Slide

1-1
 Chapter 1

Accounting in Action

Financial Accounting, IFRS Edition

Weygandt Kimmel Kieso
Slide
1-2
 Accounting
Accounting in
in Action
Action

The Building The Basic Using the

What is Financial
Blocks of Accounting Accounting
Accounting? Equation Statements
Accounting Equation

Three Ethics in Assets Transaction Income

activities financial Liabilities analysis statement
Who uses reporting Summary of Retained
Equity
accounting Accounting transactions earnings
data? standards statement
Assumptions Statement of
financial
position
Statement of
cash flows

Slide
1-3
 What
What is
is Accounting?
Accounting?

The purpose of accounting:

(1) to identify,
identify record,
record and communicate the economic
events of an

(2) organization to

(3) interested users.

Slide
1-4 SO 1 Explain what accounting is.
 What
What is
is Accounting?
Accounting?
Illustration 1-1
The activities of the
Three Activities accounting process

The accounting process includes

the bookkeeping function.

Slide
1-5 SO 1 Explain what accounting is.
 What
What is
is Accounting?
Accounting?

Who Uses Accounting Data

External
Internal Users
Human Taxing
Users
Resources Authorities
Labor
Unions
Finance
Management Customers

Creditors

Marketing Regulatory
Agencies
Investors

Slide
1-6 SO 2 Identify the users and uses of accounting.
 What
What is
is Accounting?
Accounting?
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. Should any product lines be

eliminated? Management
4. Is cash sufficient to pay
dividends to shareholders? Finance

5. What price for our product will

maximize net income? Marketing

6. Will the company be able to

pay its debts? Creditors
Slide
1-7 SO 2 Identify the users and uses of accounting.
 The
The Basic
Basic Accounting
Accounting Equation
Equation

Assets = Liabilities + Equity

Provides the underlying framework for recording and

summarizing economic events.

Applies to all economic entities regardless of size.

Slide
1-8 SO 6 State the accounting equation, and define its components.
 The
The Basic
Basic Accounting
Accounting Equation
Equation

Assets = Liabilities + 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
1-9 SO 6 State the accounting equation, and define its components.
 The
The Basic
Basic Accounting
Accounting Equation
Equation

Assets = Liabilities + 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
1-10 SO 6 State the accounting equation, and define its components.
 The
The Basic
Basic Accounting
Accounting Equation
Equation

Assets = Liabilities + 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
1-11 SO 6 State the accounting equation, and define its components.
 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
1-12 SO 6 State the accounting equation, and define its components.
 The
The Basic
Basic Accounting
Accounting Equation
Equation
Illustration 1-7

Expenses are the cost of assets consumed or services used in the

process of earning revenue.
Common expenses are salaries expense, rent expense, utilities
expense, tax expense, etc.

Slide
1-13 SO 6 State the accounting equation, and define its components.
 The
The Basic
Basic Accounting
Accounting Equation
Equation
Illustration 1-7

Dividends are the distribution of cash or other assets to shareholders.

 Reduce retained earnings
 Not an expense

Slide
1-14 SO 6 State the accounting equation, and define its components.
 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 Effect on Equity

1. Rent expense Expense Decrease

2. Service revenue Revenue Increase

3. Dividends Dividends Decrease

4. Salaries expense Expense Decrease

Solution on
Slide
1-15
notes page SO 6 State the accounting equation, and define its components.
 Using
Using The
The Accounting
Accounting Equation
Equation

Transactions are a business’s 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
1-16 SO 7 Analyze the effects of business transactions on the accounting equation.
 Using
Using The
The Accounting
Accounting Equation
Equation
Illustration: Are the following events recorded in the
accounting records?
Discuss Illustration 1-8

Purchase product
Event Pay rent.
computer. design with
customer.

Criterion Is the financial position (assets, liabilities, or

equity) of the company changed?

Record/
Don’t Record

Slide
1-17 SO 7 Analyze the effects of business transactions on the accounting equation.
 Using
Using The
The Accounting
Accounting Equation
Equation

Transaction Analysis

Slide
1-18 SO 7 Analyze the effects of business transactions on the accounting equation.