Nitrogen Metabolism Copyright 2013 Pearson Canada Inc. 20 - 1.
Copyright © 2014 Pearson Canada Inc. 1 - 1 Chapter 1.
-
Upload
george-gardner -
Category
Documents
-
view
223 -
download
0
Transcript of Copyright © 2014 Pearson Canada Inc. 1 - 1 Chapter 1.
Copyright © 2014 Pearson Canada Inc. 1 - 1
Chapter 1
Copyright © 2014 Pearson Canada Inc. 1 - 2
Learning Objective 1Define accounting, and describe the users of
accounting information
Why is accounting important, and who uses the information?
Copyright © 2014 Pearson Canada Inc. 1 - 3
Accounting: The Language of BusinessAccounting is an information system that:
Measures business financial activitiesProcesses that information into reportsCommunicates that information to decision makers
For this reason it is called “the language of business”
Copyright © 2014 Pearson Canada Inc. 1 - 4
Financial StatementsBusiness decisions are based on financial statements
Is my business making a profit?
Should I hire assistants?
Am I earning enough money to expand my business?
Copyright © 2014 Pearson Canada Inc. 1 - 5
Decision Makers: The Users of Accounting Information
Individuals
Investors
Government Regulatory, and
Taxing Authorities
Businesses
Creditors
Not-for-profit Organizations
Other Users
Accounting Information
Copyright © 2014 Pearson Canada Inc. 1 - 6
Financial Accounting and Management Accounting
Financial Accounting
Management Accounting
Provides information to people outside the
company
Generates information for internal decision
makers
Copyright © 2014 Pearson Canada Inc. 1 - 7
Learning Objective 2Explain why ethics and rules of conduct are
crucial in accounting and business
Why is it important for accountants to be ethical?
Copyright © 2014 Pearson Canada Inc. 1 - 8
Ethical Considerations in Accounting and Business
When there is a need to look as good as possible to attract investors, there is a potential for conflict
External auditors express opinions as to whether the financial statements fairly reflect the economic events that occurred
Unfortunately accounting scandals involving both public companies and their auditors, such as Enron have made the headlines in the last 12 years.
Many changes had to be made to improve the quality of financial reporting.
Copyright © 2014 Pearson Canada Inc. 1 - 9
Professional Accounting Bodies & Standards of Professional Conduct
Chartered Accountants
(CA)
Certified General
Accountants (CGA)
Certified Management
Accountants (CMA)
All governed by rules of professional conduct created by their respective organizations
Chartered Professional Accountants
(CPA)
Copyright © 2014 Pearson Canada Inc. 1 - 10
Learning Objective 3Describe and discuss the forms of business
organizations
In what form can we set up a company?
Copyright © 2014 Pearson Canada Inc. 1 - 11
Forms of Business Organizations
Proprietorship
Partnership
Corporation
Limited-Liability Partnership (LLP)
Copyright © 2014 Pearson Canada Inc. 1 - 12
ProprietorshipAdvantages Disadvantages
Single ownerFor accounting purposes each
proprietorship is separate and distinct from the owner
Limited life spanUnlimited liabilityLimited availability to financial
resources
Copyright © 2014 Pearson Canada Inc. 1 - 13
PartnershipsAdvantages DisadvantagesTwo or more ownersMore labour specializationMore financial resources
available
Unlimited liability for general partners
Potential conflicts among partners require written partnership agreements
Copyright © 2014 Pearson Canada Inc. 1 - 14
CorporationsAdvantages Disadvantages
Legal separate entityLimited liability for
shareholdersTransferability of ownership is
relatively easyIndefinite life of the
organization
Expensive to operate and set upExtensive governmental rules
and regulations
Copyright © 2014 Pearson Canada Inc. 1 - 15
Limited-Liability Partnership (LLP)Advantages Disadvantages
One partner cannot create a large liability for the other partners
Each partner is liable for their own actions
Written partnership agreements are still necessary
Copyright © 2014 Pearson Canada Inc. 1 - 16
Learning Objective 4Explain the development of accounting standards, and describe the concepts and
principles
What are the rules of accounting, and why do we need them?
Copyright © 2014 Pearson Canada Inc. 1 - 17
Accounting Concepts
Accounting Standards Board (AcSB)
IFRS and ASPE are prepared under the authority of the Accounting Standards Board and are published
as part of the Canadian Institute of Chartered Accountants (CICA) Handbook.
