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  • 1. C1 - 1 Learning Objectives 1. Nature of a Business 2. The Role of Accounting in Business 3. Business Ethics 4. Profession of Accounting 5. Generally Accepted Accounting Principles 6. Assets, Liabilities, and Owner’s Equity 7. Business Transactions 8. Financial Statements 9. Financial Analysis and Interpretation Power Notes Introduction to Accounting and BusinessIntroduction to Accounting and Business Chapter 1 C1
  • 2. C1 - 2 Note: To select a topic, type the slide # and press Enter. • Accounting – An Information Process • Users of Accounting Information • Profession of Accounting • The Accounting Equation • Business Transactions • Financial Statements • Ratio of Liabilities to Owner’s Equity Slide # Power Note Topics Power Notes Introduction to Accounting and BusinessIntroduction to Accounting and Business Chapter 1 3 9 11 16 19 53 70
  • 3. C1 - 3 Accounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information Process Identification of Users
  • 4. C1 - 4 User Information Needs Accounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information Process Identification of Users
  • 5. C1 - 5 Identification of Users User Information Needs Accounting System Accounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information Process
  • 6. C1 - 6 Identification of Users User Information Needs Accounting System Economic Data and Activities Accounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information Process
  • 7. C1 - 7 Identification of Users User Information Needs Accounting System Economic Data and Activities Reports Accounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information Process
  • 8. C1 - 8 Identification of Users User Information Needs Accounting System Reports Economic Data and Activities User Decisions Accounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information Process
  • 9. C1 - 9 EXTERNAL USERS Financial AccountingFinancial Accounting • investors • creditors • regulators • customers • competitors Users of Accounting InformationUsers of Accounting InformationUsers of Accounting InformationUsers of Accounting Information
  • 10. C1 - 10 EXTERNAL USERS Financial AccountingFinancial Accounting • investors • creditors • regulators • customers • competitors • owners • managers • employees INTERNAL USERS ManagerialManagerial AccountingAccounting Users of Accounting InformationUsers of Accounting InformationUsers of Accounting InformationUsers of Accounting Information
  • 11. C1 - 11 What are the starting rates for new graduates? GovernmentGovernment IndustryIndustry CPA FirmsCPA Firms College Graduates The Accounting ProfessionThe Accounting Profession Auditor Staff Accountant Junior Accountant
  • 12. C1 - 12 GovernmentGovernment IndustryIndustry CPA FirmsCPA Firms Staff Accountant Junior AccountantAuditor College Graduates How soon would I get promoted? The Accounting ProfessionThe Accounting Profession Senior AccountantSupervisor Chief Accountant
  • 13. C1 - 13 What are the top positions in each category? GovernmentGovernment IndustryIndustry CPA FirmsCPA Firms Chief Accountant Staff Accountant Senior Accountant Junior Accountant Supervisor Auditor College Graduates The Accounting ProfessionThe Accounting Profession Controller ManagerDirector
  • 14. C1 - 14 What is the fastest path to top management? GovernmentGovernment Administrator IndustryIndustry Vice President Finance CPA FirmsCPA Firms Chief Accountant Staff Accountant Controller Partner Manager Senior Accountant Junior Accountant Director Supervisor Auditor College Graduates The Accounting ProfessionThe Accounting Profession
  • 15. C1 - 15 10 to 20 years of experience1 GovernmentGovernment The Accounting ProfessionThe Accounting Profession Administrator IndustryIndustry Vice President Finance CPA FirmsCPA Firms 1 6 to 8 years of experience2 Chief Accountant Staff Accountant Controller Partner Manager Senior Accountant Junior Accountant 2 Director Supervisor Auditor College Graduates
  • 16. C1 - 16 Resources The Accounting EquationThe Accounting Equation What are an organization’s resources called?
  • 17. C1 - 17 Assets Resources = Sources The Accounting EquationThe Accounting Equation What are the sources of the assets? Cost of resources used in the business
  • 18. C1 - 18 Assets Liabilities Owner’s Equity Resources = Sources Cost of resources used in the business Resources supplied by creditors and owners The Accounting EquationThe Accounting Equation
  • 19. C1 - 19 a. Chris Clark deposits $25,000 in a bank account for NetSolutions. ASSETS = Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions OWNER’S EQUITY LIABILITIES
  • 20. C1 - 20 a. Chris Clark deposits $25,000 in a bank account for NetSolutions. ASSETS = Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions OWNER’S EQUITY CashCash 25,00025,000 LIABILITIES
  • 21. C1 - 21 a. Chris Clark deposits $25,000 in a bank account for NetSolutions. ASSETS = Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions OWNER’S EQUITY CashCash 25,00025,000 LIABILITIES Chris Clark,Chris Clark, CapitalCapital 25,00025,000
  • 22. C1 - 22 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions b. NetSolutions buys land for $20,000. ASSETS = OWNER’S EQUITY LIABILITIES
  • 23. C1 - 23 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions b. NetSolutions buys land for $20,000. ASSETS = OWNER’S EQUITY LIABILITIES CashCash (20,000)(20,000)
  • 24. C1 - 24 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions b. NetSolutions buys land for $20,000. ASSETS = OWNER’S EQUITY LIABILITIES CashCash (20,000)(20,000) LandLand 20,00020,000
  • 25. C1 - 25 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES c. NetSolutions buys supplies for $1,350, agreeing to pay the supplier in the near future.
