Transcript Accounting Principles, 3rd Cdn Edition

Chapter 1
Accounting in Action
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition
© 2009 John Wiley & Sons Canada, Ltd.
Accounting & Ethics
•
•
Ethics - “The Language of Business”
Must be understandable, useful, truthful
To Solve Ethical Dilemmas
Ethics

Standards of conduct
used to judge actions
1. Recognize situation and
ethical issues involved
2. Identify and analyse elements
3. Identify alternatives and weigh
effects on stakeholders

Select the most ethical
alternative
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition
© 2009 John Wiley & Sons Canada, Ltd.
Users of Accounting Information
•
Internal Users
• Includes Marketing, Human Resources,
Production, Senior Management
• Used for planning, organizing and running the
business
•
External Users
• Investors, Creditors, Labour Unions,
Customers, Regulators and other authorities
• Used for decisions of ownership, credit,
lending, assess compliance, performance
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition
© 2009 John Wiley & Sons Canada, Ltd.
IFRS
“International Financial Reporting Standards”
• Common set of accounting standards and
principles used throughout the world
• Similar to GAAP’s developed by “CICA”
• Consult with organizations and individuals
• Authority through Canadian and provincial
business and securities statutes
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition
© 2009 John Wiley & Sons Canada, Ltd.
IFRS
Cost Principle – assets are recorded at original
cost
• Going concern – organization will continue to
operate in the foreseeable future
• Monetary unit – only include transactions that
can be expressed as an amount of money
• Economic entity – activities of a unit or
organization in society are kept separate and
distinct from other entities and owner
•
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition
© 2009 John Wiley & Sons Canada, Ltd.
Assets & Liabilities
•
Assets
• Resources owned by the organization
•
Liabilities
• Claims against assets
• Existing debts and obligations
•
Owner’s Equity
•
•
•
•
•
Equals total assets less total liabilities
Represents ownership claim on assets
Components:
Investments – assets put into business by owner
Drawings – cash or other assets withdrawn by owner for
personal use
• Net income (loss) – revenues less expenses
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition
© 2009 John Wiley & Sons Canada, Ltd.
Owner’s Equity
•
•
•
Equals total assets less total liabilities
Represents ownership claim on assets
Components of owner’s equity:
• Investments – assets put into business by
owner
• Drawings – cash or other assets withdrawn by
owner for personal use
• Net income (loss) – revenues less expenses
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition
© 2009 John Wiley & Sons Canada, Ltd.
Revenues & Expenses
•
Revenues
• Result from business activities that are
performed to earn income
• Result in an increase in an asset and in
owner’s equity
•
Expenses
• The cost of assets consumed or services
used in order to earn revenue
• Result in an decrease in an asset and in
owner’s equity
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition
© 2009 John Wiley & Sons Canada, Ltd.
Accounting Equation Revisited
= Liabilities +
Owner’s Equity
1444444444244444444444443
Investments -
Drawings +/-
Net Income (Loss)
14444244443
Assets
Revenues
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition
© 2009 John Wiley & Sons Canada, Ltd.
-
Expenses
Accounting Equation Distinctions
by Type of Organization
•
Sole Proprietorship:
• Assets = Liabilities + Owner’s Equity
•
Partnership:
• Assets = Liabilities + Partner’s Equity
•
Corporation:
• Assets = Liabilities + Shareholders’ Equity
•
Income Trust:
• Assets = Liabilities + Unitholders’ Equity
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition
© 2009 John Wiley & Sons Canada, Ltd.
Financial Statements
•
Prepared after all transactions identified,
recorded and summarized:
• Income Statement – presents revenues, expenses
and net income (loss) for a specific period of time
• Statement of Owner’s Equity – summarizes the
changes in owner’s equity for a specific time period
• Balance Sheet – reports assets, liabilities and owner’s
equity at a specific date
• Cash Flow Statement – summarizes cash inflows and
outflows for a specific period of time
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition
© 2009 John Wiley & Sons Canada, Ltd.
Income Statement
S OFT B Y T E
Inc o me S ta te me nt
Mo nth E nd e d S e p te mb e r 30, 2008
Revenues
Service revenue
$
Expenses
Salaries expense
$
900
Rent expense
600
Advertising expense
250
Utilities expense
200
Total expenses
Net income
$
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition
© 2009 John Wiley & Sons Canada, Ltd.
4,700
1,950
2,750
Statement of Owner’s Equity
S OFT B Y T E
S ta te me nt o f Owne r' s E q uity
Mo nth E nd e d S e p te mb e r 30, 2008
M. Doucet, Capital, September 1
Add: Investments
Net income
$
$ 15,000
2,750
$
Less: Drawings
M. Doucet, Capital September 30
$
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition
© 2009 John Wiley & Sons Canada, Ltd.
17,750
17,750
1,300
16,450
Balance Sheet
Owner’s
capital of
$16,450 is
brought
forward
from the
Statement
of Owner’s
Equity
S OFT B Y T E
B a la nc e S he e t
S e p te mb e r 30, 2008
Assets
Cash
Accounts receivable
Supplies
Equipment
Total assets
$
$
8,050
1,400
1,600
7,000
18,050
$
1,600
$
16,450
18,050
Liabilities and Owner's Equity
Liabilities
Accounts payable
Owner's Equity
M. Doucet, Capital
Total liabilities and owner's equity
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition
© 2009 John Wiley & Sons Canada, Ltd.
Cash Flow Statement
Cash
shown on
the
Balance
Sheet
equals
ending
cash on
the Cash
Flow
Statement
S OFT B Y T E
Ca s h Flo w S ta te me nt
Mo nth E nd e d S e p te mb e r 30, 2008
Cash flows from operating activities
Cash receipts from customers
$ 3,300
Cash payments to suppliers and employees
(1,950)
Net cash provided by operating activities
Cash flows from investing activities
Purchase of equipment
$ (7,000)
Net cash used by investing activities
Cash flows from financing activities
Investments by owner
$ 15,000
Drawings by owner
(1,300)
Net cash provided by financing activities
Net increase in cash
Cash, September 1
Cash, September 30
Weygandt, Kieso, Kimmel, Trenholm, Kinnear Accounting Principles, Third Canadian Edition
© 2009 John Wiley & Sons Canada, Ltd.
$ 1,350
(7,000)
13,700
$ 8,050
$ 8,050