Learning Objectives
1. Nature of a Business
2. The Role of Accounting in Business
3. Business Ethics
4. Profession of Accounting
5. Generally Accepted Accounting Principles
6. Assets, Liabilities, and Owner’s Equity
7. Business Transactions
Power Notes
Introduction to Accounting and Business
Introduction to Accounting and Business
•
Accounting – An Information Process
•
Users of Accounting Information
•
Profession of Accounting
•
The Accounting Equation
•
Business Transactions
•
Financial Statements
•
Ratio of Liabilities to Owner’s Equity
Slide # Power Note Topics
Power Notes
Introduction to Accounting and Business
Introduction to Accounting and Business
Chapter
1
Accounting — An Information Process
Accounting — An Information Process
Accounting — An Information Process
Accounting — An Information Process
User Information
Needs
Accounting — An Information Process
Accounting — An Information Process
Accounting — An Information Process
Accounting — An Information Process
Identification of Users
User Information
Needs
Accounting System
Accounting — An Information Process
Accounting — An Information Process
Identification of Users
User Information
Needs
Accounting System
Economic Data and Activities
Accounting — An Information Process
Accounting — An Information Process
Identification of Users
User Information
Needs
Accounting System
Economic Data and Activities
Accounting — An Information Process
Accounting — An Information Process
Identification of Users
User Information
Needs
Accounting System
Economic Data and Activities
User
Accounting — An Information Process
Accounting — An Information Process
EXTERNAL USERS
Financial Accounting
Financial Accounting
•
investors
•
creditors
•
regulators
•
customers
•
competitors
EXTERNAL USERS
Financial Accounting
Financial Accounting
•
investors
•
creditors
•
regulators
•
customers
•
competitors
• owners • managers • employees
INTERNAL USERS
Managerial
Managerial
Accounting
Accounting
Government
Government
Industry
Industry
CPA Firms
CPA Firms
The Accounting Profession
The Accounting Profession
Auditor
Accountant
Staff
Junior
Government
Government
Industry
Industry
CPA Firms
CPA Firms
Staff
Accountant
Accountant
Junior
Auditor
The Accounting Profession
The Accounting Profession
Senior
Accountant
Supervisor
Chief
Government
Government
Industry
Industry
CPA Firms
CPA Firms
Chief
Accountant
Staff
Accountant
Senior
Accountant
Junior
Accountant
Supervisor
Auditor
The Accounting Profession
The Accounting Profession
Controller
Manager
Government
Government
Administrator
Industry
Industry
Vice President
Finance
CPA Firms
CPA Firms
Chief
Accountant
Staff
Accountant
Controller
Partner
Manager
Senior
Accountant
Junior
Accountant
Director
Supervisor
Auditor
Government
Government
The Accounting Profession
The Accounting Profession
Resources
The Accounting Equation
The Accounting Equation
Assets
Resources = Sources
The Accounting Equation
The Accounting Equation
What are the
sources of the
assets?
Cost of
Assets
Liabilities
Owner’s
Equity
Resources = Sources
Cost of
resources used
in the business
Resources
supplied by
creditors and
owners
a. Chris Clark deposits $25,000 in a bank account
for NetSolutions.
ASSETS
=
Business Transactions
Business Transactions
Business Transactions
Business Transactions
a. Chris Clark deposits $25,000 in a bank account
for NetSolutions.
ASSETS
=
Business Transactions
Business Transactions
Business Transactions
Business Transactions
OWNER’S EQUITY
Cash
Cash
25,000
25,000
a. Chris Clark deposits $25,000 in a bank account
for NetSolutions.
ASSETS
=
Business Transactions
Business Transactions
Business Transactions
Business Transactions
OWNER’S EQUITY
Cash
Cash
25,000
25,000
LIABILITIES
Chris Clark,
Chris Clark,
Capital
Capital
25,000
Business Transactions
Business Transactions
Business Transactions
Business Transactions
b. NetSolutions buys land for $20,000.
ASSETS
=
OWNER’S EQUITYBusiness Transactions
Business Transactions
Business Transactions
Business Transactions
b. NetSolutions buys land for $20,000.
ASSETS
=
OWNER’S EQUITYLIABILITIES
Cash
Cash
(20,000)
Business Transactions
Business Transactions
Business Transactions
Business Transactions
b. NetSolutions buys land for $20,000.
ASSETS
=
OWNER’S EQUITYLIABILITIES
Cash
Cash
(20,000)
(20,000)
Land
Land
20,000
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
Supplies
Supplies
1,350
1,350
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
c. NetSolutions buys supplies for $1,350, agreeing to
pay the supplier in the near future.
