Introduction to Accounting & Business CPA, MBA By Rachelle Agatha, CPA, MBA Slides by Rachelle...
-
Upload
charles-tyler -
Category
Documents
-
view
244 -
download
0
Transcript of Introduction to Accounting & Business CPA, MBA By Rachelle Agatha, CPA, MBA Slides by Rachelle...
Introduction to Accounting & Business
By Rachelle Agatha, CPA, MBA
Slides by Rachelle Agatha, CPA, with excerpts from Warren, Reeve, Duchac
2
2. Summarize the development of accounting principles and relate them to practice.
3. State the accounting equation and define each element of the equation.
After studying this lecture material, you should be able to:
1. Describe the nature of a business and the role of ethics and accounting in business.
3
4. Describe and illustrate how business transactions can be recorded in terms of the resulting change in the basic elements of the accounting equation.
5. Describe the financial statements of a proprietorship and explain how they interrelate.
5
Proprietorship Partnership Corporation Limited liability
company
Common Forms of Business Organizations
7
Comprises 70% of business organizations in the United States.
Requires low cost of organizing.
Is limited to financial resources of the owner.
Is used by small businesses.
A proprietorship is owned by one individual and—
8
Comprises 10% of business organizations in the United States.
Combines the skills and resources of more than one person.
A partnership is similar to a proprietorship except that it is owned by two or more individuals and—
9
Generates 90% of the total dollars of business receipts received.
Comprises 20% of the businesses.
A corporation is organized under state or federal statues as a separate legal taxable entity and—
Continued
10
Includes ownership divided into shares of stock, sold to shareholders (stockholders).
Is able to obtain large amounts of resources by issuing stock.
Is used by large businesses.
11
Is a popular alternative to a partnership.
Has tax and liability advantages to the owners.
A limited liability company (LLC) combines attributes of a partnership and a corporation in that it is organized as a corporation. However, a limited liability corporation can elect to be taxed as a partnership and—
12
A business stakeholder is a person or entity
having an interest in the economic
performance and well-being of a business.
13
Capital market stakeholders provide the
major financing for the business in order for the business to begin and
continue its operations.
14
Product or service market stakeholders include customers who purchase the business’s products or services as well as the vendors who
supply inputs to the business.
15
Government stakeholders have an interest in the economic
performance of a business. City, county, state, and
federal governments collect taxes from businesses
within their jurisdiction.
16
Internal stakeholders include individuals
employed by the business. Managers have an incentive to maximize the economic
value of the business. Employees have an interest because their jobs depend
on it.
17
The moral principles that guide the conduct of individuals are called
ethics.
1. Individual character2. Firm culture3. Laws and enforcement
18
Accounting can be defined as an information
system that provides reports to stakeholders
about the economic activities and condition of
a business.
1-1
19
The process by which accounting provides information to business stakeholders is as follows: Identify stakeholders.
Assess stakeholders’ information needs.
Design the accounting information system to meet stakeholders’ needs.
Record economic data about business activities and events.
Prepare accounting reports for stakeholders.
21
Financial accounting is primarily concerned with the recording and reporting of economic data and
activities for a business.
Managerial accounting uses both financial accounting and estimated data to aid management in running
day-to-day operations and in planning future operations.
22
Accountants employed by a business firm or a not-for-profit
organization are said to be employed in private accounting.
Accountants and their staff who provide services on a fee basis are
said to be employed in public accounting.
24
The business entity concept or principle
limits the economic data in the accounting system to data related directly to
the activities of the business.
25
The cost concept or principle is the basis for
entering the exchange price, or cost of an acquisition in
the accounting records.
26
The objectivity concept or principle requires that the accounting
records and reports be based upon objective
evidence.
28
On March 1, Smith's Repair Service extended an offer of $115,000 for land that had been priced for sale at $135,000. On March 15, Smith's Repair Service accepted the seller’s counter-offer of $125,000. On April 1, the land was assessed at a value of $100,000 for property tax purposes. On May 1, Smith's Repair Service was offered $150,000 for the land by a national retail chain. At what value should the land be recorded in Smith Repair Service’s books (general ledger)?
$125,000. Under the cost concept, the land should be recorded at the cost to Smith's Repair Service.
ASSETS = LIABILITIES + OWNERS EQUITY
Slide by Rachelle Agatha, CPA
ACCOUNTING EQUATION
ASSETS LIAB + OE
31
Assets = Liabilities + Owner’s Equity
The resources
owned by a business
The Accounting Equation1-3
32
The rights of the
creditors, which
represent debts of the
business
Assets = Liabilities + Owner’s Equity
The Accounting Equation 1-3
34
Assets = Liabilities + Owner’s Equity
1-3
ASSETS = LIABILITIES + OWNERS EQUITY
850,000$ = 250,000$ + ?(250,000)$ = (250,000)$ +
600,000$ = -$ + ?
