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
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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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