Accounts Payable
Accounts Payable
1,350
1,350
Supplies
Supplies
1,350
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
Cash
Cash
7,500
7,500
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
Cash
Cash
7,500
7,500
Fees Earned
Fees Earned
7,500
7,500
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
Cash
Cash
(3,650)
(3,650)
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
Cash
Cash
(3,650)
(3,650)
Expenses
Expenses
(3,650)
(3,650)
e. NetSolutions paid: wages, $2,125; rent, $800;
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
Cash
Cash
(950)
(950)
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
Cash
Cash
(950)
(950)
Accounts Payable
Accounts Payable
(950)
(950)
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
Supplies
Supplies
(800)
(800)
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
Supplies
Supplies
(800)
(800)
Supplies Expense
Supplies Expense
(800)
(800)
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
Cash
Cash
(2,000)
(2,000)
Business Transactions
Business Transactions
Business Transactions
Business Transactions
ASSETS
=
OWNER’S EQUITYLIABILITIES
Cash
Cash
(2,000)
(2,000)
Chris Clark,
Chris Clark,
Drawing
Drawing
(2,000)
Transaction Summary
Transaction Summary
Transaction Summary
Transaction Summary
ASSETS
=
OWNER’S EQUITYLIABILITIES
Cash
Cash 5,9005,900 Supplies
Supplies 550550 Land
Transaction Summary
Transaction Summary
Transaction Summary
Transaction Summary
ASSETS
=
OWNER’S EQUITYLIABILITIES
Cash
Cash 5,9005,900 Supplies
Supplies 550550 Land
Land 20,00020,000
Accts. Payable
Transaction Summary
Transaction Summary
Transaction Summary
Transaction Summary
ASSETS
=
OWNER’S EQUITYLIABILITIES
Cash
Cash 5,9005,900 Supplies
Supplies 550550 Land
Land 20,00020,000
Accts. Payable
Accts. Payable 400400
C. Clark, Capital
C. Clark, Capital 25,00025,000 C. Clark, Drawing
C. Clark, Drawing (2,000)(2,000) Fees Earned
Fees Earned 7,5007,500 Wages Expense
Wages Expense (2,125)(2,125) Rent Expense
Rent Expense (800)(800) Supplies Expense
Supplies Expense (800)(800) Utilities Expense
Utilities Expense (450)(450) Misc. Expense
OWNER’S EQUITY
OWNER’S EQUITY
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
decreased by
OWNER’S EQUITY
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
Owner’s withdrawals
Expenses
decreased by
OWNER’S EQUITY
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
increased by
OWNER’S EQUITY
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
Owner’s investments
Revenues
increased by
OWNER’S EQUITY
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
Owner’s withdrawals
Expenses
Owner’s investments
Revenues
decreased by
OWNER’S EQUITY
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
Owner’s withdrawals
Expenses
Owner’s investments
Revenues
decreased by
decreased by increased byincreased by
Financial Statements
Financial Statements
Financial Statements
Financial Statements
NetSolutions Income Statement
For the Month Ended November 30, 2002
Fees earned $7,500
Operating expenses:
Wages expense $2,125
Rent expense 800
Supplies expense 800
Utilities expense 450
Miscellaneous expense 275
Total operating expenses 4,450
Financial Statements
Financial Statements
Financial Statements
Financial Statements
NetSolutions Income Statement
For the Month Ended November 30, 2002
Fees earned $7,500
Operating expenses:
Wages expense $2,125
Rent expense 800
Supplies expense 800
Utilities expense 450
Miscellaneous expense 275
Total operating expenses 4,450
Financial Statements
Financial Statements
Financial Statements
Financial Statements
NetSolutions Income Statement
For the Month Ended November 30, 2002
Fees earned $7,500
Operating expenses:
Wages expense $2,125
Rent expense 800
Supplies expense 800
Utilities expense 450
Miscellaneous expense 275
Total operating expenses 4,450
Financial Statements
Financial Statements
Financial Statements
Financial Statements
NetSolutions Income Statement
For the Month Ended November 30, 2002
Fees earned $7,500
Operating expenses:
Wages expense $2,125
Rent expense 800
Supplies expense 800
Utilities expense 450
Miscellaneous expense 275
Total operating expenses 4,450
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002
Financial Statements
Financial Statements
Financial Statements
Financial Statements
Chris Clark, capital, November 1, 2002 $ 0 Investment on November 1, 2002 $25,000
Net income for November 3,050
$28,050
Less withdrawals 2,000
Increase in owner’s equity 26,050
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002
Financial Statements
Financial Statements
Financial Statements
Financial Statements
Chris Clark, capital, November 1, 2002 $ 0 Investment on November 1, 2002 $25,000
