Accounting Principles

Prepared by
Christina Sososutiksno
Accounting In Action

What is Accounting?

 Who uses accounting data?

 Brief history of accounting
 Bookkeeping and
accounting
 Accounting and you
 The accounting profession
PREVIEW OF CHAPTER 1

Accounting In Action

The Building Blocks

of Accounting
 Ethics - a fundamental
business concept
 Generally accepted
accounting principles
 Assumptions
 Basic accounting equation
PREVIEW OF CHAPTER 1

Accounting In Action

Using the Building Blocks

 Transaction analysis
 Summary of transactions
Accounting In Action

Financial Statements

 Income Statement
 Owner’s Equity Statement
 Balance Sheet
 Statement of Cash Flows
 WHAT IS ACCOUNTING?
Accounting is an information system that
1) identifies, 2) records, and 3) communicates
the economic events of an organization to
interested users
 ILLUSTRATION 1-1
THE ACCOUNTING PROCESS
Communication
Accounting
Identification Recording Reports

Prepare accounting
reports

SOFTBYTE
Select economic events Record, classify Annual Report

(transactions) and summarize

Analyze and interpret

for users
 ILLUSTRATION 1-2
QUESTIONS ASKED BY INTERNAL USERS

What is the cost of manufacturing

Is cash sufficient to pay bills? each unit of product?

Can we afford to give employee Which product line is the most

pay raises this year? profitable?
 ILLUSTRATION 1-3
QUESTIONS ASKED BY EXTERNAL USERS

How does the company compare

Is the company earning in size and profitability with its
satisfactory income? competitors?
What do we
do if they
catch us?

Will the company be able to pay its debts as they come due?
 ILLUSTRATION 1-4
ACCOUNTING CAREER LADDER
Private Public
Accounting Accounting
VP Finance 10+ years
and Chief Partner
Financial
Officer 6 to 8 years Audit
Corporate Manager
Controller
2 to 4+ years
Senior
Senior Auditor
Accountant
Entry level Junior
Junior Auditor
Accountant
 ILLUSTRATION 1-6
BASIC ACCOUNTING EQUATION

The Basic Accounting Equation

Assets = Liabilities + Owner’s Equity

 ASSETS AS A BUILDING BLOCK

 Assets are resources owned by a business.

 They are used in carrying out such activities as
production, consumption and exchange.
LIABILITIES AS A BUILDING BLOCK

 Liabilities are claims against assets.

 They are existing debts and obligations.
 OWNER’S EQUITY AS
A BUILDING BLOCK

 Owner’s Equity is equal to total assets minus total

liabilities.
 Owner’s Equity represents the ownership claim
on total assets.
 Subdivisions of Owner’s Equity:
1 Capital or Investments by Owner
2 Drawing
3 Revenues
4 Expenses
 INVESTMENTS BY OWNERS
AS A BUILDING BLOCK

 Investments by Owner are the assets the owner

puts in the business.
 These investments increase owner’s equity.
 DRAWINGS AS A
BUILDING BLOCK

Penarikan adalah menarik kas atau aset

lainnya oleh pemilik utk digunakan secara
pribadi.
Penarikan menurunkan modaL pemilik.
 REVENUES AS A
BUILDING BLOCK
Pendapatan/Revenues adalah peningkatan
kotor dalam modal pemilik yg dihasilkan
dari aktivitas bisnis yg dimaksudkan utk
tujuan laba pendapatan/the purpose of
earning income.
 Pendapatan dpt dihasilkan dari penjualan
brg dagang, kinerja jasa, sewa properti,
atau meminjamkan uang.
Pendapatan biasanya dihasilkan dgn adanya
peningkatan dlm aset.
 EXPENSES AS A
BUILDING BLOCK

Beban/Expenses adalah penurunan dalam

modal pemilik yg dihasilkan dari operasi
bisnis.
Mereka adalah beban dari aset yg
dikonsumsi atau jasa yg digunakan dlm
proses memperoleh laba pendapatan.
Contoh beban sewa, beban supplai, beban
pajak.
 ILLUSTRATION 1-7
INCREASES AND DECREASES IN OWNER’S EQUITY

INCREASES DECREASES
Investments Withdrawals
by Owner by Owner
Owner’s
Equity
Revenues Expenses
 ILLUSTRATION 1-8
TRANSACTION IDENTIFICATION PROCESS

Purchase Answer Pay rent

computer telephone
Is the financial position (assets, liabilities, and
owner’s equity) of the company changed?