Copyright © 2014 Pearson Canada Inc. 1 - 18
Framework for Financial Reporting
Level 1
Level 2
Level 3
Level 4
Copyright © 2014 Pearson Canada Inc. 1 - 19
Level 1: Objective of Financial ReportingThe primary objective of financial statements is to:
Communicate information that is useful to investors,
creditors, and other users
Copyright © 2014 Pearson Canada Inc. 1 - 20
Level 2: Qualitative Characteristics of Accounting Information
For information to be useful, it must have:RelevanceComparabilityReliabilityUnderstandability
Copyright © 2014 Pearson Canada Inc. 1 - 21
Level 3: Elements of Financial Statements
AssetsLiabilitiesEquityRevenues and expensesGains and losses
Copyright © 2014 Pearson Canada Inc. 1 - 22
Level 4: Recognition and Measurement Criteria, and Constraints
Principles• Recognition Criteria Revenue Expenses• Measurement Cost Other bases• Disclosure
Considerations• Economic Entity• Going Concern•Stable-Monetary-Unit
Constraints• Cost/Benefit• Materiality
Copyright © 2014 Pearson Canada Inc. 1 - 23
The Economic-Entity ConsiderationEach entity is accounted for separately and distinctly from
the transactions of all other organizations and persons. You keep your business’s accounting separate from your
personal accounting so that you may evaluate the success of your business.
Copyright © 2014 Pearson Canada Inc. 1 - 24
The Reliability CharacteristicInformation is reliable when it:
Accurately represents the impact of the transactionIs free of error or bias
Copyright © 2014 Pearson Canada Inc. 1 - 25
The Cost Principle of MeasurementAcquired assets and services should be recorded at their
actual cost (historical cost)
Copyright © 2014 Pearson Canada Inc. 1 - 26
The Going-Concern AssumptionThe entity will remain in operation in the foreseeable
future
Copyright © 2014 Pearson Canada Inc. 1 - 27
The Stable-Monetary-Unit AssumptionThe dollar’s purchasing power is relatively stableAllows accountants to ignore the effect of inflation in the
accounting records
Copyright © 2014 Pearson Canada Inc. 1 - 28
Learning Objective 5Describe and use the accounting equation to
analyze business transactions
How do business transactions affect the accounting records of a company?
Copyright © 2014 Pearson Canada Inc. 1 - 29
The Accounting Equation
Assets Liabilities + Owner’s Equity
Economic Resources
Claims to Economic Resources
Liabilities (Outsiders)Owner’s Equity (Insiders)
Copyright © 2014 Pearson Canada Inc. 1 - 30
AssetsDefined: Resources controlled by an entity that are
expected to benefit the business in the futureExamples of assets include:
CashAccounts ReceivableOffice suppliesMerchandise inventoryFurniture and fixturesLandBuildings
Copyright © 2014 Pearson Canada Inc. 1 - 31
LiabilitiesDefined: Debts that are payable to outsiders (creditors)
Examples of liabilities include:Accounts payableNotes payableSalaries payable
Copyright © 2014 Pearson Canada Inc. 1 - 32
Owner’s EquityDefined: The amount of an entity’s assets that remains
after the liabilities are subtractedOwner’s equity is often referred to as net assets
Copyright © 2014 Pearson Canada Inc. 1 - 33
Transactions That Increase and Decrease Owner’s Equity
Owner Investments in the Business
Revenues
Owner’s Withdrawals from the Business
Expenses
Owner’s Equity
INCREASES DECREASES
Copyright © 2014 Pearson Canada Inc. 1 - 34
RevenuesDefined: Amounts earned by delivering goods or services
to customers Examples of revenues include:
Fees earned or service revenueSalesRent earnedInterest earned
Copyright © 2014 Pearson Canada Inc. 1 - 35
ExpensesDefined: Amounts that have been paid or will be paid for
costs that have been incurred to earned revenueExamples include:
RentSalaries and wagesUtilitiesSuppliesAmortization or depreciation
Copyright © 2014 Pearson Canada Inc. 1 - 36
Accounting for Business TransactionsAny event that affects the financial position of the
business entity and can be measured reliably
Copyright © 2014 Pearson Canada Inc. 1 - 37