Net income for November 3,050
$28,050
Less withdrawals 2,000
Increase in owner’s equity 26,050
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002
Financial Statements
Financial Statements
Financial Statements
Financial Statements
Chris Clark, capital, November 1, 2002 $ 0 Investment on November 1, 2002 $25,000
Net income for November 3,050
$28,050
Less withdrawals 2,000
Increase in owner’s equity 26,050
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002
Financial Statements
Financial Statements
Financial Statements
Financial Statements
Chris Clark, capital, November 1, 2002 $ 0 Investment on November 1, 2002 $25,000
Net income for November 3,050
$28,050
Less withdrawals 2,000
Increase in owner’s equity 26,050
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002
Financial Statements
Financial Statements
Financial Statements
Financial Statements
Chris Clark, capital, November 1, 2002 $ 0 Investment on November 1, 2002 $25,000
Net income for November 3,050
$28,050
Less withdrawals 2,000
Increase in owner’s equity 26,050
NetSolutions Balance Sheet November 30, 2002 Assets
Cash $5,900
Supplies 550
Land 20,000
Total assets $26,450
Liabilities
Accounts payable $ 400 Owner’s Equity
Chris Clark, capital 26,050 Total liabilities and
owner’s equity $26,450
NetSolutions Balance Sheet November 30, 2002
Financial Statements
Financial Statements
Financial Statements
Financial Statements
Assets
Cash $5,900
Supplies 550
Land 20,000
Total assets $26,450
Liabilities
Accounts payable $ 400 Owner’s Equity
Chris Clark, capital 26,050 Total liabilities and
NetSolutions Balance Sheet November 30, 2002
Financial Statements
Financial Statements
Financial Statements
Financial Statements
Assets
Cash $5,900
Supplies 550
Land 20,000
Total assets $26,450
Liabilities
Accounts payable $ 400 Owner’s Equity
Chris Clark, capital 26,050 Total liabilities and
NetSolutions Balance Sheet November 30, 2002
Financial Statements
Financial Statements
Financial Statements
Financial Statements
Assets
Cash $5,900
Supplies 550
Land 20,000
Total assets $26,450
Liabilities
Accounts payable $ 400 Owner’s Equity
Chris Clark, capital 26,050 Total liabilities and
NetSolutions
Statement of Cash Flows
For the Month Ended November 30, 2002 Cash flows from operating activities:
Cash received from customers $ 7,500 Deduct cash payments for expenses
and payments to creditors 4,600
Net cash flow from operating activities $ 2,900 Cash flows from investing activities:
Cash payments for acquisition of land (20,000) Cash flows from financing activities:
Cash received as owner’s investment $25,000 Deduct cash withdrawal by owner 2,000
NetSolutions
Statement of Cash Flows
For the Month Ended November 30, 2002
)
Financial Statements
Financial Statements
Financial Statements
Financial Statements
Cash flows from operating activities:
Cash received from customers $ 7,500 Deduct cash payments for expenses
and payments to creditors 4,600
Net cash flow from operating activities $ 2,900 Cash flows from investing activities:
Cash payments for acquisition of land (20,000 Cash flows from financing activities:
NetSolutions
Statement of Cash Flows
For the Month Ended November 30, 2002
)
Financial Statements
Financial Statements
Financial Statements
Financial Statements
Cash flows from operating activities:
Cash received from customers $ 7,500 Deduct cash payments for expenses
and payments to creditors 4,600
Net cash flow from operating activities $ 2,900 Cash flows from investing activities:
Cash payments for acquisition of land (20,000) Cash flows from financing activities:
NetSolutions
Statement of Cash Flows
For the Month Ended November 30, 2002
Financial Statements
Financial Statements
Financial Statements
Financial Statements
Cash flows from operating activities:
Cash received from customers $ 7,500 Deduct cash payments for expenses
and payments to creditors 4,600
Net cash flow from operating activities $ 2,900 Cash flows from investing activities:
Cash payments for acquisition of land (20,000 Cash flows from financing activities:
Cash received as owner’s investment $25,000 Deduct cash withdrawal by owner 2,000
Ratio of Liabilities to Owner’s Equity
Ratio of Liabilities to Owner’s Equity
Ratio of Liabilities to Owner’s Equity
Ratio of Liabilities to Owner’s Equity
Ratio of liabilities to owner’s equity
=
Formula
Formula
Objective:
Use the ratio of liabilities to owner’s equity to
analyze the ability of a business to withstand poor
business conditions and to pay its creditors.
Total liabilities Total owner’s equity
NetSolutions
=
Example
Example
$400
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This is the last slide in Chapter 1.
Power Notes
Chapter
1