ACCOUNTING IN ACTION handout

chap 1

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Chapter

1-2

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 stockholders’ equity.

7 Analyze the effects of business transactions on the

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The Building Blocks of Accounting

The Basic Accounting Equation

Using the Basic Accounting Equation

Financial Statements

Transaction analysis Summary of transactions

Income statement Statement of retained earnings Balance sheet Statement of cash flows

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Chapter

1-4

What is Accounting?

SO 1 Explain what accounting is.

The purpose of accounting is to:

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

economic events of an (2) organization to

(3) interested users.

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The accounting process includes

the bookkeeping function.

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SEC Marketing

Finance

Investors

Creditors

Who Uses Accounting Data?

SO 2 Identify the users and uses of accounting.

Customers

Internal Users

External Users

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Chapter

1-7

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?

SO 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

1-8

Discussion Question

SO 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

1-9

Ethics In Financial Reporting

SO 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 passed Sarbanes-Oxley Act of 2002

Effective financial reporting depends on sound ethical behavior

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Chapter

1-10

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

1-11

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 Retained Earnings Statement Statement of Cash Flows Note Disclosure

Financial Statements

Balance Sheet Income Statement Retained Earnings Statement Statement of Cash Flows Note Disclosure

Generally Accepted

Accounting Principles (GAAP)

Generally Accepted

Accounting Principles (GAAP)

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

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Chapter

1-12

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

1-14

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

SO 5 Explain the monetary unit assumption

and the economic entity assumption.

Forms of Business Ownership

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Chapter

1-15

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

for all debts.

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Chapter

1-16

Combining the activities of Kellogg and General

Mills would violate the

a. cost principle

c. monetary unit assumption

d. ethics principle.

Assumptions

Review Question

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Chapter

1-17

A business organized as a separate legal entity

under state law having ownership divided into

Review Question

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Chapter

1-18

Assets = Liabilities + Stockholders’ Stockholders’ 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

SO 6 State the accounting equation, and define

assets, liabilities, and stockholders’ equity.

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Chapter

1-19

Resources a business owns

Provide future services or benefits

Cash, Supplies, Equipment, etc

Assets

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Chapter

1-20

Claims against assets (debts and obligations)

Creditors - party to whom money is owed

Accounts payable, Notes payable, etc

Liabilities

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Chapter

1-21

Ownership claim on total assets

Referred to as residual equity

Paid-in Capital, Retained Earnings (Corporation)

Stockholders’ 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

1-25

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

SO 7 Analyze the effects of business transactions

on the accounting equation.

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Criterion Is the financial position (assets, liabilities, or

stockholders’ equity) of the company changed?

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Chapter

1-27

additional $10,000 in Hardy Company Hardy’s

accountant, Lance Jones, recorded this receipt

as an increase in cash and revenues Is this

treatment appropriate? Why or why not?

See notes page for discussion

Transactions

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Chapter

1-28

Stockholders’ Equity

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

Prepare a tabular analysis of the following transactions for the month of May

Transactions (Problem)

+10,000

Cash ReceivableAccounts Equipment Accounts Payable Common Stock

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2 Purchased equipment for $5,000 cash.

-5,000

Investment

Stockholders’ Equity Cash + ReceivableAccounts + Equipment = Accounts Payable + Common Stock

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3 Paid $400 cash for May office rent.

Retained Earnings

Expense

+

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Retained Earnings

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Retained Earnings

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Retained Earnings

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Retained Earnings

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Retained Earnings

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Retained Earnings

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Chapter

1-37

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

Retained Earnings Statement

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

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Chapter

1-38

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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Retained earnings, May 1 $

-Add: Net income 3,200

Less: Dividends (1,000)

Retained earnings, May 31 $ 2,200

Barone’s Repair Shop Retained Earnings Statement For the Month Ended May 31, 2007

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Statement indicates the

reasons why retained

earnings has increased

or decreased during the

period

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Chapter

1-43

Reports the assets, liabilities, and

stockholders’ equity at a specific date

Assets listed at the top, followed by liabilities

and stockholders’ equity

Total assets must equal total liabilities and

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Chapter

1-44

Cash flow from Operations

Cash receipts from customers $ 5,220 Cash paid for expenses (2,400) Cash provided by operations 2,820

Cash flow from Investing

Purchase of equipment (5,000)

Cash flow from Financing

Investment by owners 10,000 Drawings by owners (1,000) Cash provided by financing 9,000

Statement of Cash Flows

Barone’s Repair Shop For the Month Ended May 31, 2007

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Chapter

1-45

Cash flow from Operations

Cash receipts from customers $ 5,220 Cash paid for expenses (2,400) Cash provided by operations 2,820

Cash flow from Investing

Purchase of equipment (5,000)

Cash flow from Financing

Investment by owners 10,000 Drawings by owners (1,000) Cash provided by financing 9,000

Barone’s Repair Shop For the Month Ended May 31, 2007

Information for a

specific period of time

Answers the following:

from?

for?

in the cash balance?

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Chapter

1-46

Which of the following financial statements is

prepared as of a specific date?

a. Balance sheet

c. Statement of stockholders’ equity

Review Question

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Chapter

1-47

Q19 “A company’s net income appears directly

on the income statement and the retained

earnings statement, and it is included indirectly

in the company’s balance sheet.” Do you agree?

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Chapter

1-48

Ethics: Managing Personal Financial Reporting

When students need money for school, they often

apply for financial aid Why do the Department of

Education and your school want this information?

Bottom line: The worse off you look financially, the

more likely you are to get money

Question: Should you intentionally make yourself

look worse off than you are?

All About You

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Two-thirds (65.6%) of undergraduate students graduate with some debt

Among graduating seniors, the average debt load

is $19,202

All About You

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Chapter

1-50

All About You

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Chapter

1-51

To increase your chances of receiving aid, should you use available cash to pay off your credit card bills, and therefore make yourself look “worse off” to the

financial aid decision makers?

All About You

What Do You Think?

YES: You are simply restructuring your assets and

liabilities to best conform with the preferences that are built into the federal aid formulas.

NO: You are taking advantage of a loophole in the

federal aid rules and potentially depriving someone who

is actually worse off than you from receiving aid.

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Chapter

1-52

in Section 117 of the 1976 United States Copyright Act

without the express written permission of the copyright owner

is unlawful Request for further information should be

addressed to the Permissions Department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher

assumes no responsibility for errors, omissions, or damages,

caused by the use of these programs or from the use of the information contained herein.

Copyright

Tiêu đề	Accounting in action
Trường học	Financial Accounting University
Chuyên ngành	Accounting
Thể loại	Tài liệu
Năm xuất bản	2023
Thành phố	New York

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Số trang	52
Dung lượng	1,79 MB