Accounting for Business Transactions – An Example
1. The owner, Lisa Hunter, invests $250,000 to start a new business, HEC
2. HEC purchases land for a future office location, paying $100,000 cash
3. Purchases $7,000 office supplies on credit
4. HEC completes a consulting job for $30,000 cash
5. HEC completes a consulting job on credit for $25,000
6. HEC pays expenses for the month: salary $6,500;
rent $4,000; utilities, $1,500
Copyright © 2014 Pearson Canada Inc. 1 - 38
Accounting for Business Transactions – An Example Continued
7. HEC pays $5,000 to the store from which it purchased $7,000 worth of office supplies in Transaction 3
8. HEC collections $15,000 from the customer of Transaction 5
9. HEC sells 50% of the land purchased in Transaction 2 for $50,000 cash
10. Lisa Hunter withdraws $6,000 cash for her personal use from HEC
Copyright © 2014 Pearson Canada Inc. 1 - 39
Accounting for Business TransactionsAssets = Liabilities + Owner’s
Equity
Cash Accounts Receivable
Supplies Land Accounts Payable
L. Hunter, Capital
1. +250,000 +250,000
2. -100,000 +100,000
3. +7,000 +7,000
4. +30,000 +30,000
5. +25,000 +25,000
6. -12,000 -12,000
7. -5,000 -5,000
8. +15,000 -15,000
9. +50,000 -50,000
10. -6,000 -6,000
222,000 10,000 7,000 50,000 2,000 287,000
Copyright © 2014 Pearson Canada Inc. 1 - 40
Learning Objective 6Prepare and evaluate the financial statements
What financial statements are prepared by a company, and how do we create them?
Copyright © 2014 Pearson Canada Inc. 1 - 41
The Financial StatementsFinancial statements are the formal reports of an entity’s
financial informationThe primary financial statements are:
Income statement (statement of earnings or statement of operation)
Statement of owner’s equityBalance sheet (statement of financial position)Cash flow statement
Copyright © 2014 Pearson Canada Inc. 1 - 42
Income StatementHUNTER ENVIRONMENTAL CONSULTING
Income Statement
For the Month ended April 30, 2014
Revenue:
Service revenue $55,000
Expenses:
Rent expense $4,000
Salaries expense 6,500
Utilities expense 1,500
Total expenses 12,000
Net income $43,000
Copyright © 2014 Pearson Canada Inc. 1 - 43
Statement of Owner’s Equity
HUNTER ENVIRONMENTAL CONSULTING
Statement of Owner’s Equity
For the Month Ended April 30, 2014
Lisa Hunter, capital, April 1, 2014 $ 0
Add: Investment by owner 250,000
Net income for the month 43,000
Subtotal 293,000
Less: Withdrawals by owner (6,000)
Lisa Hunter, capital, April 30, 2014 $287,000
Copyright © 2014 Pearson Canada Inc. 1 - 44
Balance SheetHUNTER ENVIRONMENTAL CONSULTING
Balance Sheet
April 30, 2014
Assets Liabilities
Cash $222,000 Accounts payable $ 2,000
Accounts receivable 10,000
Office supplies 7,000 Owner’s Equity
Land 50,000 Lisa Hunter, capital 287,000
Total assets $289,000 Total liabilities and owner’s equity
$289,000
Copyright © 2014 Pearson Canada Inc. 1 - 45
Cash Flow StatementHUNTER ENVIRONMENTAL CONSULTING
Cash Flow Statement
For the Month Ended April 30, 2014
Cash flows from operating activities:
Cash collections from customers $45,000
Cash payments to suppliers $(10,500)
Cash payments to employees (6,500) (17,000)
Net cash inflows from operating activities 28,000
Cash flows from investing activities:
Acquisitions of land (100,000)
Proceeds from sale of land 50,000
Net cash outflows from investing activities (50,000)
Copyright © 2014 Pearson Canada Inc. 1 - 46
Cash Flow Statement, Continued
Cash flows from financing activities:
Investment by owner 250,000
Withdrawal by owner (6,000)
Net cash inflow from financing activities 244,000
Net increase in cash $222,000
Cash balance, April 1, 2014 0
Cash balance, April 30, 2014 $222,000
Copyright © 2014 Pearson Canada Inc. 1 - 47
Relationships among the Financial Statements
The income statement for the month ended April 30, 2014 reports….
The statement of owner’s equity for the month ended April 30, 2014 reports….
The balance sheet at April 30, 2014 reports….The cash flow statement for the month ended April 30,
2014 reports….