Professional Documents
Culture Documents
Year
: 2010
CHAPTER 1
ACCOUNTING IN ACTION
Lecture 1 - 2
Slide
1-3
Chapter
Accounting in Action
Financial Accounting, IFRS Edition
Weygandt Kimmel Kieso
Slide
1-4
Study
Study Objectives
Objectives
Slide
1-5
1.
2.
3.
4.
5.
6.
7.
8.
Accounting
Accounting in
in Action
Action
What is
Accounting?
Three
activities
Who uses
accounting
data?
Slide
1-6
The Building
Blocks of
Accounting
Ethics in
financial
reporting
Accounting
standards
Assumptions
The Basic
Accounting
Equation
Assets
Liabilities
Equity
Using the
Accounting
Equation
Transaction
analysis
Summary of
transactions
Financial
Statements
Income
statement
Retained
earnings
statement
Statement of
financial
position
Statement of
cash flows
What
What is
is Accounting?
Accounting?
The purpose of accounting:
Slide
1-7
(1)
to identify,
identify record,
record and communicate the economic events of an
(2)
organization to
(3)
interested users.
What
What is
is Accounting?
Accounting?
Three Activities
Illustration 1-1
The activities of the
accounting process
What
What is
is Accounting?
Accounting?
Who Uses Accounting Data
External Users
Internal Users
Human
Resources
Taxing
Authorities
Labor
Unions
Finance
Management
Customers
Creditors
Marketing
Slide
1-9
Regulatory
Agencies
Investors
What
What is
is Accounting?
Accounting?
Common Questions Asked
Slide
1-10
User
Human Resources
Investors
Management
Finance
Marketing
Creditors
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Ethics In Financial Reporting
Standards of conduct by which ones actions are judged as right or wrong, honest or dishonest, fair or not fair,
are Ethics.
Slide
1-11
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Ethics In Financial Reporting
Slide
1-12
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Review Question
Ethics are the standards of conduct by which one's actions are judged as:
Slide
1-13
a.
right or wrong.
b.
honest or dishonest.
c.
d.
Solution on
notes page
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Accounting Standards
International Accounting Standards Board (IASB)
http://www.iasb.org/
International Financial Reporting Standards (IFRS)
Slide
1-14
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Measurement Principles
Cost Principle (Historical) dictates that companies record
assets at their cost.
Issues:
Reported at cost when purchased and also over the time the
asset is held.
Cost easily verified, market value is often subjective.
Fair value information may be more useful.
Slide
1-15
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Measurement Principles
Fair Value Principle indicates that assets and liabilities should
be reported at fair value.
In determining which measurement principle to use, companies
weigh the factual nature of cost figures versus the relevance of
fair value.
Only in situations where assets are actively traded, such as
investment securities, is the fair value principle applied.
Slide
1-16
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Assumptions
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.
Proprietorship.
Partnership.
Forms of Business
Ownership
Corporation.
Slide
1-17
SO 5 Explain the monetary unit assumption and the economic entity assumption.
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Proprietorship
Slide
1-18
Partnership
Corporation
Generally owned
by one person.
Owned by two or
more persons.
Ownership divided
into shares
Often small
service-type
businesses
Owner receives
any profits, suffers
any losses, and is
personally liable for
all debts.
Generally unlimited
personal liability
Separate legal
entity organized
under state
corporation law
Limited liability
Partnership
agreement
SO 5 Explain the monetary unit assumption and the economic entity assumption.
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Review Question
Combining the activities of Kellogg and General Mills would violate the
Slide
1-19
a.
cost principle.
b.
c.
d.
ethics principle.
Solution on
notes page
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Review Question
A business organized as a separate legal entity under state law having ownership divided into shares is a
Slide
1-20
a.
proprietorship.
b.
partnership.
c.
corporation.
d.
sole proprietorship.
Solution on
notes page
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Indicate whether each of the following
statements presented below is true or false.
Slide
1-21
True
False
True
Solution on
notes page
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Indicate whether each of the following
statements presented below is true or false.
4. The primary accounting standard-setting body
outside the United States is the International
Accounting Standards Board (IASB).
5. The cost principle dictates that companies
record assets at their cost. In later periods,
however, the fair value of the asset must be
used if fair value is higher than its cost.
Slide
1-22
Solution on
notes page
True
False
Slide
1-23
SO 5 Explain the monetary unit assumption and the economic entity assumption.
