1 - 1 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by...

1 - 1© 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by Slater

Accounting ConceptsAccounting Conceptsand Procedures:and Procedures:An IntroductionAn Introduction

Chapter 1Chapter 1


Learning Objective 1Learning Objective 1

Defining and listing theDefining and listing the

functions of accounting.functions of accounting.


AccountingAccounting

ManagersManagersOwnersOwners

ManagersManagersOwnersOwners

InvestorsInvestorsGovernmentGovernmentInvestorsInvestors

GovernmentGovernment


Sole ProprietorshipSole ProprietorshipSole ProprietorshipSole Proprietorship

PartnershipPartnershipPartnershipPartnership

CorporationCorporationCorporationCorporation

Categories of Business Categories of Business OrganizationsOrganizations


Types of BusinessTypes of BusinessOrganizationsOrganizations

OwnershipOwnership Business owned by one person.Business owned by one person.

FormationFormation Easy to form.Easy to form.

Owner could lose personalOwner could lose personalassets to meet obligationsassets to meet obligations

of business.of business.LiabilityLiability

ClosingClosing Ends with death of ownerEnds with death of owneror closing of business.or closing of business.



Business owned byBusiness owned bymore than one person.more than one person.OwnershipOwnership

Easy to form.Easy to form.FormationFormation

Ends with death of partnerEnds with death of partneror exit of a partner.or exit of a partner.ClosingClosing

Partners could lose personalPartners could lose personalassets to meet obligationsassets to meet obligations

of partnership.of partnership.LiabilityLiability



Business owned by stockholders.Business owned by stockholders.OwnershipOwnership

More difficult to form.More difficult to form.FormationFormation

Can continue indefinitely.Can continue indefinitely.ClosingClosing

Limited personal risk.Limited personal risk.Stockholders’ loss is limited toStockholders’ loss is limited to

their investment in the company.their investment in the company.LiabilityLiability


ClassifyingClassifyingBusiness OrganizationsBusiness Organizations

Service Service businesses provide services.businesses provide services.Service Service businesses provide services.businesses provide services.

MerchandiseMerchandise businesses sell products. businesses sell products.MerchandiseMerchandise businesses sell products. businesses sell products.

ManufacturingManufacturing businesses make products. businesses make products.ManufacturingManufacturing businesses make products. businesses make products.


Definition of AccountingDefinition of Accounting

Accounting is the process that...Accounting is the process that...analyzes,analyzes,records,records,

classifies,classifies,summarizes,summarizes,reports, and...reports, and...

interprets financial information.interprets financial information.

Accounting is the process that...Accounting is the process that...analyzes,analyzes,records,records,

classifies,classifies,summarizes,summarizes,reports, and...reports, and...

interprets financial information.interprets financial information.



Recording transactions in theRecording transactions in the

basic accounting equation.basic accounting equation.


Learning Unit 1-1Learning Unit 1-1(The Accounting Equation)(The Accounting Equation)

Assets are theAssets are theitems owned byitems owned bythe business.the business.

Assets are theAssets are theitems owned byitems owned bythe business.the business.

Equities areEquities arethe claimsthe claimsagainst theagainst the

assets.assets.

Equities areEquities arethe claimsthe claimsagainst theagainst the

assets.assets.



Liabilities areLiabilities arethe creditor’sthe creditor’s

equity.equity.

Liabilities areLiabilities arethe creditor’sthe creditor’s

equity.equity.

Owner’s equityOwner’s equityis the rightsis the rights

of ownership.of ownership.

Owner’s equityOwner’s equityis the rightsis the rights

of ownership.of ownership.



AssetsAssets

– LiabilitiesLiabilities

= Owner’sOwner’sEquityEquity



A. August 28: Cathy Hall investedA. August 28: Cathy Hall invested$7,000 in cash and $800 of office$7,000 in cash and $800 of office

equipment into the business.equipment into the business.

A. August 28: Cathy Hall investedA. August 28: Cathy Hall invested$7,000 in cash and $800 of office$7,000 in cash and $800 of office

equipment into the business.equipment into the business.

B. August 29: Law practice buysB. August 29: Law practice buysoffice equipment for cash $900.office equipment for cash $900.

B. August 29: Law practice buysB. August 29: Law practice buysoffice equipment for cash $900.office equipment for cash $900.

C. August 30: Buys additionalC. August 30: Buys additionaloffice equipment on account $400.office equipment on account $400.

C. August 30: Buys additionalC. August 30: Buys additionaloffice equipment on account $400.office equipment on account $400.



