Accounting principles 8th weygars kieso kimmel chapter 01

State the accounting equation, and define assets, liabilities, and owner’s equity.. Chapter 1-4 Accounting in Action Accounting in Action Ethics in financial reportingGenerally accepted

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Chapter 1-1

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Chapter

1-3

1 Explain what accounting is.

2 Identify the users and uses of accounting.

3 Understand why ethics is a fundamental business concept.

4 Explain generally accepted accounting principles and the

cost principle.

5 Explain the monetary unit assumption and the economic

entity assumption.

6 State the accounting equation, and define assets, liabilities,

and owner’s equity.

7 Analyze the effects of business transactions on the

accounting equation.

8 Understand the four financial statements and how they are

prepared.

Study Objectives Study Objectives

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Chapter

1-4

Accounting in Action Accounting in Action

Ethics in financial reportingGenerally accepted accounting principlesAssumptions

The Building Blocks of Accounting

The Basic Accounting Equation

Using the Basic Accounting Equation

Financial Statements

Transaction analysisSummary of transactions

Income statementOwner’s equity statementBalance sheetStatement of cash flows

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Chapter

1-5

What is Accounting?

LO 1 Explain what accounting is.

The purpose of accounting is to:

(1) identify , record record , and communicate communicate the

economic events of an

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The accounting process includes

the bookkeeping function.

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internal users and external users.

Human

Resources

IRS

Labor Unions

SEC Marketing

Finance

Investors

Creditors

Who Uses Accounting Data?

LO 2 Identify the users and uses of accounting.

Customers

Internal Users

External Users

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Chapter

1-8

Common Questions Asked User

1 Can we afford to give our

employees a pay raise? Human Resources

2 Did the company earn a

satisfactory income?

3 Do we need to borrow in the

near future?

4 Is cash sufficient to pay

dividends to the stockholders?

5 What price for our product

will maximize net income?

LO 2 Identify the users and uses of accounting.

6 Will the company be able to

pay its short-term debts?

Investors Management Finance Marketing Creditors

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Chapter

1-9

Discussion Question

LO 3 Understand why ethics is a fundamental business concept.

Q1 “Accounting is ingrained in our society and it is

vital to our economic system.” Do you agree? Explain.

See notes page for discussion

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Chapter

1-10

Ethics In Financial Reporting

LO 3 Understand why ethics is a fundamental business concept.

Standards of conduct by which one’s actions are

judged as right or wrong, honest or dishonest, fair or

not fair, are Ethics

Recent financial scandals include: Enron ,

WorldCom , HealthSouth , AIG , and others.

Congress passedSarbanes-Oxley Act of 2002

Effective financial reporting depends on sound ethical behavior.

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Chapter

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Ethics are the standards of conduct by which one's

actions are judged as:

a right or wrong

b honest or dishonest

c fair or not fair

d all of these options.

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Chapter

1-12

Ethics are the standards of conduct by which one's

actions are judged as:

a right or wrong

b honest or dishonest

c fair or not fair

d all of these options.

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Chapter

1-13

Various users need financial

information

Various users

need financial

information

The accounting profession

has attempted to develop

a set of standards that

are generally accepted

and universally practiced.

Financial Statements

Balance Sheet Income Statement Statement of Owner’s Equity Statement of Cash Flows Note Disclosure

Financial Statements

Balance Sheet Income Statement Statement of Owner’s Equity Statement of Cash Flows Note Disclosure

Generally Accepted

Accounting Principles (GAAP)

Generally Accepted

Accounting Principles (GAAP)

LO 4 Explain generally accepted accounting principles and the cost principle.

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Chapter

1-14

Organizations Involved in Standard Setting:

Securities and Exchange Commission (SEC) Financial Accounting Standards Board (FASB)

International Accounting Standards Board (IASB)

http://www.fasb.org/

http://www.sec.gov/

http://www.iasb.org/

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Fair value information may be more useful

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Chapter

1-16

Monetary Unit Assumption – include in the

accounting records only transaction data that can be

expressed in terms of money.

Economic Entity Assumption – requires that

activities of the entity be kept separate and distinct

from the activities of its owner and all other economic entities.

LO 5 Explain the monetary unit assumption

and the economic entity assumption.

Forms of Business Ownership

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Chapter

1-17

Proprietorship Partnership Corporation

Owned by two or more persons.

Often retail and service-type

businesses Generally unlimited personal liability Partnership

agreement

Ownership divided into shares of stock Separate legal entity organized under state

corporation law Limited liability

Forms of Business Ownership Forms of Business Ownership

for all debts.

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Chapter

1-18

Combining the activities of Kellogg and General

Mills would violate the

a cost principle

b economic entity assumption

c monetary unit assumption

d ethics principle.

