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Accounting: An Overview and Analysis: Accounting Principles, Eighth Edition
Accounting: An Overview and Analysis: Accounting Principles, Eighth Edition
Accounting: An
Overview and
Analysis
Accounting Principles, Eighth Edition
Chapter
1-1
Study
Study Objectives
Objectives
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 owner’s equity.
7. Analyze the effects of business transactions on the
accounting equation.
8. Understand the four financial statements and how they are
prepared.
Chapter
1-2
Accounting
Accounting in
in Action
Action
Using the
The Building The Basic
What is Basic Financial
Blocks of Accounting
Accounting? Accounting Statements
Accounting Equation Equation
Chapter
1-3
What
What is
is Accounting?
Accounting?
Chapter
1-4 LO 1 Explain what accounting is.
What
What is
is Accounting?
Accounting?
Illustration 1-1
Three Activities Accounting process
Chapter
1-5 LO 1 Explain what accounting is.
Who
Who Uses
Uses Accounting
Accounting Data?
Data?
Internal Users
Management IRS
Human Investors
Resources
Labor
Unions
Finance Common Questions
Creditors
Marketing
Customers SEC
External
Users
Chapter
1-6 LO 2 Identify the users and uses of accounting.
Who
Who Uses
Uses Accounting
Accounting Data?
Data?
Common Questions Asked User
1. Can we afford to give our
employees a pay raise? Human Resources
2. Did the company earn a
satisfactory income? Investors
3. Do we need to borrow in the
near future? Management
4. Is cash sufficient to pay
dividends to the stockholders? Finance
5. What price for our product
will maximize net income? Marketing
6. Will the company be able to
pay its short-term debts? Creditors
Chapter
1-7 LO 2 Identify the users and uses of accounting.
Who
Who Uses
Uses Accounting
Accounting Data?
Data?
Discussion Question
Q1. “Accounting is ingrained in our society and it is
vital to our economic system.” Do you agree? Explain.
Chapter
1-8 LO 3 Understand why ethics is a fundamental business concept .
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Chapter
1-9 LO 3 Understand why ethics is a fundamental business concept .
Ethics
Ethics
Review Question
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.
Chapter
1-10 LO 3 Understand why ethics is a fundamental business concept .
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Financial Statements
Various users Statement
Statement ofof Financial
Financial Position
Position
need financial (Balance
(Balance Sheet)
Sheet)
Statement
Statement ofof Income
Income
information Statement
Statement ofof Owners’
Owners’ Equity
Equity
Statement
Statement ofof Cash
Cash Flows
Flows
Notes
Notes to
to Financial
Financial Statements
Statements
Chapter
1-11 LO 4 Explain generally accepted accounting principles and the cost principle.
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Chapter
1-12 LO 4 Explain generally accepted accounting principles and the cost principle.
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Chapter
1-13 LO 4 Explain generally accepted accounting principles and the cost principle.
Assumptions
Assumptions
Review Question
Combining the activities of Kellogg and General
Mills would violate the
a. cost principle.
b. economic entity assumption.
c. monetary unit assumption.
d. ethics principle.
Review Question
A business organized as a separate legal entity
under state law having ownership divided into
shares of stock is a
a. proprietorship.
b. partnership.
c. corporation.
d. sole proprietorship.
Owners’
Assets = Liabilities +
Equity
Owners’
Assets = Liabilities +
Equity
Owners’
Assets = Liabilities +
Equity
Owners’
Assets = Liabilities +
Equity
Record/
Don’t Record
Discussion Question
Q18. In February 2008, Paula King invested an
additional $10,000 in her business, King’s
Pharmacy, which is organized as a proprietorship.
King’s accountant, Lance Jones, recorded this
receipt as an increase in cash and revenues. Is
this treatment appropriate? Why or why not?
Companies
Companies prepare
prepare four
four financial
financial statements
statements from
from
the
the summarized
summarized accounting
accounting data:
data:
Owners’ Statement
Income Balance
Equity of Cash
Statement Sheet
Statement Flows
Chapter
1-36 LO 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.