The
The Basic
Basic Accounting
Accounting Equation
Equation
Assets
Assets
Liabilities
Liabilities
Equity
Equity
+
Provides the underlying framework for recording and summarizing economic events.
Applies to all economic entities regardless of size.
Slide
1-24
SO 6
The
The Basic
Basic Accounting
Accounting Equation
Equation
Assets
Assets
Liabilities
Liabilities
Equity
Equity
+
Provides the underlying framework for recording and summarizing economic events.
Assets
Resources a business owns.
Provide future services or benefits.
Cash, Inventory, Equipment, etc.
Slide
1-25
SO 6
The
The Basic
Basic Accounting
Accounting Equation
Equation
Assets
Assets
Liabilities
Liabilities
Equity
Equity
+
Provides the underlying framework for recording and summarizing economic events.
Liabilities
Claims against assets (debts and obligations).
Creditors - party to whom money is owed.
Accounts payable, Notes payable, etc.
Slide
1-26
SO 6
The
The Basic
Basic Accounting
Accounting Equation
Equation
Assets
Assets
Liabilities
Liabilities
Equity
Equity
+
Provides the underlying framework for recording and summarizing economic events.
Equity
Ownership claim on total assets.
Referred to as residual equity.
Share capital and retained earnings.
Slide
1-27
SO 6
The
The Basic
Basic Accounting
Accounting Equation
Equation
Illustration 1-7
Revenues result from business activities entered into for the purpose
of earning income.
Generally results from selling merchandise, performing services,
renting property, and lending money.
Slide
1-28
SO 6
The
The Basic
Basic Accounting
Accounting Equation
Equation
Illustration 1-7
SO 6
The
The Basic
Basic Accounting
Accounting Equation
Equation
Illustration 1-7
Slide
1-30
SO 6
The
The Basic
Basic Accounting
Accounting Equation
Equation
Classify the following items as issuance of
shares, dividends, revenues, or expenses.
Then indicate whether each item increases or decreases equity.
Classification
Slide
1-31
Effect on Equity
1. Rent expense
Expense
Decrease
2. Service revenue
Revenue
Increase
3. Dividends
Dividends
Decrease
4. Salaries expense
Expense
Decrease
Solution on
notes page
SO 6
Using
Using The
The Accounting
Accounting Equation
Equation
Transactions are a businesss 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.
Slide
1-32
SO 7
Using
Using The
The Accounting
Accounting Equation
Equation
Illustration: Are the following events recorded in the accounting records?
Purchase
computer.
Event
Discuss
product
design with
customer.
Illustration 1-8
Pay rent.
Criterion
Slide
1-33
SO 7
Using
Using The
The Accounting
Accounting Equation
Equation
Transaction Analysis
Slide
1-34
SO 7
Transactions
Transactions Analysis
Analysis
Transaction (1). Investment by Shareholders. Ray and
Barbara Neal decides to open a computer programming service
which he names Softbyte. On September 1, 2011, they invest
$15,000 cash in exchange for capital shares. The effect of this
transaction on the basic equation is:
Slide
1-35
Solution on
notes page
SO 7
Transactions
Transactions Analysis
Analysis
Transaction (2). Purchase of Equipment for Cash. Softbyte
purchases computer equipment for $7,000 cash.
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1-36
Solution on
notes page
SO 7
Transactions
Transactions Analysis
Analysis
Transaction (3). Purchase of Supplies on Credit. Softbyte
purchases for $1,600 from Acme Supply Company computer
paper and other supplies expected to last several months.
Slide
1-37
Solution on
notes page
SO 7
Transactions
Transactions Analysis
Analysis
Transaction (4). Services Provided for Cash. Softbyte
receives $1,200 cash from customers for programming services
it has provided.
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1-38
Solution on
notes page
SO 7
Transactions
Transactions Analysis
Analysis
Transaction (5). Purchase of Advertising on Credit. Softbyte
receives a bill for $250 from the Daily News for advertising but
postpones payment until a later date.
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1-39
Solution on
notes page
SO 7
Transactions
Transactions Analysis
Analysis
Transaction (6). Services Provided for Cash and Credit.
Softbyte provides $3,500 of programming services for
customers. The company receives cash of $1,500 from
customers, and it bills the balance of $2,000 on account.
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1-40
Solution on
notes page
SO 7
Transactions
Transactions Analysis
Analysis
Transaction (7). Payment of Expenses. Softbyte pays the
following Expenses in cash for September: store rent $600,
salaries of employees $900, and utilities $200.
