Learning Objectives

1. Power Notes ChapterF1 Introduction to Accounting and Business 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 8. Financial Statements 9. Financial Analysis and Interpretation. Learning Objectives C1

2. Power Notes ChapterF1 Introduction to Accounting and Business Slide # Power Note Topics • Accounting – An Information Process • Users of Accounting Information • Profession of Accounting • The Accounting Equation • Business Transactions • Financial Statements • Ratio of Liabilities to Stockholders Equity • 3 • 9 • 11 • 16 • 19 • 53 • 69 Note: To select a topic, type the slide # and press Enter.

3. Accounting — An Information Process Identification of Users

4. Accounting — An Information Process Identification of Users User Information Needs

5. Accounting — An Information Process Identification of Users User Information Needs Accounting System

6. Accounting — An Information Process Identification of Users User Information Needs Economic Data and Activities Accounting System

7. Accounting — An Information Process Identification of Users User Information Needs Economic Data and Activities Accounting System Reports

8. Business Transactions a. Chris Clark deposits $25,000 in a bank account for NetSolutions in return for shares of stock in the corporation. LIABILITIES ASSETS Cash 25,000 = STOCKHOLDERS’ EQUITY Capital Stock 25,000

9. Business Transactions b. NetSolutions buys land for $20,000. LIABILITIES ASSETS Cash (20,000) = STOCKHOLDERS’ EQUITY Land 20,000

10. Business Transactions c. NetSolutions buys supplies for $1,350, agreeing to pay the supplier in the near future. LIABILITIES ASSETS Accounts Payable 1,350 Supplies 1,350 = STOCKHOLDERS’ EQUITY

11. Business Transactions d. NetSolutions earns fees of $7,500, receiving cash. LIABILITIES ASSETS Cash 7,500 = STOCKHOLDERS’ EQUITY Fees Earned 7,500

12. Business Transactions e. NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. LIABILITIES ASSETS Cash (3,650) = STOCKHOLDERS’ EQUITY Expenses (3,650)

13. Business Transactions f. NetSolutions pays $950 to creditors on account. LIABILITIES ASSETS Accounts Payable (950) Cash (950) = STOCKHOLDERS’ EQUITY

14. User Decisions Accounting — An Information Process Identification of Users User Information Needs Economic Data and Activities Accounting System Reports

15. Business Transactions h. NetSolutions pays $2,000 to stockholders (Chris Clark) as dividends. LIABILITIES ASSETS Cash (2,000) = STOCKHOLDERS’ EQUITY Dividends (2,000)

16. Users of Accounting Information Financial Accounting • investors • creditors • regulators • customers • competitors EXTERNAL USERS

17. Users of Accounting Information • investors • creditors • regulators • customers • competitors Financial Accounting • owners • managers • employees EXTERNAL USERS ManagerialAccounting INTERNAL USERS

18. 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 Net income $3,050

19. Financial Statements NetSolutions Retained Earnings Statement For the Month Ended November 30, 2002 Net income for November $ 3,050 Less dividends 2,000 Retained earnings, November 30, 2002 $ 1,050

20. Financial Statements NetSolutions Balance Sheet November 30, 2002 Assets Cash $ 5,900 Supplies 550 Land 20,000 Total assets $26,450 Liabilities Accounts payable $ 400 Stockholders’ Equity Capital stock $25,000 Retained earnings 1,050 26,050 Total liabilities and stockholders’ equity $26,450

21. Financial Statements 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 from sale of stock $25,000 Deduct cash dividends 2,000 Net cash flow from financing activities 23,000 Net cash flow and Nov. 30, 2002 cash balance $5,900 )

22. Ratio of Liabilities to Stockholders’ Equity Objective: Use the ratio of liabilities to stockholders’ equity to analyze the ability of a business to withstand poor business conditions and to pay its creditors. Formula Total liabilities Ratio of liabilities to stockholders’ equity = Total stockholders’ equity Example $400 NetSolutions = 0.015 $26,050

23. The Accounting Profession Government Industry CPA Firms Staff Accountant Junior Accountant Auditor College Graduates What are the starting rates for new graduates?

24. The Accounting Profession Government Industry CPA Firms Senior Accountant Chief Accountant Supervisor Staff Accountant Junior Accountant Auditor College Graduates How soon would I get promoted?

25. The Accounting Profession Government Industry CPA Firms Manager Director Controller Senior Accountant Chief Accountant Supervisor Staff Accountant Junior Accountant Auditor College Graduates What are the top positions in each category?