Chapter
1-37 LO 8 Understand the four financial statements and how they are prepared.
Financial
Financial Statements
Statements
Income Statement
Barone’s Repair Shop Reports the revenues
Income Statement
For the Month Ended May 31, 2007
and expenses for a
Revenues:
specific period of time.
Service revenue $ 5,850
Expenses: Net income – revenues
Salary expense 2,000 exceed expenses.
Rent expense 400
Advertising expense
Total expenses
250
2,650
Net loss – expenses
Net income $ 3,200 exceed revenues.
Chapter
1-38 LO 8 Understand the four financial statements and how they are prepared.
Financial
Financial Statements
Statements
Owners’ Equity
Income Statement Statement
Barone’s Repair Shop Barone’s Repair Shop
Income Statement Owners' Equity Statement
For the Month Ended May 31, 2007 For the Month Ended May 31, 2007
Chapter
1-40 LO 8 Understand the four financial statements and how they are prepared.
Financial
Financial Statements
Statements
Owners’ Equity
Balance Sheet Statement
Barone’s Repair Shop
Barone’s Repair Shop
Balance Sheet
Owners' Equity Statement
May 31, 2007
For the Month Ended May 31, 2007
Assets
Cash $ 6,820 Barone's, Capital May 1 $ -
Accounts receivable 630 Add: Investment 10,000
Equipment 5,000 Net income 3,200
Total assets $ 12,450 13,200
Liabilities Less: Drawings 1,000
Accounts payable $ 250 Barone's, Capital May 31 $ 12,200
Owners' Equity
Barone's, capital 12,200
Total liab. & equity $ 12,450 The ending balance in owner’s equity is
needed in preparing the balance sheet
Chapter
1-41 LO 8 Understand the four financial statements and how they are prepared.
Financial
Financial Statements
Statements
Balance Sheet
Reports the assets,
Barone’s Repair Shop
Balance Sheet liabilities, and owner’s
May 31, 2007 equity at a specific date.
Assets
Cash $ 6,820
Assets listed at the top,
Accounts receivable 630
Equipment 5,000 followed by liabilities
Total assets $ 12,450
and owner’s equity.
Liabilities
Accounts payable $ 250
Owners' Equity
Total assets must equal
Barone's, capital 12,200 total liabilities and
Total liab. & equity $ 12,450
owner’s equity.
Chapter
1-42 LO 8 Understand the four financial statements and how they are prepared.
Financial
Financial Statements
Statements
Statement of Cash Flows
Balance Sheet
Barone’s Repair Shop
Barone’s Repair Shop Statement of Cash Flows
Chapter
1-43 LO 8 Understand the four financial statements and how they are prepared.
Financial
Financial Statements
Statements
Statement of Cash Flows
Information for a
specific period of time. Barone’s Repair Shop
Statement of Cash Flows
For the Month Ended May 31, 2007
Answers the following: Cash flow from Operations
Cash receipts from customers $ 5,220
1. Where did cash come Cash paid for expenses (2,400)
from? Cash provided by operations 2,820
Cash flow from Investing
2. What was cash used Purchase of equipment (5,000)
Cash flow from Financing
for? Investment by owners 10,000
Drawings by owners (1,000)
3. What was the change Cash provided by financing 9,000
in the cash balance? Net increase in cash 6,820
Cash balance, May 1 -
Cash balance, May 31 $ 6,820
Chapter
1-44 LO 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. Owner's equity statement.
d. Statement of cash flows.
Chapter
1-45 LO 8 Understand the four financial statements and how they are prepared.
Financial
Financial Statements
Statements
Discussion Question
Q19. “A company’s net income appears directly
on the income statement and the owner’s equity
statement, and it is included indirectly in the
company’s balance sheet.” Do you agree? Explain.
Chapter
1-46 LO 8 Understand the four financial statements and how they are prepared.
Copyright
Copyright
Copyright © 2006 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted
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caused by the use of these programs or from the use of the
information contained herein.
Chapter
1-47