$8,200 = $8,200$8,200 = $8,200

a)a) CashCash ++ $7,000$7,000 ++ $7,800$7,800a) Equipmenta) Equipment ++ 800 800b)b) CashCash –– 900 900

EquipmentEquipment ++ 900 900EquipmentEquipment ++ 400 400 ++ 400400

a)a) CashCash ++ $7,000$7,000 ++ $7,800$7,800a) Equipmenta) Equipment ++ 800 800b)b) CashCash –– 900 900

EquipmentEquipment ++ 900 900EquipmentEquipment ++ 400 400 ++ 400400

AssetsAssets == LiabilitiesLiabilities ++Owner’sOwner’sEquityEquity


Learning Unit 1-1Learning Unit 1-1(Shift in Assets)(Shift in Assets)

The makeup of the assets hasThe makeup of the assets haschanged, but the total of thechanged, but the total of theassets remains the same.assets remains the same.

The makeup of the assets hasThe makeup of the assets haschanged, but the total of thechanged, but the total of theassets remains the same.assets remains the same.


Learning Unit 1-2Learning Unit 1-2(The Balance Sheet)(The Balance Sheet)

The balance sheet shows the company’sThe balance sheet shows the company’sfinancial position as of a particular date.financial position as of a particular date.

The balance sheet shows the company’sThe balance sheet shows the company’sfinancial position as of a particular date.financial position as of a particular date.

Company nameCompany nameCompany nameCompany name

Name of the statementName of the statementName of the statementName of the statement

DateDateDateDate


Learning Unit 1-2Learning Unit 1-2(The Balance Sheet)(The Balance Sheet)

Cathy Hall, Attorney-at-LawCathy Hall, Attorney-at-LawBalance SheetBalance Sheet

August 31, 200xAugust 31, 200x

AssetsAssetsCashCash $6,100$6,100EquipmentEquipment 2,100 2,100

TotalTotal $8,200$8,200

AssetsAssetsCashCash $6,100$6,100EquipmentEquipment 2,100 2,100

TotalTotal $8,200$8,200

Liabilities and Owner’s EquityLiabilities and Owner’s EquityAccounts PayableAccounts Payable $ 400$ 400Owner’s EquityOwner’s EquityCathy Hall, CapitalCathy Hall, Capital 7,800 7,800TotalTotal $8,200$8,200

Liabilities and Owner’s EquityLiabilities and Owner’s EquityAccounts PayableAccounts Payable $ 400$ 400Owner’s EquityOwner’s EquityCathy Hall, CapitalCathy Hall, Capital 7,800 7,800TotalTotal $8,200$8,200


Seeing how revenue, expenses,Seeing how revenue, expenses,

and withdrawals expand theand withdrawals expand the

basic accounting equation.basic accounting equation.



Learning Unit 1-3 (The Learning Unit 1-3 (The AccountingAccounting

Equation Expanded)Equation Expanded)

An expanded accounting equationAn expanded accounting equationincludes the following:includes the following:

Revenues (cash, accounts receivable)Revenues (cash, accounts receivable)ExpensesExpenses

WithdrawalsWithdrawals

An expanded accounting equationAn expanded accounting equationincludes the following:includes the following:

Revenues (cash, accounts receivable)Revenues (cash, accounts receivable)ExpensesExpenses

WithdrawalsWithdrawals


Learning Unit 1-3 (The Learning Unit 1-3 (The AccountingAccounting

Equation Expanded)Equation Expanded)

RevenuesRevenuesRevenuesRevenues Net income orNet income orNet lossNet loss

Net income orNet income orNet lossNet loss

– =ExpensesExpensesExpensesExpenses


Learning Unit 1-3 (The Learning Unit 1-3 (The Accounting Equation Accounting Equation

Expanded)Expanded)

BeginningBeginningcapitalcapitalPLUSPLUS

AdditionalAdditionalinvestmentinvestment

BeginningBeginningcapitalcapitalPLUSPLUS

AdditionalAdditionalinvestmentinvestment

Net incomeNet incomeNet incomeNet income WithdrawalsWithdrawalsWithdrawalsWithdrawals+ –



Expanded)Expanded)

D. September 1-30: Cathy Hall providedD. September 1-30: Cathy Hall providedlegal services for cash, $3,000.legal services for cash, $3,000.

D. September 1-30: Cathy Hall providedD. September 1-30: Cathy Hall providedlegal services for cash, $3,000.legal services for cash, $3,000.

E. September 1-30: Provided legalE. September 1-30: Provided legalservices on account, $4,000.services on account, $4,000.

E. September 1-30: Provided legalE. September 1-30: Provided legalservices on account, $4,000.services on account, $4,000.

F. September 1-30: Received $700F. September 1-30: Received $700cash as partial payment from previouscash as partial payment from previous

services performed on account.services performed on account.

F. September 1-30: Received $700F. September 1-30: Received $700cash as partial payment from previouscash as partial payment from previous

services performed on account.services performed on account.