26. The Accounting Profession Government Industry CPA Firms Vice President Finance Partner Administrator Manager Director Controller Senior Accountant Chief Accountant Supervisor Staff Accountant Junior Accountant Auditor College Graduates What is the fastest path to top management?

27. 2 1 10 to 20 years of experience 6 to 8 years of experience 1 2 The Accounting Profession Government Industry CPA Firms Vice President Finance Partner Administrator Manager Director Controller Senior Accountant Chief Accountant Supervisor Staff Accountant Junior Accountant Auditor College Graduates

28. The Accounting Equation Resources What are an organization’s resources called?

29. The Accounting Equation Resources = Sources Assets What are the sources of the assets? Cost of resources used in the business

30. The Accounting Equation Resources = Sources Liabilities Assets Stockholders’ Equity Resources supplied by creditors and owners Cost of resources used in the business

31. Business Transactions a. Chris Clark deposits $25,000 in a bank account for NetSolutions in return for shares of stock in the corporation. LIABILITIES ASSETS = STOCKHOLDERS’ EQUITY

32. Business Transactions a. Chris Clark deposits $25,000 in a bank account for NetSolutions in return for shares of stock in the corporation. LIABILITIES ASSETS Cash 25,000 = STOCKHOLDERS’ EQUITY

33. Business Transactions b. NetSolutions buys land for $20,000. LIABILITIES ASSETS = STOCKHOLDERS’ EQUITY

34. Business Transactions b. NetSolutions buys land for $20,000. LIABILITIES ASSETS Cash (20,000) = STOCKHOLDERS’ EQUITY

35. Business Transactions c. NetSolutions buys supplies for $1,350, agreeing to pay the supplier in the near future. LIABILITIES ASSETS = STOCKHOLDERS’ EQUITY

36. Business Transactions c. NetSolutions buys supplies for $1,350, agreeing to pay the supplier in the near future. LIABILITIES ASSETS Supplies 1,350 = STOCKHOLDERS’ EQUITY

37. Business Transactions d. NetSolutions earns fees of $7,500, receiving cash. LIABILITIES ASSETS = STOCKHOLDERS’ EQUITY

38. Business Transactions d. NetSolutions earns fees of $7,500, receiving cash. LIABILITIES ASSETS Cash 7,500 = STOCKHOLDERS’ EQUITY

39. Business Transactions e. NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. LIABILITIES ASSETS = STOCKHOLDERS’ EQUITY

40. Business Transactions e. NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. LIABILITIES ASSETS Cash (3,650) = STOCKHOLDERS’ EQUITY

41. Business Transactions f. NetSolutions pays $950 to creditors on account. LIABILITIES ASSETS = STOCKHOLDERS’ EQUITY

42. Business Transactions f. NetSolutions pays $950 to creditors on account. LIABILITIES ASSETS Cash (950) = STOCKHOLDERS’ EQUITY

43. Business Transactions g. At the end of the month, the cost of supplies on hand is $550. LIABILITIES ASSETS = STOCKHOLDERS’ EQUITY

44. Business Transactions g. At the end of the month, the cost of supplies on hand is $550. LIABILITIES ASSETS Supplies (800) = STOCKHOLDERS’ EQUITY

45. Business Transactions g. At the end of the month, the cost of supplies on hand is $550. LIABILITIES ASSETS Supplies (800) = STOCKHOLDERS’ EQUITY Supplies Expense (800)

46. Business Transactions h. NetSolutions pays $2,000 to stockholders (Chris Clark) as dividends. LIABILITIES ASSETS = STOCKHOLDERS’ EQUITY

47. Business Transactions h. NetSolutions pays $2,000 to stockholders (Chris Clark)as dividends. LIABILITIES ASSETS Cash (2,000) = STOCKHOLDERS’ EQUITY

48. Transaction Summary LIABILITIES ASSETS Cash 5,900 Supplies 550 Land 20,000 STOCKHOLDERS’ EQUITY =

49. Transaction Summary LIABILITIES ASSETS Accts. Payable 400 Cash 5,900 Supplies 550 Land 20,000 STOCKHOLDERS’ EQUITY =

50. Transaction Summary LIABILITIES ASSETS Accts. Payable 400 Cash 5,900 Supplies 550 Land 20,000 STOCKHOLDERS’ EQUITY = Capital Stock 25,000 Dividends (2,000) Fees Earned 7,500 Wages Expense (2,125) Rent Expense (800) Supplies Expense (800) Utilities Expense (450) Misc. Expense (275)