Transcript Slide 1

SURVEY OF ACCOUNTING
Chapter 1
PowerPoint Presentation by
Gail B. Wright
Professor of Accounting
Bryant University
CARL S. WARREN
© Copyright 2007 Thomson South-Western, a part of The
Thomson Corporation. Thomson, the Star Logo, and
South-Western are trademarks used herein under license.
LEARNING OBJECTIVES
When you finish this
chapter, you should be
able to
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LEARNING OBJECTIVES
1. Describe the types & forms of businesses,
how businesses make money, & business
stakeholders.
2. Describe the 3 business activities of
financing, investing, & operating.
3. Define accounting & describe its role in
business.
Continued
3
LEARNING OBJECTIVES
4. Describe & illustrate the basic financial
statements & how they interrelate.
5. Describe 8 accounting concepts underlying
financial reporting.
4
LEARNING OBJECTIVE
1
Describe the types &
forms of businesses, how
businesses make money,
& business stakeholders.
5
LO 1
What forms do businesses
take and how do they differ?
6
LO 1
3 FORMS OF BUSINESS
•Sole proprietor
•Partnership
•Corporation
•Limited liability
corporation
7
LO 1
5 DIFFERENCES
Ease of formation
Legal liability
Taxation
Limited life
Capital access
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LO 1
DIFFERENCES IN FORMS
OF BUSINESS
Form
Ease
Legal
Liability Taxation
Limited Capital
Life
Access
Proprietorship
Simple
No limit
Non-taxable
Yes
Limited
Partnership
Simple
No limit
Non-taxable
Yes
Average
Corporation
Complex
Limited
Taxable
No
Extensive
Limited
Liability Co.
Moderate
Limited
Non-taxable
Yes
Average
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LO1
HOW DO BUSINESSES
MAKE MONEY?
 Businesses
 Provide goods and services
 Businesses maximize profits
 Must gain advantage over competitors
to maximize profits
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LO 1
PROFITS
REVENUES
=
COSTS
PROFITS
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LO 1
Who are stakeholders and how
are they related to the
corporation?
12
LO 1
A business stakeholder is a
person or entity that has an
interest in the economic
performance and well-being of
a business.
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LO 1
STAKEHOLDERS
Employees/Managers
Customers
Suppliers
Bank, owners
Government
Continued
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LO 1
EXHIBIT 2
Business
Stakeholder
Capital markets
stakeholder
Interest
Examples
Provides financing
Banks, owners,
stockholders
Product/service market Buyers of products,
stakeholders
services and vendors
Customers, suppliers
Government
stakeholders
Collects taxes, fees
from business,
employees
Federal, state, city
government
Internal stakeholders
People employed by
business
Employees, managers
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LEARNING OBJECTIVE
2
Describe the 3
business activities of
financing, investing, &
operating.
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LO 2
BUSINESS ACTIVITIES
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LO 2
FINANCING ACTIVITIES
Financing activities
•
•
Borrowing creates a liability
Issuing ownership shares creates
capital stock
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LO 2
INVESTING ACTIVITIES
Investing activities
•
Obtaining assets to operate business
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LO 2
OPERATING ACTIVITIES
Operating activities
•
Offer product, service
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LEARNING OBJECTIVE
3
Define accounting &
describe its role in
business.
21
LO 3
ROLE OF ACCOUNTING
Accounting is “an information
system that provides reports to
stakeholders about the
economic activities and
condition of a business.”
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LO 3
EXHIBIT 3
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LEARNING OBJECTIVE
4
Describe & illustrate the
basic financial
statements & how they
interrelate.
24
LO 4
Can you name the four
financial statements and
their objectives?
