Business Decisions and

Financial Accounting
Learning Objectives
• Define what accounting is
• Explain the meaning of generally accepted accounting principles and
identify the key items of the conceptual framework
• Describe the purpose, structure, and content of the four basic
financial statements
• Explain how financial statements are used by decision makers
• Describe factors that contribute to useful financial information
• Describe various organizational forms and business decision makers
• Analyze accounting events and evaluate their impact on financial
statements
Definition of Accounting

"Accounting is the art of recording, classifying

and summarising in a significant manner and
in terms of money; transactions and events
which are, in part at least, of a financial
character, and interpreting the results
thereof."
- American Institute of Certified Public Accountants
 The Accounting Process
Communication

Identification Recording Accounti

ng
Reports

Prepare
accounting reports

Record, classify,
Select economic events
and summarize
(transactions)

Analyse and interpret

for users
 Questions Asked By
Internal Users

What is the cost of manufacturing each

unit of product?
Is cash sufficient to pay bills?

Can we afford to give employees pay Which product line is the most
raises this year? profitable?
Questions Asked By
External Users

How does the company compare in size

Is the company earning and profitability with its competitors?
satisfactory income?

Will the company be able to pay its debts as they come due?
Bookkeeping vs. Accounting
Basis Bookkeeping
Scope Identifying financial transactions;
measuring them in money terms;
recording them in the books of accounts
and classifying them
Accounting
Summarizing the recorded transactions,
interpreting them and communicating the
results

Stage It is a primary stage It is a secondary stage. It begins where

bookkeeping ends

Objective Maintain systematic records of financial Ascertain net results of operations and
transactions financial position and to communicate
information to the interested parties

Job Nature Routine Analytical and dynamic

Staff Junior Senior

Relation Bookkeeping is the basis for accounting. Accounting begins where bookkeeping
ends.

Skills Mechanical in nature and thus, does not Requires special skills and ability to analyse
require special skills. and interpret.
 Branches of Accounting
 Financial accounting - associated with preparing
reports for external users i.e. creditors, investors
 Cost accounting - it ascertains the cost of products
manufactured or services rendered and helps the
management in decision-making and exercising
controls.
 Managerial accounting - accounting to guide
management in making decisions about the business
i.e. break even analysis, profit planning, budgeting
 The Accounting Profession
 Public accountants offer their expertise to the general
public through the services they perform.
 Private accountants are employees of individual
companies and are involved in a number of activities,
including cost and tax accounting, systems, and internal
auditing.
 Not-for-profit accounting includes reporting and control
for government units, foundations, hospitals, labour
unions, colleges/universities, and charities.
 Organizational Forms
 A business owned by one person is generally a
proprietorship
 A business owned by two or more persons
associated as partners is a partnership
 A business organized as a separate legal entity under
corporation law and having ownership divided into
transferable shares is called a corporation
Types of Businesses

Service Merchandising Manufacturing

Cebu Pacific SM Hypermarket Ford Motor Company
- Transportation services - General merchandise - Cars, trucks, vans

Walt Disney Company Amazon.com Samsung

- Entertainment services - Books, music, videos - Gadgets, appliances
Conceptual Framework of
Accounting

Establishes the concepts that underlie

financial reporting.

• First Level = Basic objective

• Second Level = Qualitative characteristics and

elements of financial statements

• Third Level = Recognition, measurement, and

disclosure concepts
 ASSUMPTIONS PRINCIPLES CONSTRAINTS
1. Economic entity 1. Measurement 1. Cost
2. Going concern 2. Revenue recognition 2. Materiality
3. Monetary unit 3. Expense recognition
Third
level
4. Periodicity 4. Full disclosure
5. Accrual

QUALITATIVE
CHARACTERISTICS ELEMENTS
1. Fundamental 1. Assets
qualities 2. Liabilities Second level
2. Enhancing 3. Equity
qualities 4. Income
5. Expenses

