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Introduction to

Accounting and Business

Universidad

Cuauhtémoc Maestría en Administración de Hospitales

Educación a Distancia

Contabilidad Administrativa

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1. Describe the nature of a business, the role of accounting, and ethics in business

2. Summarize the development of accounting principles and relate them to practice

3. State the accounting equation and define each element of the equation

4. Describe and illustrate how business transactions can be recorded in terms of the resulting change in the elements of the accounting equation

5. Describe the financial statements of a corporation and explain how they interrelate

Index

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1

Describe the nature of a

business, the role of

accounting, and ethics in

business.

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Types of Businesses

Delta Air Lines Transportation services

Service Business Service

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Merchandising Business Product

Wal-Mart General merchandise

Manufacturing Business Product

General Motors Corp. Cars, trucks, vans

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The Role of Accounting in Business

Accounting can be defined as an

information system that provides

reports to users about the economic

activities and condition of a business.

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The area of accounting that provides

internal users with information is called

managerial accounting.

Managerial Accounting

The objective of managerial

accounting is to provide relevant and

timely information for managers’ and

employees’ decision-making needs.

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The area of accounting that provides

external users with information is

called financial accounting.

Financial Accounting

The objective of financial accounting

is to provide relevant and timely

information for the decision-making

needs of users outside of the

business.

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Ethics are moral principles

that guide the conduct of

individuals.

Role of Ethics in

Accounting and Business

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Summarize the

development of accounting

principles and relate them

to practice.

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Under the business entity

concept, the activities of a

business are recorded

separately from the activities

of its owners, creditors, or

other businesses.

Business Entity Concept

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• 70% of business entities in the United

States.

• Easy and cheap to organize.

• Resources are limited to those of the

owner.

• Used by small businesses.

A proprietorship is owned by one

individual.

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• Generates 90% of business revenues.

• 20% of the business organizations in the United

States.

• Ownership is divided into shares called stock.

• Can obtain large amounts of resources by issuing

stocks.

• Used by large businesses.

A corporation is organized under state or

federal statutes as a separate legal taxable

entity.

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Under the cost concept,

amounts are initially recorded

in the accounting records at

their cost or purchase price.

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Cost Concept

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The objectivity concept requires

that the amounts recorded in the

accounting records be based on

objective evidence.

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Objectivity Concept

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The unit of measure concept

requires that economic data

be recorded in currency.

2

Unit of Measure Concept

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State the accounting

equation and define each

element of the equation.

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The resources

owned by a

business

Assets = Liabilities + Owner’s Equity

The Accounting Equation

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The rights of the

creditors are the

debts of the

business.

The rights of the

owners

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4

Describe and illustrate how

business transactions can be

recorded in terms of the resulting

change in the elements of the

accounting equation.

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A business transaction is an

economic event or condition that

directly changes an entity’s

financial condition or its results

of operations.

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Business Transaction

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On November 1, 2009, Chris Clark

deposits $25,000 in a bank account in

the name of NetSolutions in return for

shares of stock in the corporation.

Transaction A

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CAPITAL STOCK

25,000

CASH

25,000 a. =

Assets

Stockholders’

Equity =

Transaction A (continued)

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Transaction B

On November 5, 2009, NetSolutions

paid $20,000 for the purchase of land

as a future building site.

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CASH + LAND

25,000 Bal.

Assets =

=

Bal. 5,000 20,000 25,000

b. –20,000 +20,000

CAPITAL STOCK

25,000

Stockholders’

Equity

Transaction B (continued)

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On November 10, 2009,

NetSolutions purchased supplies

for $1,350 and agreed to pay the

supplier in the near future.

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Transaction C

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CASH + SUPPLIES + LAND

5,000 20,000 25,000 Bal.

Assets =

=

ACCOUNTS CAPITAL

PAYABLE + STOCK

Stockholders’

Liabilities + Equity

Transaction C (continued)

c. +1,350 +1,350

Bal. 5,000 1,350 20,000 1,350 25,000

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received cash of $7,500 for providing

services to customers. A business

earns money by selling goods or

services to its customers. This amount

is called Revenue.