850,000$ = 250,000$ + 600,000$
At the end of 12/31/08, Smith's Repair Service had Assets of $850,000 and Liabilities of $250,000. How much equity did Smith's Repair Service have?
35
Describe and illustrate how business
transactions can be recorded in terms of the resulting change in the basic elements of the accounting equation.
Objective 41-4
36
A business transaction is an economic event or condition that directly changes an entity’s
financial condition or directly affects its results of
operations.
1-4
37
.
1-4
= Liab +
Accts. Accts. Gilmore, Gilmore Fees AllCash + Rec. + Supplies = Payable Capital - Drawing + Earned - Exp.
Bal. 24,620$ 2,250$ 380$ 550$ 25,000$ (1,000)$ 6,750$ (4,050)$
27,250 = 550 + 26,700
Assets Owner's Equity
Slide by Rachelle Agatha, CPA
38
.
1-4
Slide by Rachelle Agatha, CPA
+ Initial Capital Investment+ Revenue- Expense- Withdrawls= Ending Equity
Owner's Equity
39
Owner’s withdrawals
Expenses
Decreased by
Owner’s Equity
Increased by
Owner’s investments
Revenues
55
1-4
41
Chris Smith invests $25,000 into the business
Assets Owner’s Equity=
=
Chris Clark, Capital
25,000Investment by Chris Clark
Cash25,00
0
42
Describe the financial statements of a
proprietorship and explain how they
interrelate.
Objective 5
1-5
43
Accounting reports, called financial
statements, provide summarized
information to the owner.
1-5
44
The income statement is a summary of the
revenue and expenses for a specific period of
time, such as a month or a year.
45
A statement of owner’s equity is a summary of
the changes in the owner’s equity that have occurred during a specific
period of time.
1-5
46
1-5
Revenue 153,750$ Expenses:
Wages 20,775$ Rent 48,000Depreciation 10,800Supplies 9,375Utilities 1,065Insurance 1,800Miscellaneous 705 92,520
Net income 61,230$
J . Terrier Capital, J anuary 1, 2008 75,000$ Net income 61,230Less: Drawing (15,000)Increase in owner's equity 46,230J Terrier Capital, December 31, 2008 121,230$
For the Year Ended December 31, 2008
For the Year Ended December 31, 2008
Statement of Owner's Equity
San Diego Designer Puppy Store and CoutureIncome Statement
San Diego Designer Puppy Store and Couture
47
A balance sheet is a list of the assets,
liabilities, and owner’s equity as of a specific
date.
1-5
48
1-5J . Terrier Capital, J anuary 1, 2008 75,000$ Net income 61,230Less: Drawing (15,000)Increase in owner's equity 46,230J Terrier Capital, December 31, 2008 121,230$
Assets Liabilities Cash $12,000 Accounts payable $15,000 Supplies 1,300 Wages payable 4,500 Prepaid insurance 900 Current Liabilities $19,500 Inventory 16,000 Current assets $30,200 Notes Payable 25,000$
Equipment $182,865 Total Liabilities $44,500 Acc. Depreciation 47,335 Fixed assets $135,530 J . Terrier Capital 121,230$
Total Liabilities andTotal assets $165,730 Owner's Equity $165,730
San Diego Designer Puppy Store and CoutureBalance Sheet
December 31, 2008
For the Year Ended December 31, 2008Statement of Owner's Equity
San Diego Designer Puppy Store and Couture
49
A statement of cash flows is a summary of the
cash receipts and payments for a
specific period of time.
1-5
50
The income statement reports the revenues and expenses for a period of time based on the
matching concept. This concept is applied by matching the expenses with the revenue generated during a period by
those expenses.
1-5Income Statement
51
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.
1-5
52
The statement of owner’s equity reports
the changes in the owner’s equity for a period of time. It is prepared after the income statement.
1-5Statement of Owner’s Equity
53
The balance sheet reports the amounts
of a firm’s assets, liabilities, and
owner’s equity at the end of a specific
period.
1-5Balance Sheet
54
The income statement and the statement of owner’s equity are interrelated.
Net income or net loss appears on both
statements.
1-5Interrelationships Among Financial Statements
55
The statement of owner’s equity and the balance sheet are interrelated.
The owner’s capital at the end of the period on the
statement of owner’s equity also appears on the balance
sheet as owner’s capital.
1-5