Yes No Yes

Don’t
Record Record
Record
 TRANSACTION ANALYSIS
TRANSACTION 1

 Ray Neal memutuskan membuka jasa program

komputer.
 Pd tgl 1 september, ia menginvestasikan kas sebesar
$15,000 dlm bisnisnya, yg dinamakan Softbyte.
BANK

Softbyte
 TRANSACTION ANALYSIS
TRANSACTION 1 SOLUTION

A sse ts = L ia b ilit ie s + O w n e r ’ s E q u it y
R . N e a l,
C a sh C a p it a l
(1) +15,000 = +15,000 Investment

Terdpt
Terdptpeningkatan
peningkatandlm
dlmaset
asetyaitu
yaitukas
kas
sebesar,
sebesar,$15,000,
$15,000,dan
danpeningkatan
peningkatandgn
dgn
jumlah
jumlahygygsama
samapada
padamodal
modalpemilik,
pemilik,R.
R.
Neal,
Neal,Capital,
Capital,sebesar
sebesar$15,000.
$15,000.
 TRANSACTION ANALYSIS
TRANSACTION 2

Softbyte membeli peralatan komputer secara tunai

sebesar $7,000
 TRANSACTION ANALYSIS
TRANSACTION 2 SOLUTION

Assets = Liabilities + Owner’s Equity

R. Neal,
Cash + Equipment = Capital
Old Bal. $15,000 $15,000
(2) -7,000 +$7,000
New Bal. $ 8,000 + $7,000 = $15,000

$15,000

Kas
Kasmeningkat
meningkat$7,000,
$7,000,dan
danaset
asetyaitu
yaitu
peralatan
peralatanmeningkat
meningkatsebesar
sebesar$7,000.
$7,000.
 TRANSACTION ANALYSIS
TRANSACTION 3

 Softbyte membeli dari perusahaan Acme Supply (kertas

komputer) dan supplai lainnya pada beberapa bulan
terakhir senilai $1,600.
 Acme setuju membolehkan Softbyte membayar tagihan
ini pada bulan berikutnya yaitu oktober.
 Transaksi ini berkaitan dgn pembelian secara kredit.

Acme Supply Company

Softbyte
 TRANSACTION ANALYSIS
TRANSACTION 3 SOLUTION

Assets = Liabilities + Owner’s Equity

Accounts R. Neal,
Cash + Supplies + Equipment = Payable + Capital
Old Bal. $8,000 $7,000 $15,000
(3) +$1,600 +$1,600
New Bal. $8,000 + $1,600 + $7,000 = $1,600 + $15,000

$16,600 $16,600

Aset
Asetyaitu
yaituperlengkapan/Supplies
perlengkapan/Suppliesmeningkat
meningkat$1,600,
$1,600,
dan
dankewajiban
kewajibanyaitu
yaituutang
utangdagang
dagangmeningkat
meningkatdgn
dgn
jumlah
jumlahyg
ygsama
sama
 TRANSACTION ANALYSIS
TRANSACTION 4

 Softbyte menerima kas senilai 1, 200 dari

pelanggan atas jasa program yg diberikan.
 Transaksi ini menunjukkan prinsip pendapatn yg
berasal dari hasil aktivitas yg dilakukan oleh
Softbyte.

Softbyte
 TRANSACTION ANALYSIS
TRANSACTION 4 SOLUTION

Assets = Liabilities + Owner’s Equity

Accounts R. Neal,
Cash + Supplies + Equipment = Payable + Capital
Old Bal. $8,000 $1,600 $7,000 $1,600 $15,000
(4) +1,200 +1,200 Service Revenue
New Bal. $9,200 + $1,600 + $7,000 = $1,600 + $16,200

$17,800 $17,800

Kas
Kasmeningkat
meningkat$1,200,
$1,200,dan
danmodal
modalR.
R.
Neal,
Neal, meningkat
meningkat$1,200.
$1,200.
 TRANSACTION ANALYSIS
TRANSACTION 5

Softbyte menerima tagihan senilai $250 dari Daily

News utk iklan tapi pembayaran ditunda hingga tgl
berikutnya.

