CHAPTER 1BUSINESS DECISIONS And FINANCIAL ACCOUNTING ..
OBJECTIVES:
1. ACCOUNTING FOR BUSINESS DECISIONS
2. Users of accounting.
3. Generally Accepted Accounting Principles (GAAP).
4. THE BASIC ACCOUNTING EQUATION
5. FINANCIAL STATEMENTS
ACCOUNTING FOR BUSINESS DECISIONS
Accounting : A system of (analyze, record,
and summarize) the results of a business’s
activities and then reporting the results to
decision makers.
Users of accounting can be divided
into two groups:
Internal Users
external users
This information can be presented in two kinds of
reports.
Managerial accounting reports.
Include detailed financial plans and continually updated
reports about the operating performance of the
company. These reports are made available only to the
company’s employees (internal users).
1-
Financial accounting reports, called financial statements.2-
Which are prepared periodically to provide information
to people not employed by the business. These
external financial statement users aren’t given
access to detailed internal records of the company.
Creditors and investors are the two primary external
user.
Generally Accepted Accounting Principles
GAAP
accounting concept Principles
1 -cost 2 -Revenues recognition
3 -Matching 4 -Full Disclosure
Assumptions 1 -unit of measure 2 -separate Entity 3 -Going Concern
4 -time period
Some of Accounting Concepts GAAP
Assets
An assets is an economic resource presently
controlled by the company. It has measurable value
and is expected to benefit the company by producing
cash inflows or reducing cash outflows in the future.
LandLand
EquipmentEquipment
BuildingsBuildings
CashCash
Store SuppliesStore
Supplies
Notes Receivable
Notes Receivable
Accounts ReceivableAccounts
Receivable
Resources owned or
controlled by a company
Resources owned or
controlled by a company
ASSETSA1
1-13
LiabilitiesLiabilities are measurable amounts that the company owes to
creditors. If Almarai borrows from bank, it would owe a liability
called a Note Payable. when a company buys a goods from
another company, it usually does so on credit by promising to
pay for them at a later date. The amount owed is called am
Account Payable. “Liabilities must be paid before any
amounts are paid to stockholders” .
Taxes PayableTaxes
PayableWages PayableWages Payable
Notes PayableNotes
PayableAccounts Payable
Accounts Payable
Creditors’ claims on
assets
Creditors’ claims on
assets
LIABILITIESA1
1-15
owner’s Equity
It represent the owner’s claims on the
business.
THE BASIC ACCOUNTING EQUATION
Assets=Liabilities + Owner’s Equity
Credit Accounts
If Credit, and if Debit
Debit Accounts
If Debit, and if Credit
AssetsLiabilities +
Equity
ACCOUNTING EQUATION
LiabilitiesLiabilities EquityEquityAssetsAssets = +
A1
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FINANCIAL STATEMENTS
Order Prepare
d
Financial Statemen
t
Description of Statements
1 Income Statement
A summary of the revenue and expenses for a specific period of time, such as a month or a year.
2 Statement of Owner's
Equity
A summary of the changes in the owner's equity that have occurred during a specific period of time, such as a
month or a year.
3 Balance Sheet
A list of the assets, liabilities, and owner's equity as of a specific date, usually at the close of the last day of a
month or a year.
4 Statement of Cash
flows
A summary of cash receipts and cash payments for a specific period of time, such as a month or a year.
NetSolutionsIncome statement
For the Month Ended November 30, 2011
Fees earned.………………………………………………………………………………
$7,500
Expenses:
Wages expense.……………………………………………………………………
$2,125
Rent expense..………………………………………………………………………
800
Supplies expense.…………………………………………………………………
800
Utilities expense.…………………………………………………………………
450
Miscellaneous expense…………………………………………………………
275
Total expense..………………………………………………………………
4,450
Net Income..………………………………………………………………………………
$3,050
NetSolutionsStatement of Owner’s Equity
For the Month Ended November 30, 2011
Chris Clark, Capital, November 1, 2011 .………………………………
$0
Investment on November 1, 2011 .…………………………………………
$25,000
Net income for November.……………………………….……………………
3,050
$28,050
Less withdrawals.……………………………… .……………………………………
2,000
Increase in owner’s equity.……………………………… ……………………
26,050
Chris Clark, Capital, November 30, 2011 ……………………………
$26,050
NetSolutionsBalance Sheet
November 30, 2011
Assets Liabilities
Cash ………………………………
$5,900 Account payable ……………………………………
$400
Supplies ..………………………
550 Owner’s Equity
Land ………………………………
20,000 Chris Clark, capital ………………………………
26,050
Total assets ..………………
$26,050 Total liabilities and owner’s equity..… 26,050$
Self-Study PracticeIn the space provided, indicate: (1) the type of account (A = asset, L = liability, OE = ownership equity, R = revenue, E = expense), and (2) whether it is reported on the income statement (I/S), statement of cash flows (SCF), or balance sheet (B/S). Account Title Type
Statement1. Land 2. Wages Expense3. Accounts
Receivable4. Rent Revenue5. Contributed
Capital6. Note Payable
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