Professional Documents
Culture Documents
Introduction to Accounting
and Business
Accounting, 21st Edition
Warren Reeve Fess
Merchandising Business
Service Business
There are three types of
business organizations
Proprietorship
Partnership
Corporation
A proprietorship Advantages
is owned by one • Ease in organizing
individual. • Low cost of
organizing
Disadvantage
Joe’s • Limited source of
financial resources
• Unlimited liability
Advantages
A partnership is • More financial
owned by two or resources than a
more individuals. proprietorship.
• Additional
management skills.
Joe and Marty’s Disadvantage
• Unlimited liability.
A corporation is
organized under state Advantage
or federal statutes as a • The ability to obtain
separate legal entity. large amounts of
resources by issuing
stocks.
J & M, Inc. Disadvantage
• Double taxation.
Business Strategies
Assess
stakeholders’
2 informational
needs.
The Process of
Providing Information
Design the
Record accounting
economic Accounting
4 data about
business
Information
System
3 information
system to meet
stakeholders’
activities needs.
and events.
The Process of
Providing Information
STAKEHOLDERS
Internal: External:
Owners, Customers,
managers, creditors,
employees government
Prepare
5
accounting
reports for
stakeholders.
Accounting
Information
System
Profession of Accounting
The resources
owned by a
business
The Accounting Equation
Owner’s
Assets = Liabilities + Equity
Accounts Chris Clark,
Cash + Supplies + Land Payable Capital
Bal. 8,850 1,350 20,000 = 1,350 28,850
f. – 950 – 950
Bal. 7,900 1,350 20,000 400 28,850
g. At the end of the month, the cost
of supplies on hand is $550, so
$800 of supplies were used.
Owner’s
Assets = Liabilities + Equity
Accounts Chris Clark,
Cash + Supplies + Land Payable Capital
Bal. 7,900 1,350 20,000 = 400 28,850
g. – 800 – 800 Supplies
expense
Bal. 7,900 550 20,000 400 28,050
h. At the end of the month, Chris
withdrew $2,000 in cash from the
business for personal use.
Owner’s
Assets = Liabilities + Equity
Accounts Chris Clark,
Cash + Supplies + Land Payable Capital
Bal. 7,900 550 20,000 = 400 28,050
h. –2,000 –2,000 With-
drawal
Bal. 5,900 550 20,000 400 26,050
Effects of Transactions on Owner’s Equity
Owner’s Equity
Decreased by Increased by
Owner’s Owner’s
withdrawals investments
Expenses Revenues
Net
income
Financial Statements
• Income statement—A summary of the revenue and
expenses for a specific period of time.
• Statement of owner’s equity—A summary of the
changes in the owner’s equity that have occurred
during a specific period of time.
• Balance sheet—A list of the assets, liabilities, and
owner’s equity as of a specific date.
• Statement of cash flows—A summary of the cash
receipts and disbursements for a specific period of time.
NetSolutions
Income Statement
For the Month Ended November 30, 2005
Fees earned $7 500 00
Operating expenses:
Wages expense $2 125 00
Rent expense 800 00
Supplies expense 800 00
Utilities expense 450 00
Miscellaneous expense 275 00
Total operating expenses 1 135 00
To the statement
Net income $3 050 00
of owner’s equity
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2005
Chris Clark, capital, November 1, 2005 $ 0
Investment on November 1 $25 000 00
From the income
Net income for November 3 050 00
statement
$28 050 00
Less withdrawals 2 000 00
Increase in owner’s equity 26 050 00
To the
Chris Clark, capital, November 30, 2005 $26 050 00
balance sheet
NetSolutions
Balance Sheet From the
November 30, 2005 statement of
Assets Liabilities owner’s equity
Cash $ 5 900 00 Accounts Payable $ 400 00
Supplies 550 00 Owner’s Equity
Land 20 000 00 Chris Clark, cap. 26 050 00
Total liabilities and
Total assets $26 450 00 owner’s equity $26 450 00
Ratio of
liabilities to = 0.015
owner’s equity
Chapter 1
The End