Softbyte Bill

Daily News
 TRANSACTION ANALYSIS
TRANSACTION 5 SOLUTION

Assets = Liabilities + Owner’s Equity

Accounts R. Neal,
Cash + Supplies + Equipment = Payable + Capital
Old Bal. $9,200 $1,600 $7,000 $1,600 $16,200
(5) +250 -250 Advertising Expense
New Bal. $9,200 + $1,600 + $7,000 = $1,850 + $15,950

$17,800 $17,800

Accounts
AccountsPayable
Payableisisincreased
increased$250,
$250,and
and
R.
R.Neal,
Neal,Capital
Capitalisisdecreased
decreased$250.
$250.
 TRANSACTION ANALYSIS
TRANSACTION 6

 Softbyte provides $3,500 of programming services

for customers.
 Cash of $1,500 is received from customers, and
the balance of $2,000 is billed on account.

Softbyte
Bill
 TRANSACTION ANALYSIS
TRANSACTION 6 SOLUTION

Assets = Liabilities + Owner’s Equity

Accounts Accounts R. Neal,
Cash + Receivable + Supplies + Equipment = Payable + Capital
Old Bal. $ 9,200 $1,600 $7,000 $1,850 $15,950
(6) +1,500 +2,000 +3,500 Service
New Bal. $10,700 + $2,000 + $1,600 + $7,000 = $1,850 + $19,450
Revenue
$21,300 $21,300

Cash
Cashisisincreased
increased$1,500;
$1,500;Accounts
AccountsReceivable
Receivableisisincreased
increased
$2,000;
$2,000;and
andR.
R.Neal,
Neal,Capital
Capitalisisincreased
increased$3,500.
$3,500.
 TRANSACTION ANALYSIS
TRANSACTION 7

Expenses paid in cash for September are store rent

$600, salaries of employees $900, and utilities $200.

$600

$900
Softbyte

$200
 TRANSACTION ANALYSIS
TRANSACTION 7 SOLUTION

Assets = Liabilities + Owner’s Equity

Accounts Accounts R. Neal,
Cash + Receivable + Supplies + Equipment = Payable + Capital
Old Bal. $10,700 $2,000 $1,600 $7,000 $1,850 $19,450
(7) -1,700 -600 Rent Exp.

New Bal. $ 9,000 + -900 Salaries

$2,000 + Exp.
$1,600 + $7,000 = $1,850 + $17,750

$19,600 -200 Salaries Exp.

$19,600

Cash
Cashisisdecreased
decreased$1,700
$1,700and
andR.
R.Neal,
Neal,Capital
Capitalisisdecreased
decreased
by
bythe
thesame
sameamount.
amount.
 TRANSACTION ANALYSIS
TRANSACTION 8

Softbyte pays its $250 Daily News advertising bill in

cash.

Softbyte

Daily News
 TRANSACTION ANALYSIS
TRANSACTION 8 SOLUTION

Assets = Liabilities + Owner’s Equity

Accounts Accounts R. Neal,
Cash + Receivable + Supplies + Equipment = Payable + Capital
Old Bal. $9,000 $2,000 $1,600 $7,000 $1,850 $17,750
(8) -250 -250
New Bal. $8,750 + $2,000 + $1,600 + $7,000 = $1,600 + $17,750

$19,350 $19,350

Cash
Cashisisdecreased
decreased$250
$250and
andAccounts
AccountsPayable
Payableisisdecreased
decreased
by
bythe
thesame
sameamount.
amount.
 TRANSACTION ANALYSIS
TRANSACTION 9

The sum of $600 in cash is received from

customers who have previously been billed
for services (in Transaction 6).

Softbyte
 TRANSACTION ANALYSIS
TRANSACTION 9 SOLUTION

Assets = Liabilities + Owner’s Equity

Accounts Accounts R. Neal,
Cash + Receivable + Supplies + Equipment = Payable + Capital
Old Bal. $8,750 $2,000 $1,600 $7,000 $1,600 $17,750
(9) +600 -600
New Bal. $9,350 + $1,400 + $1,600 + $7,000 = $1,600 + $17,750

$19,350 $19,350

Cash
Cashisisincreased
increased$600
$600and
andAccounts
Accounts
Receivable
Receivableisisdecreased
decreasedby
bythe
thesame
sameamount.
amount.
 TRANSACTION ANALYSIS
TRANSACTION 10

Ray Neal withdraws $1,300 in cash

from the business for his personal use.