OBJECTIVE
Provide information
about the reporting
entity that is useful
Framework to present and potential First level
equity investors,
for Financial lenders, and other
Reporting creditors in their
capacity as capital
Providers.
 Conceptual Framework of
Accounting
 Generally accepted accounting principles
are a set of standards and rules that are
recognized as a general guide for financial
reporting.
 Accounting standards in the Philippines are
adopted by the Philippines Financial
Reporting Standards Council and approved
by the Securities and Exchange
Commission.
 Objectives of
Financial Reporting
“To provide financial information about the reporting entity
that is useful to present and potential equity investors,
lenders, and other creditors in making decisions in their
capacity as capital providers.”

 Provided by issuing general-purpose financial statements.

 Assumption is that users have reasonable knowledge of business
and financial accounting matters to understand the information.
Qualitative Characteristics of
Accounting Information

The overriding criterion for accounting

choices is decision usefulness.

To be useful, information should possess the

following qualitative characteristics:
 Relevance

 Reliability

 Comparability

 Consistency
Hierarchy of
Accounting Qualities
Enhancing Qualities

Distinguish more-useful information

from less-useful information.
Qualitative Characteristic:
Relevance
Accounting information has relevance if
it makes a difference in a decision.

Relevant information helps users to:

 Forecast future events
 Confirm or correct prior expectations
 Make and influence decisions
Qualitative Characteristic:
Reliability
Reliability means that the information is
free of error and bias.

 To be reliable, accounting information must be

verifiable
 Information must faithfully represent what it
purports to be
Qualitative Characteristic:
Comparability
Application of similar accounting
policies over a period of time

 Accounting standards and policies are applied

consistently from one period to another and
from one region to another
 Allows to compare a set of financial statements
with those of prior periods and those of other
companies
Qualitative Characteristic:
Consistency
Continual use of the same accounting
principle or method in future periods

 Accounting policies should be changed only

when there are valid grounds for such a change
 In case of change, fully disclose its effects in
the notes accompanying the financial
statements
Operating Guidelines
of Accounting
These concepts explain how companies
should recognize, measure, and report
financial elements and events.

Recognition, Measurement, and Disclosure Concepts

ASSUMPTIONS PRINCIPLES CONSTRAINTS
1. Economic entity 1. Measurement 1. Cost
2. Going concern 2. Revenue recognition 2. Materiality
3. Monetary unit 3. Expense recognition 3. Conservatism
4. Periodicity 4. Full disclosure
5. Accrual
 Assumption: Monetary Unit
The monetary unit assumption states that only
transaction data that can be expressed in terms of
money be included in the accounting records.

Customer Satisfaction

Percentage of
International Employees
Should be included
in accounting records Salaries paid
Assumption: Economic Entity
The economic entity assumption states that the
activities of the entity be kept separate and distinct
from the activities of the owner of all other
economic entities.

Example:
Toyota activities can be distinguished from those of
other car manufacturers such as Ford.
Assumption: Periodicity

The time period assumption states that the

economic life of a business can be divided into
distinct and relatively short time periods.
Example: months, quarters, years
Assumption: Going Concern

The going concern assumption assumes that

the enterprise will continue in operation long
enough to carry out its existing objectives.
 Depreciation and amortization are used
 Plant assets recorded at cost instead of
liquidation value
 Items are labeled as fixed or long-term
Accounting Principle:
Revenue Recognition

Revenue should be recognized in the

accounting period in which it is earned.

When a sale is involved, revenue is recognized –

 At the point of sale
 As a percentage of work completed
 At the receipt of cash
Accounting Principle:
Revenue Recognition
Revenue is recognized when it is probable that future
economic benefits will flow to the company and reliable
measurement of the amount of revenue is possible.
Accounting Principle:
Matching
Expenses be matched with revenues in
the period in which efforts are made to
generate revenues.

