) $140,089 Less: Withdrawals by owner 45,586
Selling, general and other expenses 40,232 Owner, Capital, September 26, 2015 $119,355
Total expenses 180,321
Net income $53,394
APPLE
Balance Sheet
September 26, 2015
Assets Liabilities
Cash $21,120 Accounts payable $35,490
Accounts receivable 16,849 Other liabilities 135,634
Land and equipment (net) 22,471 Total liabilities 171,124
Investments and other assets 230,039 Equity
Owner, Capital, September 26, 2015 119,355
Total assets $290,479 Total liabilities and equity $290,479

50
Learning Objective
A2:
Compute and interpret return
on assets.
51
1 - 52
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
52
Learning Objective A2: Compute and interpret return on assets.

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Learning Objective

Importance of Accounting Exhibit

For example, the sale Keep a chronological Prepare reports such as

Accounting is an information and measurement system that identifies,

Users of Financial Information Exhibit

Opportunities in Accounting Exhibit

Accounting information is in all aspects of our lives. When

Regulator a) External user

Learning Objective C1: Explain the Purpose and Importance of Accounting.

Ethics – A Key Concept Exhibit

Learning Objective C3: Explain why ethics are crucial to accounting. 8

Envision a way to commit Fails to see the criminal

Must have some pressure to

Learning Objective C3: Explain why ethics are crucial to accounting. 10

Dodd-Frank Wall Street Reform and

This act was designed to:

Learning Objective C3: Explain why ethics are crucial to accounting. 11

Relevant information Comparable information

Principles and Assumptions of

Expense Recognition Principle

Time Period Assumption

Proprietorship, Partnership, Exhibit

and Corporation 1.8

Transaction Analysis and the Accounting

Assets = Liabilities + Equity

Expanded Accounting Equation:

Assets = Liabilities + Equity

+ Owner, - Owner, + Revenues - Expenses

The accounts involved are:

The accounts involved are:

The accounts involved are:

Now, let’s look at transactions involving

The accounts involved are:

The accounts involved are:

Remember that expenses decrease equity.

The accounts involved are:

The accounts involved are:

The accounts involved are:

The accounts involved are:

Jan. 1 Jamsetji invested $4,000 cash in the Tata company.

Assets = Liabilities + Equity

Total Assets $6,290

(cont. next slide)

Income Statement Statement of Owner’s Equity Balance Sheet

Total assets $290,479 Total liabilities and equity $290,479

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