$1,300
Softbyte
 TRANSACTION ANALYSIS
TRANSACTION 10 SOLUTION

Assets = Liabilities + Owner’s Equity

Accounts Accounts R. Neal,
Cash + Receivable + Supplies + Equipment = Payable + Capital
Old Bal. $9,350 $1,400 $1,600 $7,000 $1,600 $17,750
(10) -1,300 -1,300 Drawings
New Bal. $8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $16,450

$18,050 $18,050

Cash
Cashisisdecreased
decreased$1,300
$1,300and
andR.
R.Neal,
Neal,Capital
Capitalisisdecreased
decreased
by
bythe
thesame
sameamount.
amount.
 FINANCIAL STATEMENTS
After transactions are identified, recorded, and summarized,
4 financial statements are prepared from the summarized
accounting data:
1 An income statement presents the revenues and expenses
and resulting net income or net loss for a specific
period of time.
2 An owner’s equity statement summarizes the changes in
owner’s equity for a specific period of time.
3 A balance sheet reports the assets, liabilities, and owner’s
equity at a specific date.
4 A statement of cash flows summarizes information
about the cash inflows (receipts)
and outflows (payments) for
a specific period of time.
 ILLUSTRATION 1-11
FINANCIAL STATEMENTS AND THEIR INTERRELATIONSHIPS

SOFTBYTE
Income Statement
For the Month Ended September 30, 2002
Revenues
Service revenue $ 4,700
Expenses
Salaries expense $ 900
Rent expense 600
Advertising expense 250
Utilities expense 200
Total expenses 1,950
Net income 2,750

Net income of $2,750 shown on the income statement is added to the

beginning balance of owner’s capital in the owner’s equity statement.
 ILLUSTRATION 1-11
FINANCIAL STATEMENTS AND THEIR INTERRELATIONSHIPS

SOFTBYTE
Owner’s Equity Statement
For the Month Ended September 30, 2002
Capital, September 1 $ –0–
Add: Investments $ 15,000
Net income 2,750 17,750
17,750
Less: Drawings 1,300
Capital, September 30 $ 16,450

Net income of $2,750 is determined from the information in the owner’s

equity column of the Summary of Transactions (Illustration 1-7).
 ILLUSTRATION 1-11
FINANCIAL STATEMENTS AND THEIR INTERRELATIONSHIPS

SOFTBYTE
Owner’s Equity Statement
For the Month Ended September 30, 2002
Capital, September 1 $ –0–
Add: Investments $ 15,000
Net income 2,750 17,750
17,750
Less: Drawings 1,300
Capital, September 30 $16,450

Net income of $2,750 carried forward from the income statement to the
owner’s equity statement. The owner’s capital of $16,450 at the end of the
reporting period is shown as the final total of the owner’s equity column of the
Summary of Transactions (Illustration 1-7).
 ILLUSTRATION 1-11
FINANCIAL STATEMENTS AND THEIR INTERRELATIONSHIPS

SOFTBYTE
Balance Sheet
September 30, 2002
Assets
Cash $ 8,050
Accounts receivable 1,400
Supplies 1,600
Equipment 7,000
Total assets $ 18,050
Liabilities and Owner’s Equity
Liabilities
Accounts payable $ 1,600
Owner’s equity
16,450
R. Neal, capital
Total liabilities and owner’s equity $ 18,050

Owner’s capital of $16,450 at the end of the reporting period shown

in the owner’s equity statement is shown on the balance sheet.
 ILLUSTRATION 1-11
FINANCIAL STATEMENTS AND THEIR INTERRELATIONSHIPS

SOFTBYTE
Balance Sheet
September 30, 2002
Assets
Cash $ 8,050
Accounts receivable 1,400
Supplies 1,600
Equipment 7,000
Total assets $ 18,050
Liabilities and Owner’s Equity
Liabilities
Accounts payable $ 1,600
Owner’s equity

R. Neal, capital
Total liabilities and owner’s equity $ 18,050

Cash of $8,050 on the balance sheet is reported on the statement of cash flows.
 ILLUSTRATION 1-11
FINANCIAL STATEMENTS AND THEIR INTERRELATIONSHIPS

SOFTBYTE
Statement of Cash Flows
For the Month Ended September 30, 2002
Cash flows from operating activities
Cash receipts from revenues $ 3,300
Cash payments for expenses (1,950)
Net cash provided by operating activities 1,350
Cash flows from investing activities
Purchase of equipment (7,000)
Cash flows from financing activities
Investment by owners $ 15,000
Withdraws by owners (1,300)
Net cash provided by financing activities 13,700
Net increase in cash 8,050
Cash at the beginning of the period –0–
Cash at the end of the period $ 8,050

Cash of $8,050 on the balance sheet and statement of cash flows is shown as the
final total of the cash column of the Summary of Transactions (Illustration 1-7).