Transcript No Slide Title

Basic Accounting Concepts
Money
Measurement
Entity
Going Concern
Cost
Dual Aspect
Accounting Period
Conservatism
Realization
Matching
Consistency
Materiality
Basic Accounting Concepts: The
Balance Sheet
1. The Money Measurement Concept
In financial accounting, a record is made only of
information that can be expressed in monetary
terms.
2. The Entity Concept
Accounts are kept for entities, as distinguished
from the persons who are associated with these
entities.
3. The Going Concern Concept
Unless there is good evidence to the contrary,
accounting assumes that an entity is a going
concern.
Basic Accounting Concepts: The
Balance Sheet
4. The Cost Concept
An asset (non monetary asset) is ordinarily entered
initially in the accounting records at the price paid
to acquire it - at its cost.
5. The Dual Aspect Concept
Economic resources of an entity
ASSETS
=
EQUITIES
Claims of creditors & owners of the business
ASSETS
=
Liabilities
Basic Accounting Concepts: The
Balance Sheet
+
Owners’ Equity
Balance Sheet
Balance sheet is financial position of an
accounting entity as of specified moment in
time. Its more formal name is a statement of
financial position. More specifically, the
balance sheet reports the assets and equities
(liabilities and owners’ equity) of the entity
at the specified moment in time. Because
the balance sheet is a snapshot as of an
instant in time, it is a status report (rather
than a flow report).
Basic Accounting Concepts: The
Balance Sheet
GARSDEN CORPORATION
Balance Sheet
As of December 31, 2000
ASSETS
CURRENT ASSETS:
Cash
Marketable securities
Accounts receivable
Inventories
Prepaid expenses
Total current assets
LIABILITIES AND SHAREHOLDEERS' EQUITY
3,448,891
246,221
5,954,588
12,623,412
377,960
22,651,072
PROPERTY, PLANT, AND EQUIPMENT:
Land
642,367
Buildings and equipment, at cost
26,303,481
Accumulated depreciation
(13,534,069) 12,769,412
Net property, plant, and equipment
OTHER ASSETS:
Investment
Intangible assets
Total assets
110,000
63,214
173,214
36,236,065
CURRENT LIABILITIES:
Account payable
6,301,442
Taxes payable
1,672,000
Accrued expenses
640,407
Deffered revenues
205,240
Curr portion of long term debt
300,000
Total current liabilities
LONG TERM DEBT
Total liabilities
SHAREHOLDERS' EQUITY:
Paid in capital
Retained earnings
Total shreholders' equity
3,000,000
12,119,089
5,000,000
19,116,976
Total liabilities and shareholders' equity
Basic Accounting Concepts: The
Balance Sheet
9,119,089
24,116,976
36,236,065
The balance sheet can be interpreted in two ways,
both of which are correct:
1. Resources and Claims View
GARSDEN CORPORATION
Balance Sheet
As of December 31, 2000
ASSETS
The economic
resources of the
entity as of the
date of the
balance sheet
CURRENT ASSETS:
Cash
Marketable securities
Accounts receivable
Inventories
Prepaid expenses
Total current assets
LIABILITIES AND SHAREHOLDEERS' EQUITY
3.448.891
246.221
5.954.588
12.623.412
377.960
CURRENT LIABILITIES:
Account payable
6.301.442
Taxes payable
1.672.000
Accrued expenses
640.407
Deffered revenues
205.240
Curr portion of long term debt 300.000
22.651.072
Total current liabilities
9.119.089
PROPERTY, PLANT, AND EQUIPMENT:
LONG TERM DEBT
Land
642.367
Total liabilities
Buildings and equipment, at cost 26.303.481
Accumulated depreciation
(13.534.069) 12.769.412 SHAREHOLDERS' EQUITY:
Net property, plant, and equipment
Paid in capital
5.000.000
Retained earnings
19.116.976
OTHER ASSETS:
Total shreholders' equity
Investment
110.000
Intangible assets
63.214 173.214
Total assets
36.236.065 Total liabilities and shareholders' equity
3.000.000
12.119.089
24.116.976
36.236.065
Basic Accounting Concepts: The
Balance Sheet
Claims against
the entity as of
the balance
sheet date.
Liabilities are
the claims of
outside parties.
Owners’ equity
shows the claim
of the owners
2. Sources and Uses of Funds View
… to
show the
forms in
which the
entity has
used, or
invested,
the funds
provided
to it as of
the
balance
sheet date
GARSDEN CORPORATION
Balance Sheet
As of December 31, 2000
ASSETS
CURRENT ASSETS:
Cash
Marketable securities
Accounts receivable
Inventories
Prepaid expenses
Total current assets
LIABILITIES AND SHAREHOLDEERS' EQUITY
3,448,891
246,221
5,954,588
12,623,412
377,960
22,651,072
PROPERTY, PLANT, AND EQUIPMENT:
Land
642,367
Buildings and equipment, at cost 26,303,481
Accumulated depreciation
(13,534,069) 12,769,412
Net property, plant, and equipment
OTHER ASSETS:
Investment
Intangible assets
Total assets
110,000
63,214
173,214
36,236,065
CURRENT LIABILITIES:
Account payable
6,301,442
Taxes payable
1,672,000
Accrued expenses
640,407
Deffered revenues
205,240
Curr portion of long term debt 300,000
Total current liabilities
9,119,089
LONG TERM DEBT
Total liabilities
3,000,000
12,119,089
SHAREHOLDERS' EQUITY:
Paid in capital
5,000,000
Retained earnings
19,116,976
Total shreholders' equity
24,116,976
Total liabilities and shareholders' equity
36,236,065
Asset = Liabilities + Owners’ Equity
Basic Accounting Concepts: The
Balance Sheet
.. to show sources
of the funds that
invested in the
assets - it shows
how the assets were
financed. The
several liability
items describe how
much of that
financing was
obtained from trade
creditors, from
lenders, and from
other creditors. The
owners’ equity
shows the
financing supplied
by the owners
Balance Sheet Changes
GARSDEN CORPORATION
Balance Sheet
As of January 1, 2000
Assets
Liabilities and Owners' Equity
$25,000
Paid-in capital
$25,000
Original Capital
Contribution 01/01/00, $25,000
Cash
Total
GARSDEN CORPORATION
Balance Sheet
As of January 2, 2000
Assets
Liabilities and Owners' Equity
$37,500
Note payable
$12,500
Paid-in capital
$25,000
$37,500
$37,500
Cash
Inventory
Total
GARSDEN CORPORATION
Balance Sheet
As of January 3, 2000
Assets
Liabilities and Owners' Equity
$32,500
Note payable
$12,500
$5,000
Paid-in capital
$25,000
$37,500
Total
$37,500
Bank Loan 02/01/00, $12,500
Cash
Purchase of
Merchandise 03/01/00, $5,000
Sale of
Merchandise 04/01/00, $750
Cash
Inventory
Total
GARSDEN CORPORATION
Balance Sheet
As of January 4, 2000
Assets
Liabilities and Owners'
$33,250
Note payable
$4,500
Paid-in capital
Retained earnings
$37,750
Total
Basic Accounting Concepts: The
Balance Sheet
Equity
$12,500
$25,000
$250
$37,750