01-PSU-ACC 202 - Principles of Accounting 2 - 2022F - Lecture Slides

1
Introduction to Accounting
Chapter
and Business
Financial
and
Managerial
Accounting
14e
Warren
Reeve Instructor: Nguyễn Thị Kim Hương - Hoàng Anh Thư
Duchac Cell: 0983.501512 0994.183.363
© 2017 Cengage Learning . May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
®
CONTENT
1. Nature of Business and Accounting

2. Generally Accepted Accounting Principles
3. The Accounting Equation
4. Business Transactions and Accounting
Equation
5. Financial Statements
© 2017 Cengage Learning®. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Introduction to Accounting and Business
3
Nature of Business and Accounting
• A business is an organization in which basic

resources (inputs), such as materials and labor,
are assembled and processed to provide goods
or services (outputs) to customers.
• The objective of most businesses is to earn a
profit.
o Profit is the difference between the amounts received
from customers for goods or services and the
amounts paid for the inputs used to provide the goods
or services.
Types of Businesses
Service Business Service
Merchandising Business Product
Manufacturing Business Product
Role of Accounting in Business
• Accounting can be defined as an information

system that provides reports to users about the
economic activities and condition of a business.
Managerial Accounting
• The area of accounting that provides internal

users, such as managers and employees, with
information is called managerial accounting, or
management accounting.
• The objective of managerial accounting is to
provide relevant and timely information for
managers’ and employees’ decision-making
needs.
• Managerial accountants employed by a business
are employed in private accounting.
Financial Accounting
• The area of accounting that provides external users,

such as investors, creditors, customers, and the
government, with information is called financial
accounting.
• The objective of financial accounting is to provide
relevant and timely information for the decision-
making needs of users outside of the business.
• General-purpose financial statements are one
type of financial accounting report that is distributed
to external users.
Discussion question for Group
What is the difference between financial

accounting and management accounting?
Generally Accepted
Accounting Principles (GAAP)
(slide 1 of 2)
• Financial information in the United States is

based on generally accepted accounting
principles (GAAP).
• GAAP is a collection of accounting standards,
principles, and assumptions that define how
financial information will be reported.
Assumptions
(slide 1 of 5)
• Financial accounting and generally accepted

accounting principles are based upon the
following assumptions:
o Monetary unit
o Time period
o Business entity
o Going concern
Assumptions
(slide 2 of 5)
• The monetary unit assumption requires that

financial reports be expressed in a single money
unit, or currency.
o This provides a common measurement of the effects
of economic events and transactions on an entity.
o The monetary unit used is normally determined by the
country in which the company operates.
Assumptions
(slide 3 of 5)
• The time period assumption allows a company

to report its economic activities on a regular
basis for a specific period of time.
o In doing so, financial condition and changes in
financial condition are reported periodically on a
consistent basis.
Assumptions
(slide 4 of 5)
• The business entity assumption limits the

economic data in financial reports to that directly
related to the activities of the business.
o In other words, the business is viewed as an entity
separate from its owners, creditors, or other
businesses.
Assumptions
(slide 5 of 5)
• The going concern assumption requires that

financial reports be prepared assuming that the
entity will continue operating into the future.
Principles
(slide 1 of 5)
• The following four principles are an integral part

of financial accounting:
o Measurement
o Historical cost
o Revenue recognition
o Expense recognition
Principles
(slide 2 of 5)
• The measurement principle determines the

amount that will be recorded and reported.
o The measurement principle requires that amounts
be objective and verifiable.
 An amount is objective if it is based upon
independent, unbiased evidence.
 An amount is verifiable if it can be confirmed by a
third party.
o Transactions between two independent parties, called
arm’s-length transactions, provide amounts that are
objective and verifiable.
Principles
(slide 3 of 5)
• Recording an item at its initial transaction price

is called the historical cost principle or cost
principle.
Principles- Discussion question
(slide 3 of 5)
On February 22, Kountry Repair Service extended an

offer of $200,000 for land that had been priced for sale
at $250,000. On April 3, Kountry Repair accepted the
seller’s counteroffer of $230,000 and bought the land
for this amount. On September 15, the land was
assessed at a value of $185,000 for property tax
purposes. On January 9 of the next year, Kountry
Repair was offered $300,000 for the land by a national
retail chain. At what value should the land be recorded
in Kountry Repair Service’s records?
Principles
(slide 4 of 5)
• Revenue is the amount earned for selling goods

