Professional Documents
Culture Documents
IMChap 001
IMChap 001
Chapter 01
Introducing Accounting in Business
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale
or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on
a website, in whole or part. 1-1
Chapter 01 - Introducing Accounting in Business
PowerPoint® Slides
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale
or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on
a website, in whole or part. 1-2
Chapter 01 - Introducing Accounting in Business
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale
or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on
a website, in whole or part. 1-3
Chapter 01 - Introducing Accounting in Business
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale
or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on
a website, in whole or part. 1-4
Chapter 01 - Introducing Accounting in Business
B. Transaction Analysis
Business activities can be described in terms of transactions and
events. External transactions are exchanges of value between two
entities, which yield changes in the accounting equation. Internal
transactions are exchanges within an entity; they can also affect the
accounting equation. Events refer to those happenings that affect an
entity’s accounting equation and can be reliably measured. The next
section uses the accounting equation to analyze eleven selected
transactions and events. Transactions leave the accounting equation
in balance; assets always equal the sum of liabilities and equity.
Transaction 1: Investment by Owner
+ Assets (Cash) = + Equity (Common Stock)
After this transaction, cash (an asset) and stockholders’ equity equal
the amount invested. The source of the increase in equity is the
owner’s investment (stock issuance), which is included in Common
Stock.
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale
or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on
a website, in whole or part. 1-7
Chapter 01 - Introducing Accounting in Business
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale
or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on
a website, in whole or part. 1-8
Chapter 01 - Introducing Accounting in Business
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale
or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on
a website, in whole or part. 1-10
Chapter 01 - Introducing Accounting in Business
VISUAL #1-1
ASSETS L+E
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale
or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on
a website, in whole or part. 1-11
Chapter 01 - Introducing Accounting in Business
On August 31, 2013, Jane noted the following events which occurred
during the first three months of business:
Checks written during the three month period included the following:
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale
or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on
a website, in whole or part. 1-12
Chapter 01 - Introducing Accounting in Business
Required:
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale
or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on
a website, in whole or part. 1-13
Chapter 01 - Introducing Accounting in Business
1.
Item Assets = Liabilities + Equity
a. Issuance of common stock + 2,000 + 2,000
for cash
b. Revenue received + 11,400 + 11,400
c. Truck and equipment rental – 1,800 – 1,800
d. Truck expenses – 880 – 880
e. Miscellaneous supplies used – 90 – 90
f. Helpers – 4,700 – 4,700
g. Payroll taxes – 500 – 500
h. Insurance – 175 – 175
i. Telephone – 100 – 100
j. Dividend – 2,000 – 2,000
k. Revenue earned + 600 + 600
l. Oil and gas bill not yet paid + 100 – 100
3,755 100 3,655
2.
ULTIMATE LAWN CARE, INC.
Income Statement
For the three months ended August 31, 2013
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale
or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on
a website, in whole or part. 1-14
Chapter 01 - Introducing Accounting in Business
3.
ULTIMATE LAWN CARE, INC.
Balance Sheet
August 31, 2013
Assets Liabilities
Cash.................................. $3,155 Accounts payable ........... $ 100
Accounts receivable....... 600 Equity
Common stock................ 2,000
Retained earnings
(3,655 – 2,000).............. 1,655
Total liabilities and
Total assets...................... $3,755 owner’s equity............. $3,755
Cash inflows...........................................................
(a) Issuance of common stock for cash............ $ 2,000
(b) Fees received................................................. 11,400
Total inflows.................................................... $13,400
Cash outflows.........................................................
(c) Truck and equipment rental.......................... $ 1,800
(d) Truck expenses.............................................. 880
(e) Buy supplies................................................... 90
(f) Pay salaries.................................................... 4,700
(g) Pay taxes........................................................ 500
(h) Buy insurance................................................ 175
(i) Pay phone bill................................................. 100
(j) Dividend to owner.......................................... 2,000
Total outflows................................................. 10,245
Ending cash balance.............................................. $ 3,155
4.
First, note that the issuance of common stock for cash (transaction a)
and the cash dividend (transaction j) affect the cash balance, but do not
enter into the determination of net income. In addition, an expense
(transaction i) is reflected in net income, but has not yet been paid and,
as such, did not impact the cash balance. Finally, a revenue (transaction
k) is reflected in net income, but has not yet been received, and, as such,
did not impact the cash balance.
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale
or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on
a website, in whole or part. 1-15