 Measures business transactions at the time they

take place, rather than when cash changes hands
 Cost incurred on assets provide future benefit
 If costs provides no apparent future benefits,
they are expensed right away
Accounting Principle:
Accrual Basis
Revenues and expenses are recorded as they
are earned and incurred, not necessarily when
cash is received or paid.

 Provides a more accurate picture of a company’s

profitability.
 Statement users can make more informed
judgments concerning the company’s earnings
potential.
 Accrual vs. Cash-Basis Accounting

During 2017, Crown Consulting billed its client for $48,000. On

December 31, it received $41,000, with the remaining $7,000 to
be received next year. Total expenses during 2017 were $31,000
with $3,000 of these costs not yet paid at December 31.
Determine net income under both methods.

Cash-Basis Accounting Accrual-Basis Accounting

Cash receipts $41,000 Revenues earned $48,000
Cash disbursement 28,000 Expenses incurred $31,000
Income $13,000 Income $17,000
Accounting Principle:
Historical Cost

All transactions are recorded at cost.

 Cost is relevant because it represents (a) the

price paid, (b) the assets sacrificed, or (c) the
commitment made at the date of acquisition.
 Cost is reliable because it is (a) objectively
measurable, (b) factual, and (c) verifiable.
Accounting Principle:
Substance Over Form
The economic substance of transactions and
events must be recorded in the financial
statements rather than just their legal form

 Should reflect the underlying realities of

accounting transactions
 A transaction should not be recorded in such a
manner as to hide the true intent of the
transaction, which would mislead the readers of
a company's financial statements
Accounting Principle:
Full Disclosure
Events and circumstances that make a
difference to financial statement users
be disclosed.

Accomplished through:
 Financial Statements
 Notes to the Financial Statements
 Supplementary information
Constraints in Accounting
Constraints permit a company to modify GAAP
without reducing the usefulness of the
reported information.

 Cost – the cost of providing the information must be

weighed against the benefits that can be derived from
using it.

 Materiality - an item is material if its inclusion or

omission would influence or change the judgment of a
reasonable person.

 Conservatism - when in doubt, choose the method that

will least likely overstate the assets and income
 The Accounting System
Business and
Financing Activities

Accounting
System

Accounting Reports
External users Financial Managerial Internal users
(creditors, investors, etc.) (managers, etc.)

Accounting is a system of analyzing, recording, summarizing

and reporting the results of a business’s activities.
Elements of
Financial Statements

 Assets
 Liabilities Financial position
 Equity
 Income
Financial performance
 Expenses
The Basic Accounting Equation
Resources Owned . . . Resources Owed . . .
by the company to creditors to stockholders

Assets = Liabilities + Stockholders’ Equity

Separate Entity
Assumption
Requires that a business
financial reports include only
the activities of the business
and not those of its
stockholders.
Assets

A resource controlled by an entity

as a result of past events from
which future economic benefits
are expected to flow to the entity

Cash Equipment

Supplies Furniture
Assets
Key elements:
 Assets are resources, arising from past
transactions or events
 They embody future economic benefits: the
capacity to contribute directly or indirectly
to future net cash inflows
 Control: one has the capacity to benefit
exclusively from these economic benefits
Liabilities
A present obligation arising
from past events, the settlement
of which is expected to result in
an outflow from the entity of
resources embodying
economic benefits.

Notes Accounts
Payable Payable
Liabilities
Key elements:
 Present responsibility obligating the
company to act or perform in a certain way
(towards third parties)
 Arising from an obligating event in the past
 Leading to a sacrifice of economic benefits
(transfer of cash or other assets, rendering of
services, replacement by another obligation)
Stockholders’ Equity

The residual interest in the assets

of an entity after deducting all
liabilities

Contributed Retained
Capital Earnings

Stock Certificate
Stockholders’ Equity
Key elements:
 The residual interest is the ownership
interest
 Representing owners’ claim to the
company’s net assets
Dividends

Distributions of a company’s
earnings to its stockholders as a
return on their investment.

Dividends are not an expense.