Assumptions

Review Question

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Chapter

1-19

Combining the activities of Kellogg and General

Mills would violate the

a cost principle

b economic entity assumption

c monetary unit assumption

d ethics principle.

Assumptions

Review Question

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Chapter

1-20

A business organized as a separate legal entity

under state law having ownership divided into

Review Question

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Chapter

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A business organized as a separate legal entity

under state law having ownership divided into

Review Question

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Chapter

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Assets = Liabilities + Owner’s Owner’s Equity Equity

Provides the underlying framework for recording and

summarizing economic events.

Assets are claimed by either creditors or owners.

Claims of creditors must be paid before ownership

claims.

LO 6 State the accounting equation, and define

assets, liabilities, and owner’s equity.

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Chapter

1-23

Resources a business owns.

Provide future services or benefits.

Cash, Supplies, Equipment, etc.

Assets

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Chapter

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Claims against assets (debts and obligations).

Creditors - party to whom money is owed.

Accounts payable, Notes payable, etc.

Liabilities

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Chapter

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Ownership claim on total assets.

Referred to as residual equity.

Capital, Drawings, etc (Proprietorship or Partnership).

Owner’s Equity

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Common sources of revenue are: sales, fees, services,

commissions, interest, dividends, royalties, and rent.

Illustration 1-6

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Chapter

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Owners’ Equity

Expenses are the cost of assets consumed or services

used in the process of earning revenue.

Common expenses are: salaries expense, rent expense,

utilities expense, tax expense, etc.

Illustration 1-6

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Chapter

1-28

Using The Basic Accounting Equation

Transactions are a business’s economic events

recorded by accountants.

May be external or internal.

Not all activities represent transactions.

Each transaction has a dual effect on the accounting equation.

LO 7 Analyze the effects of business transactions

on the accounting equation.

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Criterion Is the financial position (assets, liabilities, or

owner’s equity) of the company changed?

An employee

is hired.

Owner withdraws cash for personal use.

Record/

Don’t Record

Transactions (Question?)

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Chapter

1-30

Q18 In February 2008, Paula King invested an

additional $10,000 in her business, King’s

Pharmacy, which is organized as a proprietorship

King’s accountant, Lance Jones, recorded this

receipt as an increase in cash and revenues Is

this treatment appropriate? Why or why not?

Transactions

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Chapter

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P1-1A: Barone’s Repair Shop was started on May 1 by

Nancy Prepare a tabular analysis of the following

transactions for the month of May.

Transactions (Problem)

+10,000

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2 Purchased equipment for $5,000 cash.

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3 Paid $400 cash for May office rent.

Investment

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4 Received $5,100 from customers for repair

Investment

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5 Withdrew $1,000 cash for personal use.

Investment

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6 Paid part-time employee salaries of $2,000.

Investment

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7 Incurred $250 of advertising costs, on account.

Investment

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8 Provided $750 of repair services on account.

Investment

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9 Collected $120 cash for services previously billed.

Investment

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Chapter

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Companies prepare four financial statements from

the summarized accounting data:

Companies prepare four financial statements from

the summarized accounting data:

Balance Sheet

Income

Statement

of Cash Flows

Owner’s Equity Statement

LO 8 Understand the four financial statements and how they are prepared.

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Chapter

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Net income will result during a time period when:

a assets exceed liabilities.

b assets exceed revenues.

c expenses exceed revenues.

d revenues exceed expenses.

Review Question

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Reports the revenues and expenses for a specific period of time.

Net income – revenues exceed expenses.

Net loss – expenses exceed revenues.

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Statement indicates the

reasons why owner’s

equity has increased or

decreased during the

period.

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Reports the assets, liabilities, and owner’s equity at a specific date.

Assets listed at the top, followed by liabilities and owner’s equity.

Total assets must equal total liabilities and

owner’s equity.

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Statement of Cash Flows

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Chapter

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Statement of Cash Flows

Information for a

specific period of time.

Answers the following:

from?

for?

in the cash balance?

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Chapter

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Which of the following financial statements is

prepared as of a specific date?

a Balance sheet

b Income statement

c Owner's equity statement

d Statement of cash flows.

Review Question

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Chapter

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Q19 “A company’s net income appears directly

on the income statement and the owner’s equity

statement, and it is included indirectly in the

company’s balance sheet.” Do you agree? Explain.

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Chapter

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Forensic Accounting

Careers with insurance companies and law offices to conduct

investigations into theft and fraud.

Opportunities in Government

Careers with the IRS, the FBI, the SEC, and in public

colleges and universities.

Private Accounting

Careers in industry working in cost accounting, budgeting,

accounting information systems, and taxation.

LO 9 Explain the career opportunities in accounting.

Accounting Career Opportunities

Public Accounting

Careers in auditing and taxation serving the general public.

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Chapter

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