or services to customers.
• The revenue recognition principle determines
when revenue is recorded in the accounting
records.
o Normally, revenue is recorded when the services
have been performed or goods are delivered to the
customer.
Principles
(slide 5 of 5)
• Expenses are amounts used to generate

revenue.
• The expense recognition principle, sometimes
called the matching principle, requires expenses
to be recorded in the same period as the related
revenue.
o Doing so allows the reporting of a profit or loss for the
period.
The Accounting Equation
(slide 1 of 2)
• The resources owned by a business are its

assets.
• The rights of creditors are the debts of the
business and are called liabilities.
• The rights of owners are called equity.
o Since stockholders own a corporation, equity is called
stockholders’ equity.
o For a proprietorship, partnership, or limited liability
company, equity is called owner’s equity.
The Accounting Equation
(slide 2 of 2)
• The following equation is called the accounting

equation:
Equity
= +
Assets Liabilities Stockholders’
• Liabilities usually are shown before

Stockholders’ Equity in the accounting
equation because creditors have first rights to
the assets.
Business Transactions and
the Accounting Equation
• An economic event or condition that directly
changes an entity’s financial condition or its
results of operations is a business transaction.
• All business transactions can be stated in terms
of changes in the elements of the accounting
equation.
Transactions
• A corporation issues common stock to investors as

proof of their ownership rights.
• The liability created by a purchase on account is called
an account payable.
• Items such as supplies that will be used in the business
in the future are called prepaid expenses, which are
assets.
• A business earns money by selling goods or services to
its customers. This amount is called revenue.
• Revenue from providing services is recorded as fees
earned.
Transactions
• Revenue from the sale of merchandise is recorded as

sales.
• Other examples of revenue include rent, which is
recorded as rent revenue, and interest, which is
recorded as interest revenue.
• An account receivable is a claim against the customer,
which is an asset.
• Assets used in the process of earning revenue are called
expenses.
• Dividends are distributions of earnings to stockholders.
Classifications of Stockholders’ Equity
Stockholders
’ equity
Commo
n Stock
Retained
Earnings
4
Describe and illustrate how

business transactions can be
recorded in terms of the resulting
change in the elements of the
accounting equation.
1-18
28
4
Transaction A
Nov. 1, 2017 Chris Clark deposited

$25,000 in a bank account in the name
of NetSolutions in exchange for shares
of common stock in the corporation.
4
Transaction A (continued)
Stockholders’
Assets = Equity
CASH COMMON STOCK
a. 25,000 = 25,000
4
Transaction B
Nov. 5, 2017 NetSolutions paid $20,000

for the purchase of land as a future
building site.
.
4
Transaction B (continued)
Stockholders’
Assets = Equity
CASH + LAND COMMON STOCK
Bal. 25,000 = 25,000
b. –20,000 +20,000
Bal. 5,000 20,000 25,000
4
Transaction C
Nov. 10, 2017 NetSolutions
purchased supplies for $1,350 and
agreed to pay the supplier in the
near future.
4
Transaction C (continued)
Stockholders’
Assets = Liabilities + Equity
ACCOUNTS COMMON
CASH + SUPPLIES + LAND PAYABLE + STOCK
=
Bal. 5,000 20,000 25,000
c. +1,350 +1,350
Bal. 5,000 1,350 20,000 1,350 25,000
4
Transaction D
Nov. 18, 2017 NetSolutions received

cash of $7,500 for providing services
to customers.
.
4
Transaction D (continued)
Assets
CASH + SUPPLIES + LAND
Bal. 5,000 1,350 20,000
d. +7,500
Bal. 12,500 1,350 20,000
4
Transaction D (continued)
Liabilities + Stockholders’ Equity

ACCOUNTS COMMON FEES
PAYABLE + STOCK + EARNED
Bal. 1,350 25,000
d. +7,500
Bal. 1,350 25,000 7,500
4
Transaction E
Nov. 30, 2017 NetSolutions paid the

following expenses during the month:
wages, $2,125; rent, $800; utilities,
$450; and miscellaneous, $275.
4
Transaction E (continued)
Assets
Bal. 12,500 1,350 20,000
e. –3,650
Bal. 8,850 1.350 20,000
4
Transaction E (continued)