Revenues, Expenses and Net Income

Revenues – Expenses = Net Income

Revenues Expenses
Sales of goods or The costs of business
services to customers. necessary to earn
They are measured at revenues, including
the amount the wages to employees,
business charges the advertising, insurance,
customer. and utilities.
Income
Increases in economic benefits during the accounting
period in the form of inflows or enhancements of assets
or decreases of liabilities that result in increases in
equity, other than those relating to contributions from
equity participants.

Key elements:
 Defined in terms of changes in assets and liabilities

 Results in increases of equity

 Must not come from capital contributions of owners

 Encompasses both revenue and gains

Expense

Decreases in economic benefits during the period in

the form of outflows or depletions of assets or
incurrences of liabilities that result in decreases of
equity, other than those relating to distributions to
equity participants.

Key elements:
 Defined in terms of changes in assets and liabilities

 Results in decreases of equity

 May not relate to distributions to owners

 Encompasses both expenses and losses

Generic Recognition Criteria

An item meeting one of the definitions will only be

recognized in the financial statements, if:
1. It is probable that any future economic benefit
associated with the item will flow to or from the
entity;
2. The item has a cost or value than can be measured
with reliability
Financial Statements
Income  A summary of the revenue and expenses
Statement for a specific period of time.

Statement
 A summary of the changes in the owner’s
of Retained
Earnings equity that have occurred during a specific
period of time.

Balance  A list of the assets, liabilities, and owner’s

Sheet
equity as of a specific date.

Statement
of Cash  A summary of the cash receipts and
Flows disbursements for a specific period of time.
The Income Statement
ABC, INC.
Income Statement
For the Month Ended September 30, 2017 • Reports the amount
Revenues of revenues less
expenses for a
Sales Revenue $ 11,000
period of time.
Total Revenue 11,000
Expenses • Unit of measure
Supplies Expense 4,000 assumption states
that results of
Wages Expense 2,000
business activities
Rent Expense 1,500 should be reported
Utilities Expense 600 in an appropriate
Insurance Expense 300 monetary unit.
Advertising Expense 100
Income Tax Expense 500
Total Expenses 9,000
Net Income $ 2,000
The Statement of Retained Earnings
ABC, INC.
Statement of Retained Earnings
For the Month Ended September 30, 2017
Retained Earnings, Sept. 1, 2017 $ -
Add: Net Income 2,000
Subtract: Dividends (1,000)
Retained Earnings, Sept. 30, 2017 $ 1,000

Reports the way that net income and the

distribution of dividends affected the financial
position of the company during the period.
 The Balance Sheet
ABC, INC.
Balance Sheet
At September 30, 2017
Reports at a point in time: Assets
Cash $ 14,000
• What a business owns Accounts Receivable 1,000
(assets) Supplies 3,000
Equipment 40,000
• What it owes to creditors Total Assets $ 58,000

(liabilities) Liabilities
Accounts Payable $ 7,000
• What is left over for the Notes Payable 20,000
Total Liabilities 27,000
owners (stockholders’
Stockholders' Equity
equity) Contributed Capital 30,000
Retained Earnings 1,000
Total Stockholders' Equity 31,000
Total Liabilities and Stockholders' Equity $ 58,000

BASIC ACCOUNTING EQUATION

Assets = Liabilities + Stockholders’ Equity
 The Statement of Cash Flows
ABC, INC.
Statement of Cash Flows
For the Month Ended September 30, 2017
Cash Flows from Operating Activities
Cash collected from customers $ 10,000 Summarizes how a
Cash paid to suppliers and employees (5,000)
firm’s operating,
Cash Provided by Operating Activities 5,000
Cash Flows from Investing Activities
investing, and
Cash paid to buy equipment (40,000) financing activities
Cash Used in Investing Activities (40,000) caused its cash
Cash Flows from Financing Activities balance to change
Capital contributed by stockholders 30,000 over a particular
Cash dividends paid to stockholders (1,000)
period of time.
Cash borrowed from the bank 20,000
Cash Provided by Financing Activities 49,000
Change in Cash 14,000
Beginning Cash Balance, Sept. 1, 2017 -
Ending Cash Balance, Sept. 30, 2017 $ 14,000