G. September 1-30 paid salaries expense, $600.G. September 1-30 paid salaries expense, $600.G. September 1-30 paid salaries expense, $600.G. September 1-30 paid salaries expense, $600.



Expanded)Expanded)

H. September 1-30: Paid rent expense, $700.H. September 1-30: Paid rent expense, $700.H. September 1-30: Paid rent expense, $700.H. September 1-30: Paid rent expense, $700.

I. September 1-30: Incurred advertisingI. September 1-30: Incurred advertisingexpenses of $300, to be paid next month.expenses of $300, to be paid next month.I. September 1-30: Incurred advertisingI. September 1-30: Incurred advertising

expenses of $300, to be paid next month.expenses of $300, to be paid next month.

J. September 1-30: CathyJ. September 1-30: Cathywithdrew $200 for personal use.withdrew $200 for personal use.

J. September 1-30: CathyJ. September 1-30: Cathywithdrew $200 for personal use.withdrew $200 for personal use.



Preparing an incomePreparing an income

statement, a statementstatement, a statement

of owner’s equity,of owner’s equity,

and a balance sheet.and a balance sheet.


Learning Unit 1-4 (Preparing Learning Unit 1-4 (Preparing Financial Statements)Financial Statements)

Cathy Hall, Attorney-at-LawCathy Hall, Attorney-at-LawIncome StatementIncome Statement

For Month Ended September 30, 200xFor Month Ended September 30, 200x

Revenue:Revenue: Legal feesLegal fees $7,000$7,000Operating expenses:Operating expenses: Salaries expenseSalaries expense $600$600 Rent expenseRent expense 700 700 Advertising expenseAdvertising expense 300 300 1,600 1,600

Net incomeNet income $5,400$5,400

Revenue:Revenue: Legal feesLegal fees $7,000$7,000Operating expenses:Operating expenses: Salaries expenseSalaries expense $600$600 Rent expenseRent expense 700 700 Advertising expenseAdvertising expense 300 300 1,600 1,600

Net incomeNet income $5,400$5,400



Cathy Hall, Attorney-at-LawCathy Hall, Attorney-at-Law Statement of Owner’s EquityStatement of Owner’s Equity

For Month Ended September 30, 200xFor Month Ended September 30, 200x

Cathy Hall, Capital, Sept. 1, 200xCathy Hall, Capital, Sept. 1, 200x $ 7,800$ 7,800Net Income for Sept.Net Income for Sept. $5,400$5,400Less Withdrawals for Sept.Less Withdrawals for Sept. 200 200Increase in CapitalIncrease in Capital 5,200 5,200Cathy Hall, Capital, Sept. 30, 200xCathy Hall, Capital, Sept. 30, 200x $13,000$13,000

Cathy Hall, Capital, Sept. 1, 200xCathy Hall, Capital, Sept. 1, 200x $ 7,800$ 7,800Net Income for Sept.Net Income for Sept. $5,400$5,400Less Withdrawals for Sept.Less Withdrawals for Sept. 200 200Increase in CapitalIncrease in Capital 5,200 5,200Cathy Hall, Capital, Sept. 30, 200xCathy Hall, Capital, Sept. 30, 200x $13,000$13,000



Cathy Hall, Attorney-at-LawCathy Hall, Attorney-at-LawBalance SheetBalance Sheet

September 30, 200xSeptember 30, 200x

AssetsAssetsCashCash $ 8,300$ 8,300Accts. Rec.Accts. Rec. 3,300 3,300EquipmentEquipment 2,100 2,100TotalTotal $13,700$13,700

AssetsAssetsCashCash $ 8,300$ 8,300Accts. Rec.Accts. Rec. 3,300 3,300EquipmentEquipment 2,100 2,100TotalTotal $13,700$13,700

Liabilities and Owner’s EquityLiabilities and Owner’s EquityAccounts PayableAccounts Payable $ 700$ 700Owner’s EquityOwner’s Equity Cathy Hall, CapitalCathy Hall, Capital 13,000 13,000TotalTotal $13,700$13,700

Liabilities and Owner’s EquityLiabilities and Owner’s EquityAccounts PayableAccounts Payable $ 700$ 700Owner’s EquityOwner’s Equity Cathy Hall, CapitalCathy Hall, Capital 13,000 13,000TotalTotal $13,700$13,700


Generally AcceptedGenerally AcceptedAccounting Principles (GAAP)Accounting Principles (GAAP)

These are the procedures and guidelinesThese are the procedures and guidelinesthat must be followed duringthat must be followed during

the accounting process.the accounting process.

These are the procedures and guidelinesThese are the procedures and guidelinesthat must be followed duringthat must be followed during

the accounting process.the accounting process.


End of Chapter 1End of Chapter 1

1 - 1 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by...

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Transcript of 1 - 1 © 2004 Prentice Hall Business Publishing, College Accounting: A Practical Approach, 9e by...