25
LO 4
4 FINANCIAL
STATEMENTS
Income statement
Retained earnings
Balance sheet
Statement cash flows
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LO 4
FINANCIAL STATEMENTS
Financial Statement
Reporting Objective
Income statement
Change in financial condition
Retained earnings
Change in financial condition
Balance sheet
Financial condition
Cash flows
Change in financial condition
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LO 4
INCOME STATEMENT
(Slide 1 of 3)
Reports change in financial condition due to
operations
Revenues and expenses for a period of time
Month, quarter, year
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LO 4
INCOME STATEMENT
(Slide 2 of 3)
The income statement uses the Matching
Concept
Expenses for period are Matched against
Revenues for same period
Revenue – Expenses = Net Income
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LO 4
EXHIBIT 4
30
LO 4
RETAINED EARNINGS
(Slide 1 of 2)
Reports changes in financial condition due to
changes in retained earnings during a
period.
Retained earnings is the portion of net income
retained by the business.
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LO 4
EXHIBIT 5
32
LO 4
BALANCE SHEET
(Slide 1 of 2)
Reports financial condition as of a point in time
Accounting equation
Assets = Liabilities + Stockholders’ Equity
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LO 4
EXHIBIT 6
34
LO 4
STATEMENT OF CASH FLOWS
(Slide 1 of 2)
Reports change in financial condition from
changes in cash during a period that occur
due to
a) Cash flows from operating activities
b) Cash flows from investing activities
c) Cash flows from financing activities
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LO 4
EXHIBIT 7
36
LO 4
INTEGRATED FINANCIAL
STATEMENTS
Statement of cash flows linked to cash on
balance sheet
Net income from income statement linked
to retained earnings statement
Retained earnings linked to balance sheet in
stockholders’ equity
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LO 4
EXHIBIT 8
Hershey Foods Corp
Balance Sheet
Assets (Cash 55)
$3,797
12/31/2004
=
Liabilities
+
=
$2,708
+
Equity (RE 3,469)
$1,089
CASH FLOWS
Operations $797
Investing
<363>
Financing
<494>
Decrease
<60>
Cash 1/1
115
Cash 12/31
RETAINED EARNINGS
INCOME STATEMENT
1/1
Revenues
$4, 429
+NI
591
Expenses
3,838
-Div
386
$ 591
12/31
Net Income
$3,469
$3,469
55
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LEARNING OBJECTIVE
5
Describe 8 accounting
concepts underlying
financial reporting.
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LO 5
ACCOUNTING CONCEPTS
Generally accepted accounting principles
(GAAP)
Business Entity Concept
Objectivity Concept
Cost Concept
Unit of Measure Concept
Going Concern
Adequate Disclosure Concept
Matching Concept
Accounting Period Concept
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LO 5
BUSINESS ENTITY CONCEPT
Applies accounting to a specific entity
Hershey
For profit corporation
Separate from accounting for other entities
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LO 5
COST CONCEPT
Amount initially entered into accounting
records for purchases
Cost of Hershey’s land
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LO 5
GOING CONCERN CONCEPT
Business expects to continue in operations
for an indefinite period of time
Hershey plans to build on land in future
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LO 5
MATCHING CONCEPT
Expenses for a period are matched with
revenue they generate
Hershey subtracts expenses from revenues on
income statement
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LO 5
OBJECTIVITY CONCEPT
Entries into accounting records based on
objective evidence
Hershey’s bank statements support entries in
cash account
45
LO 5
UNIT OF MEASURE CONCEPT
All economic data recorded in dollars
Hershey presents financial statements in dollars
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LO 5
ADEQUATE DISCLOSURE
CONCEPT
Financial statements include all relevant
data needed to understand financial
condition and performance
Hershey provides other disclosures in footnotes
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LO 5
ACCOUNTING PERIOD
CONCEPT
Economic data collected for a period of
time in preparation of
Hershey’s income statement
Hershey’s retained earnings
Hershey’s cash flow statement
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LO 5
RESPONSIBLE REPORTING
Reliability of financial reporting important
To economy
For ability of business to raise money from
investors
Stockholders
Creditors
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CHAPTER 1
THE END
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