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157 28395 EY111 2013 1 2 1 Chap001
157 28395 EY111 2013 1 2 1 Chap001
ACCOUNTING IN BUSINESS
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Cynthia J. Rooney, Ph.D., CPA
McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
1-2
C1
IMPORTANCE OF ACCOUNTING
Accounting
Identifying
Select transactions and events
Recording
Input, measure and classify
Communicating
Prepare, analyze and interpret
1-3
C2 USERS OF ACCOUNTING
INFORMATION
C2 USERS OF ACCOUNTING
INFORMATION
C2
OPPORTUNITIES IN ACCOUNTING
1-6
C2
C3
Ethics
C3
C4 GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
Financial accounting practice is governed by concepts
and rules known as generally accepted accounting
principles (GAAP).
C4
C4
INTERNATIONAL STANDARDS
IASB
1 - 12
C4
INTERNATIONAL STANDARDS
1 - 13
C4
ACCOUNTING ASSUMPTIONS
Now Future
Going-Concern Assumption Monetary Unit Assumption
Express transactions and events in
Reflects assumption that the business
monetary, or money, units.
will continue operating instead of
being closed or sold.
C4
C4
CHARACTERISTICS OF BUSINESSES
Characteristic Proprietorship Partnership Corporation
Business entity yes yes yes
Legal entity no no yes
Limited liability no* no* yes
Unlimited life no no yes
Business taxed no no yes
One owner allowed yes no yes
C4
CORPORATION
C4
SARBANES-OXLEY (SOX)
Congress passed the Sarbanes-Oxley Act to help curb financial abuses at
companies that issue their stock to the public. Management must issue a report
stating that its internal controls are effective. Auditors must verify the
effectiveness of internal controls.
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Accounting Equation
A1
ASSETS
Cash
Accounts Notes
Receivable Receivable
Resources
owned or
Vehicles controlled by Land
a company
Store Buildings
Supplies
Equipment
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A1
LIABILITIES
Accounts Notes
Payable Payable
Creditors’
claims on
assets
Taxes Wages
Payable Payable
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A1
EQUITY
Owner’s
Claims on
Assets
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P1
P1
P1 TRANSACTION 2: PURCHASE
SUPPLIES FOR CASH
Chas Taylor’s company, FastForward
purchases supplies paying $2,500 cash.
The accounts involved are:
(1) Cash (asset)
(2) Supplies (asset)
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P1 TRANSACTION 3: PURCHASE
EQUIPMENT FOR CASH
FastForward purchases equipment for
$26,000 cash.
The accounts involved are:
(1) Cash (asset)
(2) Equipment (asset)
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P1 TRANSACTION 4: PURCHASE
SUPPLIES ON CREDIT
FastForward purchases Supplies of $7,100 on
account.
The accounts involved are:
(1) Supplies (asset)
(2) Accounts Payable (liability)
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P1 TRANSACTION 5: PROVIDE
SERVICES FOR CASH
The company provides consulting services
receiving $4,200 cash.
The accounts involved are:
(1) Cash (asset)
(2) Revenues (equity)
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P1
SUMMARY OF TRANSACTIONS
Other transactions were executed during December and the summary of
all transactions is shown below:
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P2
FINANCIAL STATEMENTS
Let’s prepare the financial statements reflecting the
transactions we have recorded.
1.Income Statement
2.Statement of Owner’s Equity
3.Balance Sheet
4.Statement of Cash Flows
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P2
INCOME STATEMENT
P2
P2
BALANCE SHEET
The Balance Sheet describes a company’s financial
position at a point in time.
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P2
STATEMENT OF CASH FLOWS
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A2
DECISION ANALYSIS
Return on assets (ROA) is stated in ratio form as
income divided by assets invested.
Net income
Return on assets =
Average total assets
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A3
C5
END OF CHAPTER 01