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Accounting Chapter 1 - PPT
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Accounting
Chapter 1
Not to study: Appendix 1 A: Career opportunities in Accounting (p. 1-23 up to p. 1-24)
Assets = Liabilities + Owner’s Equity
Assets = Ex. + Cash + Acc. Receivable + Supplies + Equipment
L + OE = Acc. Payable + Owner’s Capital – Owner’s Drawings + Revenues - Expenses
LO 1 Identify the activities and users associated with accounting.
You want to invest in Tesla Motors, Inc. What was the amount of Automotive Revenues in the year ended December 31,
2015 with respect to the previous year? Was the company profitable?
How to get there?
• Identify each sale, each
return and other relevant
economic event
• Record these events
Then you’ll be able to
communicate afterwards (in
the aggregate)
Accounting consists of 3 activities: Identification: Select economic events (transactions)
Recording: Record, classify and summarize
Communication: Prepare accounting reports
Analyze and interpret for users
Who Uses Accounting Data?
Internal Users: Finance - Is cash sufficient to pay dividends to SAP shareholders?
A Marketing – What price should Sony charge for a cell phone to maximize the company's net income?
AYYYYYYYYYYYYY Human Resources – Can Toyota afford to give its employees pay raises this year?
AYYYYYYYYYYYYY Management - Which product line is the most profitable? Should any product lines be eliminated?
External Users: Investors – How does company X compare in size & profitability with Y? Is it earning enough?
Creditors – Will Singapore Airlines be able to pay its debts as they come due?
(Exercise) Identifies (I) – Records (R) – Communicate (C)
Analyzing and interpreting information.
Classifying economic events.
Explaining uses, meaning, and limitations of data.
Keeping a systematic chronological diary of events.
Measuring events in dollars and cents.
Preparing accounting reports.
Reporting information in a standard format.
Selecting economic activities relevant to the
company.
Summarizing economic events.
Exercises
E1-
LO 2 Explain the building blocks of accounting: ethics, principles, and assumptions.
Ethics in Financial Reporting:
- Financial scandals include: Satyam Computer Services (IND), Toshiba (JPN), Pou Sheng International (HKG), Siwei (CHN) ...
- Effective financial reporting depends on sound ethical behavior
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 options
<Generally Accepted Accounting Principles>
Standards that are generally accepted and universally practiced.
These standards indicate how to report economic events.
Standard-setting bodies: Financial Accounting Standards Board (FASB)
- International Accounting Standards Board (IASB)
Measurement Principles:
Historical Cost Principle (or cost principle):
Record assets at their cost.
Fair Value Principle: Assets and liabilities
should be reported at fair value (the price
received to sell an asset or settle a liability)
Selection of which principle to follow generally
relates to trade-offs between relevance and
faithful representation.
<Assumptions>
Monetary Unit Assumption:
Include in accounting records only transaction data that can be expressed in terms of money
Economic Entity Assumption:
Activities of entity be kept separate and distinct from activities of its owner and all other entities (see ‘forms of...’)
<Forms of businesses>
Proprietorship: Partnership: Corporation:
- Owned by one person • Owned by two or more persons • Ownership divided into shares
- Owner is often manager • Generally unlimited personal liability • Separate legal entity organized
or operator under state corporation law
- Owner receives any profits, • Partnership agreement • Limited liability
suffers any losses & is per- • Often retail & service-type businesses
sonally liable for all debts
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
A business organized as a separate legal entity under jurisdiction corporation law having ownership divided
into shares of stock is a ...
a) proprietorship b) partnership (c) corporation d) sole proprietorship
[E1-4] – p. 1-36: True or false + explain
1) Julia A/S owns buildings that are worth substantially more than they originally cost. In an effort to provide more I write
It II relevant information, Julia reports the buildings at fair value in its accounting reports.
2) Dekalb Creations includes in its accounting records only transaction data that can be expressed in terms of money.
3) Omar Shariff, owner of Omar’s Oasis, records his personal living costs as expenses of the business.
but postpones payment until a later date.
Transaction 6. Softbyte performs €3,500 of services. The company receives cash of €1,500 from customers, and
it bills the balance of €2,000 on account.
Transaction 7. Softbyte pays the following expenses in cash for September: office rent €600, salaries and wages
of employees €900, and utilities €200.
Transaction 8. Softbyte pays its €250 Daily News bill in cash. The company previously (in Transaction 5)
recorded the bill as an increase in Accounts Payable.
Transaction 9. Softbyte receives €600 in cash from customers who had been billed for services (in Transact. 6).
Transaction 10. Ray Neal withdraws €1,300 in cash from the business for his personal use.