ACCOUNTS COMMON FEES WAGES RENT UTIL. MISC.
PAYABLE + STOCK + EARNED – EXP. – EXP. – EXP. – EXP.
Bal. 1,350 25,000 7,500
e. –2,125 –800 –450 –275
Bal. 1,350 25,000 7,500 –2,125 –800 –450 –275
4
Transaction F
Nov. 30, 2017 NetSolutions paid

creditors on account, $950.
4
Transaction F (continued)
Assets
Bal. 8,850 1,350 20,000
f. –950
Bal. 7,900 1.350 20,000
4
Transaction F (continued)

ACCOUNTS COMMON FEES WAGES RENT UTIL. MISC.
PAYABLE + STOCK + EARNED – EXP. – EXP. – EXP. – EXP.
Bal. 1,350 25,000 7,500
f. –950
Bal. 400 25,000 7,500 –2,125 –800 –450 –275
4
Transaction G
Nov. 30, 2017 Chris Clark
determined that the cost of supplies
on hand at the end of the month was
$550
4
Transaction G (continued)
Assets
Bal. 7,900 1,350 20,000
g. –800
Bal. 7,900 550 20,000
4
Transaction G (continued)

ACCOUNTS COMMON FEES WAGES RENT SUP. UTIL. MISC.
PAYABLE + STOCK + EARNED – EXP. – EXP. – EXP. – EXP. – EXP.
400 25,000 7,500 –2,125 –800 –450 –275
Bal.
g. –800
Bal. 400 25,000 7,500 –2,125 –800 –800 –450 –275
4
Transaction H
On November 30, 2017, NetSolutions
pays $2,000 to stockholders (Chris
Clark) as dividends.
4
Transaction H (continued)
Assets
Bal. 7,900 550 20,000
h. –2,000
Bal. 5,900 550 20,000
4
Transaction H (continued)

ACCTS. COMMON DIVI- FEES WAGES RENT SUP. UTIL. MISC.
PAY. + STOCK – DENDS + EARNED – EXP. – EXP. – EXP. – EXP. – EXP.
400 25,000 7,500 –2,125 –800 –800 –450 –275
Bal.
h. –2,000
Bal.400 25,000 –2,000 7,500 –2,125 –800 –800 –450 –275
Classifications of Stockholders’ Equity
• Common stock is shares of ownership

distributed to investors of a corporation.
o It represents the portion of stockholders’ equity
contributed by investors.
• Retained earnings is the stockholders’ equity
created from business operations through
revenue and expense transactions.
Financial Statements
Discussion question
• Brief Exercise 1
On June 25, Ritts Roofing extended an offer of
$250,000 for land that had been priced for sale
at $300,000. On July 9, Ritts accepted the seller’s
counteroffer of $275,000. On October 1, the
land was assessed at a value of $280,000 for
property tax purposes. On December 22, Ritts
was offered $305,000 for the land by a national
retail chain. At what value should the land be
recorded in Ritts Roofing's records?
Discussion question
Brief Exercise 2: Accounting equation

Be-The-One is a motivational consulting business.
At the end of its accounting period, December
31, 2017, Be-The-One has assets of $395,000 and
liabilities of $97,000. Using the accounting
equation, determine the following amounts:
A. Stockholders’ equity as of December 31, 2017.
B. Stockholders’ equity as of December 31, 2018,
assuming that assets decreased by $65,000
and liabilities increased by $36,000 during 2018.
sinh viên tự làm bài tập và nộp cho giảng viên
Doing the exercises and problems:

1. BE 1-3/ pp. 34
2. EX 1-12/pp.38
3. PR 1-1A/pp.42
4. PR 1-1B/pp. 45
Brief Exercise
Interstate Delivery Service is owned and operated by Katie

