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Ch 01 Introduction to accounting and business

Ch 01 Introduction to accounting and business. 1. Nature of a Business 2. The Role of Accounting in Business 3. Profession of Accounting Generally Accepted Accounting Principles Assets, Liabilities, and Owner’s Equity Business Transactions Financial Statements

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Ch 01 Introduction to accounting and business

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  1. Ch 01 Introduction to accounting and business 1. Nature of a Business 2. The Role of Accounting in Business 3. Profession of Accounting • Generally Accepted Accounting Principles • Assets, Liabilities, and Owner’s Equity • Business Transactions • Financial Statements • Financial Analysis and Interpretation Learning Objectives

  2. In general, a business is an organization in which basic resources(inputs), such as materials and labor, are assembled and processed to provide goods or services (outputs) to customers. 1. Nature of a Business

  3. The objective of most businesses is to maximize profits. Revenue – expense = profit 2. The objective of a business

  4. Manufacturing business • Merchandising business • Service business 3. The types of a business

  5. 4.The types of business organizations • three types : • 1. a proprietorship (not a legal entity) • 2. a partnership (not a legal entity) • 3. a corporation (a legal entity) • Example: The Coca-Cola Company has 3.5 billion shares of stock owned by stockholders.

  6. Proprietorships • What are some advantages? • total undivided authority • no restrictions on type of business – must be legal • What are some disadvantages? • unlimited liability • limitation on size – fund raising power

  7. Partnerships • What are some advantages? • better credit standing – possibly • more brain power, but consultation with partners required • What are some disadvantages? • unlimited personal liability for general partners • need for written partnership agreement

  8. Corporations • What are some advantages? • separate legal existence • limited liability of stockholders • transferability of ownership relatively easy • What are some disadvantages? • taxes – possible double taxation • extensive governmental regulation

  9. Accounting is an information system that provides reports to stakeholders about the economic activities and condition of a business. 5. The role of accounting in business

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

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

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

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

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

  15. 7. The Accounting Profession Industry CPA Firms Vice President Finance Partner Private Accounting Manager Controller and Senior Accountant Chief Accountant Public Accounting Staff Accountant Junior Accountant College Graduates

  16. 8. The GAAP Private Sector (AICPA) (IMA) Private Sector (FASB) GAAP

  17. The entity concept The activities of a business are recorded separately from the activities of the stakeholders.

  18. The Cost Principle Assets and services acquired should be recorded at their actual cost.

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

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

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

  22. Business Transactions a. On November 1 2002, Chris Clark deposits $25,000 in a bank account for NetSolutions. LIABILITIES ASSETS = OWNER’S EQUITY

  23. Business Transactions a. Chris Clark deposits $25,000 in a bank account for NetSolutions. LIABILITIES ASSETS Cash 25,000 = OWNER’S EQUITY

  24. Business Transactions a. Chris Clark deposits $25,000 in a bank account for NetSolutions. LIABILITIES ASSETS Cash 25,000 = OWNER’S EQUITY Chris Clark, Capital 25,000

  25. Business Transactions b. NetSolutions buys land for $20,000. LIABILITIES ASSETS = OWNER’S EQUITY

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

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

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

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

  30. 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 = OWNER’S EQUITY

  31. Business Transactions d. NetSolutions earns fees of $7,500, receiving cash. LIABILITIES ASSETS = OWNER’S EQUITY

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

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

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

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

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

  37. Business Transactions f. NetSolutions pays $950 to creditors on account. LIABILITIES ASSETS = OWNER’S EQUITY

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

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

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

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

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

  43. Business Transactions h. Chris Clark withdraws $2,000 in cash. LIABILITIES ASSETS = OWNER’S EQUITY

  44. Business Transactions h. Chris Clark withdraws $2,000 in cash. LIABILITIES ASSETS Cash (2,000) = OWNER’S EQUITY

  45. Business Transactions h. Chris Clark withdraws $2,000 in cash. LIABILITIES ASSETS Cash (2,000) = OWNER’S EQUITY Chris Clark, Drawing (2,000)

  46. Questions: • Does the business get the profit or loss? How much? • What the total assets of the business? • How much cash flow in and out? • What is balance of the cash? • How to do the financial reports?

  47. Transaction Summary LIABILITIES ASSETS Cash 5,900 Supplies 550 Land 20,000 OWNER’S EQUITY =

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

  49. Transaction Summary LIABILITIES ASSETS Accts. Payable 400 Cash 5,900 Supplies 550 Land 20,000 26,450 OWNER’S EQUITY = C. Clark, Capital 25,000 C. Clark, Drawing (2,000) Fees Earned 7,500 Wages Expense (2,125) Rent Expense (800) Supplies Expense (800) Utilities Expense (450) Misc. Expense (275) 26,050

  50. OWNER’S EQUITY Effects of Transactions on Owner’s Equity

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