1-55
Notes to the Financial Statements

• Summary of significant accounting policies assumptions and estimates

• Additional information about the summary totals
• Disclosure of important information that is not recognized in the financial statements
• Supplementary information required by the accounting bodies or the SEC
Relationships Among the Financial Statements
ABC, INC.
Income Statement
For the Month Ended September 30, 2017
Revenues
Sales Revenue $ 11,000
1 Net income flows
Total Revenue 11,000
Expenses
from the Income
Supplies Expense 4,000 Statement to the
Wages Expense 2,000
Statement of Retained
Rent Expense 1,500
Utilities Expense 600 Earnings.
Insurance Expense 300
Advertising Expense 100
Income Tax Expense 500
Total Expenses 9,000
Net Income $ 2,000

ABC, INC.
Statement of Retained Earnings
For the Month Ended September 30, 2017
Retained Earnings, Sept. 1, 2017 $ -
Add: Net Income 2,000
Subtract: Dividends (1,000)
Retained Earnings, Sept. 30, 2017 $ 1,000
Relationships Among the Financial Statements
ABC, INC.
Balance Sheet
At September 30, 2017
Assets
2 Ending Retained Earnings Cash $ 14,000
Accounts Receivable 1,000
flows from the Statement of Supplies 3,000
Retained Earnings to the Equipment 40,000
Total Assets $ 58,000
Balance Sheet.
Liabilities
Accounts Payable $ 7,000
Notes Payable 20,000
Total Liabilities 27,000
Stockholders' Equity
Contributed Capital 30,000
ABC, INC. Retained Earnings 1,000
Total Stockholders' Equity 31,000
Statement of Retained Earnings
Total Liabilities and Stockholders' Equity $ 58,000
For the Month Ended September 30, 2017
Retained Earnings, Sept. 1, 2017 $ -
Add: Net Income 2,000
Subtract: Dividends (1,000)
Retained Earnings, Sept. 30, 2017 $ 1,000
 Relationships Among the Financial Statements
ABC, INC. ABC, INC.
Statement of Cash Flows Balance Sheet
For the Month Ended September 30, 2017 At September 30, 2017
Cash Flows from Operating Activities Assets
Cash collected from customers $ 10,000 Cash $ 14,000
Cash paid to suppliers and employees (5,000) Accounts Receivable 1,000
Cash Provided by Operating Activities 5,000 Supplies 3,000
Cash Flows from Investing Activities Equipment 40,000
Total Assets $ 58,000
Cash paid to buy equipment (40,000)
Cash Used in Investing Activities (40,000) Liabilities
Cash Flows from Financing Activities Accounts Payable $ 7,000
Capital contributed by stockholders 30,000 Notes Payable 20,000
Cash dividends paid to stockholders (1,000) Total Liabilities 27,000
Cash borrowed from the bank 20,000 Stockholders' Equity
Cash Provided by Financing Activities 49,000 Contributed Capital 30,000
Change in Cash 14,000 Retained Earnings 1,000
Beginning Cash Balance, Sept. 1, 2017 - Total Stockholders' Equity 31,000
Ending Cash Balance, Sept. 30, 2017 $ 14,000 Total Liabilities and Stockholders' Equity $ 58,000

3 Cash on the Balance Sheet and Cash at End of Year

on the Statement of Cash Flows agree.
Using Financial Statements

Creditors Investors

• Is the company • What immediate

generating enough return (through
cash to make dividends) on my
payments on its contributions?
loans? • What is the long-
• Does the company term return resulting
have enough from the company’s
assets to cover its profits?
liabilities?
What is a business transaction?