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1-41
Solution on
notes page
SO 7
Transactions
Transactions Analysis
Analysis
Transaction (8). Payment of Accounts Payable. Softbyte
pays its $250 Daily News bill in cash.
Slide
1-42
Solution on
notes page
SO 7
Transactions
Transactions Analysis
Analysis
Transaction (9). Receipt of Cash on Account. Softbyte
receives $600 in cash from customers who had been billed for
services [in Transaction (6)].
Slide
1-43
Solution on
notes page
SO 7
Transactions
Transactions Analysis
Analysis
Transaction (10). Dividends. The corporation pays a dividend
of $1,300 in cash.
Slide
1-44
Solution on
notes page
SO 7
Transactions
Transactions Analysis
Analysis
Summary of Transactions
Slide
1-45
SO 7
Illustration 1-10
Tabular summary of
Softbyte transactions
Financial
Financial Statements
Statements
Companies
Companiesprepare
preparefour
fourfinancial
financialstatements
statementsfrom
fromthe
thesummarized
summarizedaccounting
accountingdata:
data:
Income Statement
Slide
1-46
Retained Earnings
Statement
Statement of Financial
Position
Statement of Cash
Flows
SO 8 Understand the four financial statements and how they are prepared.
Financial
Financial Statements
Statements
Review Question
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.
Solution on
notes page
Slide
1-47
SO 8 Understand the four financial statements and how they are prepared.
Financial
Financial Statements
Statements
Income Statement
Slide
1-48
SO 8 Understand the four financial statements and how they are prepared.
Financial
Financial Statements
Statements
Illustration 1-11
Financial statements and
their interrelationships
Slide
1-49
SO 8
Financial
Financial Statements
Statements
Slide
1-50
Retained Earnings
Statement
Illustration 1-11
Financial statements and
their interrelationships
SO 8 Understand the four financial statements and how they are prepared.
Financial
Financial
Statements
Statements
The ending
balance in
retained
earnings is
needed in
preparing the
statement of
financial position
Illustration 1-11
Financial statements and
their interrelationships
Slide
1-51
SO 8 Understand the four financial statements and how they are prepared.
Financial
Financial Statements
Statements
Balance Sheet
Illustration 1-11
Financial statements and
their interrelationships
Slide
1-52
SO 8 Understand the four financial statements and how they are prepared.
Financial
Financial
Statements
Statements
Illustration 1-11
Financial statements and
their interrelationships
Slide
1-53
Financial
Financial Statements
Statements
Statement of Cash Flows
Information for a specific period of time.
Answers the following:
1. Where did cash come from?
2. What was cash used for?
3. What was the change in the cash balance?
Slide
1-54
SO 8 Understand the four financial statements and how they are prepared.
Financial
Financial Statements
Statements
Slide
1-55
SO 8 Understand the four financial statements and how they are prepared.
Answer on
notes page
Slide
1-56
SO 8 Understand the four financial statements and how they are prepared.
Financial
Financial Statements
Statements
Review Question
Which of the following financial statements is prepared as of a specific date?
a.
Balance sheet.
b.
Income statement.
c.
d.
Solution on
notes page.
Slide
1-57
SO 8 Understand the four financial statements and how they are prepared.
Understanding
Understanding U.S.
U.S. GAAP
GAAP
Key Differences
Accounting in Action
Understanding
Understanding U.S.
U.S. GAAP
GAAP
Key Differences
Accounting in Action
Slide
1-59
Understanding
Understanding U.S.
U.S. GAAP
GAAP
Key Differences
Accounting in Action
Slide
1-60
Understanding
Understanding U.S.
U.S. GAAP
GAAP
Looking to the Future
Accounting in Action
Both the IASB and the FASB are hard at work developing standards
that will lead to the elimination of major differences in the way
certain transactions are accounted for and reported. Consider, for
example, that as a result of a joint project on the conceptual
framework, the definitions of the most fundamental elements
(assets, liabilities, equity, revenues, and expenses) may actually
change. However, whether the IASB adopts internal control
provisions similar to those in SOX remains to be seen.
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1-61
Career
Career Opportunities
Opportunities
APPENDIX
Public accounting
Government
Private accounting
Forensic accounting
Slide
1-62
Copyright
Copyright
Copyright 2011 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted 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.
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1-63
Standard Board)
State Generally
SAK
64
66
According USGAAP:
1.Balance Sheet
2.Income Statement
3.Statement of Owners Equity
4.Statement of Cash Flows
5.Note Disclosure
67