Accounting Concepts and Procedures Chapter 1 1 - 1
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Transcript Accounting Concepts and Procedures Chapter 1 1 - 1
Accounting Concepts
and Procedures
Chapter 1
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Learning Objective 1
Defining and listing the
function of accounting.
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Users of Accounting Information
Insider managers and owners
Outsiders: – potential investors
– government
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Definition of Accounting
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Accounting is the process that...
analyzes,
records,
classifies,
summarizes,
reports, and...
interprets financial information.
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Definition of Accounting
Accounting converts events into
measurable, monetary numbers.
Information is crucial to decision
making.
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Categories of Business
Organizations
Sole Proprietorship
Partnerships
Corporations
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Categories of Business
Organizations
Sole proprietorship:
– has one owner
– manages the business
– personal assets at risk
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Categories of Business
Organizations
Partnership:
– two or more owners
– shared decision making and risk taking
– ends when partner dies or leaves
– is always a voluntary association
– easy to form but personal assets are at risk
– partnership agreement a must
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Categories of Business
Organizations
Corporation:
– many owners who are called stockholders
– personal assets are not at risk, just the
amount invested in the shares of stock
– indefinite life, but difficult to form
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Classifying
Business Organizations
Service businesses provide services.
Merchandise businesses sell products.
Manufacturing businesses make products.
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Learning Objective 2
Recording transactions in the
basic accounting equation.
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Learning Unit 1-1
What is the accounting equation?
ASSETS = LIABILITIES + OWNER’S EQUITY
Assets are the
resources
of the business.
Liabilities are
the creditor’s
equity.
Owners’ equity
are the rights
of ownership.
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Learning Unit 1-1
Does owner provide
100% financing?
Yes
Owner has all
of the equity.
No
Creditor
equity exists.
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Learning Unit 1-1
The accounting equation must remain in
balance at all times.
An increase to the left side must result in an
increase to the right side.
An increase to the left side causes a
simultaneous decrease in another account
on the left side.
A plus represents an increase and a minus
represents a decrease to a balance.
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Learning Unit 1-2
What is the balance sheet?
It is a formal financial report that contains the
accounting equation in a different format.
It shows the financial position for a certain
date.
It has a definite format including heading,
company name, and date.
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Learning Objective 3
Seeing how revenue, expenses,
and withdrawals expand the
basic accounting equation.
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Learning Unit 1-3
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An expanded accounting equation includes
the following:
revenues
expenses
withdrawals
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Learning Unit 1-3
Assets
Liabilities
Owners’ Equity
Normal Balance
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Learning Unit 1-3
Revenues
Expenses
Withdrawals
Normal Balance
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Learning Unit 1-3 Example
a Clara J. started her accounting practice on
June 1, 200x by investing $5,000.
b On June 2, the business purchased supplies
on credit for $300 and paid $1,200 for a
computer.
c During the month, she performed services
for $1,600 and was paid.
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Learning Unit 1-3 Example
d She paid $300 for advertising.
e The business paid $200 for electricity and
utilities.
f She paid $400 for rent.
What are the effect of these events on the
accounting equation?
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Learning Unit 1-3 Example
Assets = Liabilities + Owner’s
Equity
a) Cash
b) Cash
Supplies
Computer
c) Cash
d) Cash
e) Cash
f) Cash
Totals
+$5,000
– 1,200
+ 300
+ 1,200
+ 1,600
– 300
– 200
– 400
+$6,000
+$5,000
+300
+300
+ 1,600
– 300
– 200
– 400
$+5,700
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Learning Objective 4
Preparing an income
statement, a statement
of owner’s equity,
and a balance sheet.
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Learning Unit 1-4 Example
Clara J. Accounting Practice
Income Statement
June 30, 200x
Revenues:
Fees Earned
Expenses:
Advertising Expense
Electricity and Utilities Expense
Rental Expense
Net Income
$1,600
$300
200
400
900
$ 700
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Learning Unit 1-4 Example
Clara J. Accounting Practice
Statement of Owner’s
June 30, 200x
Clara J., Capital, June 1, 200x
Contribution Of Capital
Clara J., Capital, June 30, 200x
$
0
5,000
$ 5,000
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Learning Unit 1-4 Example
Clara J. Accounting Practice
Balance Sheet
June 30, 200x
Assets
Cash
$4,500
Supplies
300
Equipment
1,200
Total Assets $6,000
Liabilities and Owner’s Equity
Accounts Payable
$ 300
Owner’s Equity
Clara J., Capital
5,700
Total
$6,000
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End of Chapter 1
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