A business transaction is an economic event or

condition that directly changes an entity’s financial
condition or directly affects its results of operations.
Transaction Analysis - Illustration

Mr. X decides to open a business offering

computer programming services.

BANK
 Transaction 1

On September 1, Mr. X invests $15,000 cash in

the business, which he names Softbyte.

Trans. # Assets = Liabilities + Owner's Equity

Accounts Mr. X,
Cash Supplies Equipment Payable Capital
(1) 15,000 = 15,000 Investment

There is an increase in the asset Cash, $15,000,

and an equal increase in the owner’s equity,
Mr. X, Capital, $15,000.
 Transaction 2

Softbyte purchases computer equipment

for $7,000 cash.

Trans. # Assets = Liabilities + Owner's Equity

Accounts Mr. X,
Cash Supplies Equipment Payable Capital
15,000 15,000 Investment
(2) (7,000) 7,000
Balance 8,000 + 7,000 = 15,000

Cash is decreased $7,000, and the asset

Equipment is increased $7,000.
 Transaction 3

Softbyte purchases computer paper and supplies

expected to last several months from ABC Co.
for $1,600 on account.

Trans. # Assets = Liabilities + Owner's Equity

Accounts Mr. X,
Cash Supplies Equipment Payable Capital
Balance 8,000 7,000 15,000
(3) 1,600 1,600
Balance 8,000 + 1,600 + 7,000 = 1,600 + 15,000

The asset Supplies and the liability Accounts Payable

are is increased $1,600
 Transaction 4

Softbyte receives $1,200 cash from customers for

programming services it has provided.

Trans. # Assets = Liabilities + Owner's Equity

Accounts Mr. X,
Cash Supplies Equipment Payable Capital
Balance 8,000 1,600 7,000 1,600 15,000
(4) 1,200 1,200 Service Revenue
Balance 9,200 + 1,600 + 7,000 = 1,600 + 16,200

Cash is increased $1,200, and

Mr. X Capital is increased $1,200.
 Transaction 5

Softbyte receives a bill for $250 for advertising its

business but pays the bill on a later date.

Trans. # Assets = Liabilities + Owner's Equity

Accounts Mr. X,
Cash Supplies Equipment Payable Capital
Balance 9,200 + 1,600 + 7,000 = 1,600 + 16,200
(5) 250 (250) Advertising Exp.
Balance 9,200 1,600 7,000 1,850 15,950

Accounts Payable is increased $250, and

Mr. X, Capital is decreased $250.
 Transaction 6

Softbyte provides services of $3,500 for clients

and receives cash of $1,500, with the
balance payable on account.
Trans. # Assets = Liabilities + Owner's Equity
Account Accounts Mr. X,
Cash Receivable Supplies Equipment Payable Capital
Balance 9,200 + 0 + 1,600 + 7,000 = 1,850 15,950
(6) 1,500 2,000 3,500 Service Revenue
Balance 10,700 2,000 1,600 7,000 1,850 19,450

Cash is increased $1,500; Accounts

Receivable is increased $2,000; and Mr. X,
Capital is increased $3,500.
 Transaction 7

Expenses paid in cash for September are store rent

$600, salaries of employees $900, and utilities $200.
Trans. # Assets = Liabilities + Owner's Equity
Account Accounts Mr. X,
Cash Receivable Supplies Equipment Payable Capital
Balance 10,700 2,000 1,600 7,000 1,850 19,450
(7) (600) (600) Rent Exp.
(900) (900) Salaries Exp.
(200) (200) Utilities Exp.
Balance 9,000 + 2,000 + 1,600 + 7,000 = 1,850 + 17,750

Cash is decreased $1,700 and Mr. X, Capital

is decreased the same amount.
 Transaction 8

Softbyte pays its advertising bill of $250 in cash.