Wyer. The following selected transactions were completed by
Interstate Delivery during May:
1. Received cash in exchange for common stock, $18,000.
2. Paid advertising expense, $4,850.
3. Purchased supplies on account, $2,100.
4. Billed customers for delivery services on account, $14,700.
5. Received cash from customers on account, $8,200.
Indicate the effect of each transaction on the following
accounting equation elements: Assets, Liabilities, Common
Stock, Dividends, Revenue, and Expense. To illustrate, the
answer to (1) follows:
(1) Asset (Cash) increases by $18,000; Common Stock
increases by $18,000.
Exercise
The following selected transactions were completed by Cota

Delivery Service during July:
1. Received cash in exchange for common stock, $35,000.
2. Purchased supplies for cash, $1,100.
3. Paid rent for October, $4,500.
4. Paid advertising expense, $900.
5. Received cash for providing delivery services, $33,000.
6. Billed customers for delivery services on account, $58,000.
7. Paid creditors on account, $2,900.
8. Received cash from customers on account, $27,500.
9. Determined that the cost of supplies on hand was $300 and
$8,600 of supplies had been used during the
month.
10. Paid cash dividends, $2,500.
Exercise
Indicate the effect of each transaction on the accounting

equation by listing the numbers
identifying the transactions, (1) through (10), in a column,
and inserting at the right of each
number the appropriate letter from the following list:
A. Increase in an asset, decrease in another asset.
B. Increase in an asset, increase in a liability.
C. Increase in an asset, increase in stockholders’ equity.
D. Decrease in an asset, decrease in a liability.
E. Decrease in an asset, decrease in stockholders’ equity.
Problem in Group
On September 1 of the current year, Joy Tucker established a

business to manage rental property. She completed the
following transactions during September:
A. Opened a business bank account with a deposit of $36,000
in exchange for common stock.
B. Purchased office supplies on account, $1,800.
C. Received cash from fees earned for managing rental
property, $6,750.
D. Paid rent on office and equipment for the month, $5,000.
E. Paid creditors on account, $1,375.
F. Billed customers for fees earned for managing rental
property, $9,500.
G. I. Determined that the cost of supplies on hand was $350;
therefore, the cost of supplies used was $1,450.
J. Paid dividends, $3,000.
Problem in Group
1. Indicate the effect of each transaction and the balances

after each transaction, using the following tabular
headings:
2. Briefly explain why issuing common stock and revenues

increased stockholders’ equity, while dividends and
expenses decreased stockholders’ equity.
3. Determine the net income for September.
4. How much did September's transactions increase or
decrease retained earnings?
Learn more
https://www.youtube.com/watch?v=bG963a00ZvM&t=35s

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1

1. Nature of Business and Accounting

• A business is an organization in which basic

Service Business Service

Merchandising Business Product

Manufacturing Business Product

• Accounting can be defined as an information

• The area of accounting that provides internal

• The area of accounting that provides external users,

What is the difference between financial

• Financial information in the United States is

• Financial accounting and generally accepted

• The monetary unit assumption requires that

• The time period assumption allows a company

• The business entity assumption limits the

• The going concern assumption requires that

• The following four principles are an integral part

• The measurement principle determines the

• Recording an item at its initial transaction price

On February 22, Kountry Repair Service extended an

• Revenue is the amount earned for selling goods

• Expenses are amounts used to generate

• The resources owned by a business are its

• The following equation is called the accounting

• Liabilities usually are shown before

• A corporation issues common stock to investors as

• Revenue from the sale of merchandise is recorded as

Describe and illustrate how

Nov. 1, 2017 Chris Clark deposited

Nov. 5, 2017 NetSolutions paid $20,000

Nov. 18, 2017 NetSolutions received

Liabilities + Stockholders’ Equity

Nov. 30, 2017 NetSolutions paid the

Liabilities + Stockholders’ Equity

Nov. 30, 2017 NetSolutions paid

Liabilities + Stockholders’ Equity

Liabilities + Stockholders’ Equity

Liabilities + Stockholders’ Equity

• Common stock is shares of ownership

Brief Exercise 2: Accounting equation

Doing the exercises and problems:

Interstate Delivery Service is owned and operated by Katie

The following selected transactions were completed by Cota

Indicate the effect of each transaction on the accounting

On September 1 of the current year, Joy Tucker established a

1. Indicate the effect of each transaction and the balances

2. Briefly explain why issuing common stock and revenues

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