Transaction D

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5,000 1,350 20,000 Bal.

Assets

Transaction D (continued)

d. +7,500

Bal. 12,500 1.350 20,000

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Transaction D (continued)

ACCOUNTS CAPITAL FEES

PAYABLE + STOCK + EARNED

1,350 25,000 Bal.

Liabilities + Stockholders’ Equity

d. +7,500

Bal. 1,350 25,000 7,500

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paid the following expenses during

the month: wages, $2,125; rent, $800;

utilities, $450; and miscellaneous,

$275.

Transaction E

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12,500 1,350 20,000 Bal.

Assets

Transaction E (continued)

e. –3,650

Bal. 8,850 1.350 20,000

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Transaction E (continued)

ACCOUNTS CAPITAL FEES WAGES RENT UTIL. MISC.

PAYABLE + STOCK + EARNED – EXP. – EXP. – EXP. – EXP.

1,350 25,000 7,500 Bal.


e. –2,125 –800 –450 –275

Bal. 1,350 25,000 7,500 –2,125 –800 –450 –275

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On November 30, 2009,

NetSolutions paid creditors on

account, $950.

Transaction F

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8,850 1,350 20,000 Bal.

Assets

Transaction F (continued)

f. –950

Bal. 7,900 1.350 20,000

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Bal.


f. –950

Bal. 400 25,000 7,500 –2,125 –800 –450 –275

Transaction F (continued)

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ACCOUNTS CAPITAL FEES WAGES RENT UTIL. MISC.

PAYABLE + STOCK + EARNED – EXP. – EXP. – EXP. – EXP.

1,350 25,000 7,500

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On November 30, 2009, Chris Clark

determined that the cost of supplies

on hand at the end of the period was

$550.

Transaction G

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7,900 1,350 20,000 Bal.

Assets

Transaction G (continued)

g. –800

Bal. 7,900 550 20,000

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ACCOUNTS CAPITAL FEES WAGES RENT SUP. UTIL. MISC.

PAYABLE + STOCK + EARNED – EXP. – EXP. – EXP. – EXP. – EXP.

400 25,000 7,500 –2,125 –800 –450 –275 Bal.

g. –800

Bal. 400 25,000 7,500 –2,125 –800 –800 –450 –275

Transaction G (continued)

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pays $2,000 to stockholders (Chris

Clark) as dividends.

Transaction H

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7,900 550 20,000 Bal.

Assets

Transaction H (continued)

h. –2,000

Bal. 5,900 550 20,000

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Transaction H (continued)

ACCTS. CAPITAL, DIVI- FEES WAGES RENT SUP. UTIL. MISC.

PAY. + STOCK – DENDS + EARNED – EXP. – EXP. – EXP. – EXP. – EXP.

400 25,000 7,500 –2,125 –800 –800 –450 –275 Bal.


h. –2,000

Bal.400 25,000 –2,000 7,500 –2,125 –800 –800 –450 –275

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5

Describe the financial

statements of a

corporation and explain

how they interrelate.

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The income statement reports the revenues and expenses for a period of time, based on the matching concept.

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Income Statement

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The matching concept is applied by matching the expenses with the revenue generated during a period by those expenses.

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Matching Concept

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The excess of revenue over the expenses is called net income or net profit. If the expenses exceed the revenue, the excess is a net loss.

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Net income is carried

to the retained

earnings statement.

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Exhibit 6 Financial Statements for NetSolutions

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From the income statement

To the balance sheet

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Exhibit 6 Financial Statements for NetSolutions (continued)

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This amount is compared

to the net cash flow on the

statement of cash flows. From the retained

earnings statement

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Exhibit 6 Financial Statements for NetSolutions (continued)

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This amount should match

Cash on the balance sheet.

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Financial Statements for NetSolutions (continued) Exhibit 6

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The End

Universidad

Cuauhtémoc Maestría en Administración de Hospitales

Educación a Distancia

Contabilidad Administrativa

1

Education

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