Trans. # Assets = Liabilities + Owner's Equity

Account Accounts Mr. X,
Cash Receivable Supplies Equipment Payable Capital
Balance 9,000 2,000 1,600 7,000 1,850 17,750
(8) (250) (250)
Balance 8,750 + 2,000 + 1,600 + 7,000 = 1,600 + 17,750

Cash is decreased $250 and Accounts

Payable is decreased the same amount.
 Transaction 9

The sum of $600 in cash is received from clients who

have previously been billed for services in Transaction 6.

Trans. # Assets = Liabilities + Owner's Equity

Account Accounts Mr. X,
Cash Receivable Supplies Equipment Payable Capital
Balance 8,750 2,000 1,600 7,000 1,600 17,750
(9) 600 (600)
Balance 9,350 + 1,400 + 1,600 + 7,000 = 1,600 + 17,750

Cash is increased $600 and Accounts Receivable

is decreased by the same amount.
 Transaction 10

Mr. X withdraws $1,300 in cash from the

business for his personal use.

Trans. # Assets = Liabilities + Owner's Equity

Account Accounts Mr. X,
Cash Receivable Supplies Equipment Payable Capital
Balance 9,350 1,400 1,600 7,000 1,600 17,750
(10) (1,300) (1,300) Mr. X, Drawings
Balance 8,050 + 1,400 + 1,600 + 7,000 = 1,600 + 16,450

Cash is decreased $1,300 and Mr. X, Capital

is decreased by the same amount.
Financial Statement Preparation
SOFTBYTE
Income Statement
For the Month Ended September 30, 2017
Revenues
Service revenue $ 4,700
Expenses
Salaries expense $ 900
Rent expense 600
Advertising expense 250
Utilities expense 200
Total expenses 1,950
Net income $ 2,750

Net income of $2,750 shown on the income statement is added to the

beginning balance of owner’s capital in the statement of owner’s equity.
Financial Statement Preparation
SOFTBYTE
Statement of Owner's Equity
For the Month Ended September 30, 2017

Mr. X, Capital, September 1 $ -

Add: Investments $ 15,000
Net income 2,750 17,750
$ 17,750
Less: Drawings 1,300
Mr. X, Capital September 30 $ 16,450

Net income of $2,750 is carried forward from the income statement to

the statement of owner’s equity. The owner’s capital of $16,450 at the
end of the reporting period is shown as the final total of the
owner’s equity column in the balance sheet.
 Financial Statement Preparation
SOFTBYTE
Balance Sheet
September 30, 2017
Owner’s capital Assets
of $16,450 at Cash $ 8,050
the end of the Accounts receivable 1,400
reporting period Supplies 1,600
– shown in the Equipment 7,000
statement of Total assets $ 18,050
owner’s equity –
is also shown on Liabilities and Owner's Equity
the balance Liabilities
sheet. Accounts payable $ 1,600
Owner's Equity
Mr. X, Capital 16,450
Total liabilities and owner's equity $ 18,050
 Financial Statement Preparation
SOFTBYTE
Cash Flow Statement
For the Month Ended September 30, 2017
Cash flows from operating activities
Cash receipts from customers $ 3,300
Cash payments to suppliers and employees (1,950) $ 1,350
Net cash provided by operating activities
Cash of $8,050 Cash flows from investing activities
on the balance Purchase of equipment $ (7,000)
sheet is also Net cash used by investing activities (7,000)
reported on the Cash flows from financing activities
cash flow Investments by owner $ 15,000
statement. Drawings by owner (1,300)
Net cash provided by financing activities 13,700
Net increase in cash $ 8,050
Cash, September 1 -
Cash, September 30 $ 8,050
Effects of Transactions on
Owner’s Equity
Owner’s Equity

Decreased by Increased by

Owner’s Owner’s
withdrawals investments
Expenses Revenues

Net
income
Ethical Conduct
When faced with an ethical dilemma:

Identify the pros

and cons of the
situation.

Identify the
alternative courses
of action.

Choose the
alternative that is
the most ethical.
Role of Ethics in
Accounting and Business
“What went wrong with these companies?”