- E1 - E1 – P1 •
<Summary of Transactions>
Each transaction analyzed in terms of effect on:
- 3 components of basic accounting equation: Assets, Liabilities & Owner’s Equity
- Specific types of items, such as Cash
Two sides of equation must always be equal
LO 5 Describe the four financial statements and how they are prepared.
<The Four Financial Statements>
Companies prepare 4 financial statements:
Income Statement Owner's Equity Statement
Statement of Financial Position Statement of Cash Flows
Net income will result during a time period when:
a) A>L b) A > Rev c) Expenses > Rev (d) Rev > Expenses
<Income Statement>
- Reports revenues and expenses for a specific period of time
- Lists revenues first, followed by expenses
- Shows net income (or net loss)
- Does not include investment and withdrawal transact. between owner and business in measuring net income
<Owner’s Equity Statement>
- Reports changes in owner’s equity for a specific period of time
- Time period is the same as that covered by the income statement
<Statement of Financial Position>
- Reports assets, liabilities, and owner's equity at a specific date
- Lists assets at top, followed by liabilities and owner’s equity
- Total assets must equal total owner’s equity and liabilities
- Snapshot of company’s financial condition at a specific moment in time (usually month- or year-end)
<Statement of Cash Flows>
= Information on cash receipts and payments for a specific period of time
Answers the following:
Where did the cash come from? What was the cash used for? What was the change in cash balance?
<Financial Statements>
Which of the following financial statements is prepared as of a specific date?
(a) Statement of financial position b) Income statement c) OE statement d) Statement of cash flows
Softbyte statements for the Month Ended September 30, 2020
Income Statement Owner’s Equity Statement
Revenues 4,700 Owner’s capital, Jan. 1 0
Service Revenue Investments 15,
Expenses Net income 2,
Salaries and wages expense 90
0
(Drawings) 1,
Rent expense 60
0
Advertising expense 25
0
Utilities expense 20
0
Total expenses 1,
Net Income 2,750 Owner’s capital, Dec. 31 16,
Statement of Financial Position
Assets Owner’s Equity and Liabilities:
Cash 8,050 Accounts payable 1,
Accounts receivable 1,400 Notes payable 0
Supplies 1,
Equipment 7,000 Owner’s Capital 16,
Land
Total assets 18,050 Total Owner’s equity
and liabilities
18,
Statement of Cash Flows
Cash flows from operating activities
Cash receipts from revenues 3,
Cash payments from expenses (1,950)
Net cash from operating activities 1,
Cash flows from investing activities
Purchase of equipment (7,000)
Cash flows from financing activities
Investments by owner 15,
Drawings by owner (1,300)
Net cash from financing activities 13,
Net increase in cash 8,
Cash at beginning of period 0
Cash at end of period € 8,
Was dit document nuttig?
Accounting Chapter 1 - PPT
Vak: Accounting
155 Documenten
Studenten deelden 155 documenten in dit vak
Universiteit: Arteveldehogeschool
Was dit document nuttig?
Accounting
Chapter 1
Not to study: Appendix 1 A: Career opportunities in Accounting (p. 1-23 up to p. 1-24)
Assets = Liabilities + Owner’s Equity
Assets = Ex. + Cash + Acc. Receivable + Supplies + Equipment
L + OE = Acc. Payable + Owner’s Capital – Owner’s Drawings + Revenues - Expenses
LO 1 Identify the activities and users associated with accounting.
You want to invest in Tesla Motors, Inc. What was the amount of Automotive Revenues in the year ended December 31,
2015 with respect to the previous year? Was the company profitable?
How to get there?
• Identify each sale, each
return and other relevant
economic event
• Record these events
Then you’ll be able to
communicate afterwards (in
the aggregate)
Accounting consists of 3 activities: Identification: Select economic events (transactions)
Recording: Record, classify and summarize
Communication: Prepare accounting reports
Analyze and interpret for users
Who Uses Accounting Data?
Internal Users: Finance - Is cash sufficient to pay dividends to SAP shareholders?
AMarketing – What price should Sony charge for a cell phone to maximize the company's net income?
AYYYYYYYYYYYYY Human Resources – Can Toyota afford to give its employees pay raises this year?
AYYYYYYYYYYYYY Management - Which product line is the most profitable? Should any product lines be eliminated?
External Users: Investors – How does company X compare in size & profitability with Y? Is it earning enough?
Creditors – Will Singapore Airlines be able to pay its debts as they come due?
(Exercise) Identifies (I) – Records (R) – Communicate (C)
Analyzing and interpreting information.
Classifying economic events.
Explaining uses, meaning, and limitations of data.
Keeping a systematic chronological diary of events.
Measuring events in dollars and cents.
Preparing accounting reports.
Reporting information in a standard format.
Selecting economic activities relevant to the
company.
Summarizing economic events.
Exercises
E1-1
1
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