  • 26. C1 - 26 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES SuppliesSupplies 1,3501,350 c. NetSolutions buys supplies for $1,350, agreeing to pay the supplier in the near future.
  • 27. C1 - 27 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES c. NetSolutions buys supplies for $1,350, agreeing to pay the supplier in the near future. Accounts PayableAccounts Payable 1,3501,350 SuppliesSupplies 1,3501,350
  • 28. C1 - 28 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES d. NetSolutions earns fees of $7,500, receiving cash.
  • 29. C1 - 29 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES CashCash 7,5007,500 d. NetSolutions earns fees of $7,500, receiving cash.
  • 30. C1 - 30 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES CashCash 7,5007,500 Fees EarnedFees Earned 7,5007,500 d. NetSolutions earns fees of $7,500, receiving cash.
  • 31. C1 - 31 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES e. NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275.
  • 32. C1 - 32 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES CashCash (3,650)(3,650) e. NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275.
  • 33. C1 - 33 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES CashCash (3,650)(3,650) ExpensesExpenses (3,650)(3,650) e. NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275.
  • 34. C1 - 34 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES f. NetSolutions pays $950 to creditors on account.
  • 35. C1 - 35 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES CashCash (950)(950) f. NetSolutions pays $950 to creditors on account.
  • 36. C1 - 36 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES CashCash (950)(950) Accounts PayableAccounts Payable (950)(950) f. NetSolutions pays $950 to creditors on account.
  • 37. C1 - 37 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES g. At the end of the month, the cost of supplies on hand is $550.
  • 38. C1 - 38 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES SuppliesSupplies (800)(800) g. At the end of the month, the cost of supplies on hand is $550.
  • 39. C1 - 39 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES SuppliesSupplies (800)(800) Supplies ExpenseSupplies Expense (800)(800) g. At the end of the month, the cost of supplies on hand is $550.
  • 40. C1 - 40 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES h. Chris Clark withdraws $2,000 in cash.
  • 41. C1 - 41 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES CashCash (2,000)(2,000) h. Chris Clark withdraws $2,000 in cash.
  • 42. C1 - 42 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES CashCash (2,000)(2,000) Chris Clark,Chris Clark, DrawingDrawing (2,000)(2,000) h. Chris Clark withdraws $2,000 in cash.
  • 43. C1 - 43 Transaction SummaryTransaction SummaryTransaction SummaryTransaction Summary ASSETS = OWNER’S EQUITY LIABILITIES CashCash 5,9005,900 SuppliesSupplies 550550 LandLand 20,00020,000
  • 44. C1 - 44 Transaction SummaryTransaction SummaryTransaction SummaryTransaction Summary ASSETS = OWNER’S EQUITY LIABILITIES CashCash 5,9005,900 SuppliesSupplies 550550 LandLand 20,00020,000 Accts. PayableAccts. Payable 400400
  • 45. C1 - 45 Transaction SummaryTransaction SummaryTransaction SummaryTransaction Summary ASSETS = OWNER’S EQUITY LIABILITIES CashCash 5,9005,900 SuppliesSupplies 550550 LandLand 20,00020,000 Accts. PayableAccts. Payable 400400 C. Clark, CapitalC. Clark, Capital 25,00025,000 C. Clark, DrawingC. Clark, Drawing (2,000)(2,000) Fees EarnedFees Earned 7,5007,500 Wages ExpenseWages Expense (2,125)(2,125) Rent ExpenseRent Expense (800)(800) Supplies ExpenseSupplies Expense (800)(800) Utilities ExpenseUtilities Expense (450)(450) Misc. ExpenseMisc. Expense (275)(275)
  • 46. C1 - 46 OWNER’S EQUITY Effects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s Equity
  • 47. C1 - 47 OWNER’S EQUITY Effects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s Equity decreased bydecreased by
  • 48. C1 - 48 OWNER’S EQUITY Effects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s Equity Owner’s withdrawals Expenses decreased bydecreased by
  • 49. C1 - 49 OWNER’S EQUITY Effects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s Equity increased byincreased by
  • 50. C1 - 50 OWNER’S EQUITY Effects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s Equity Owner’s investments Revenues increased byincreased by
  • 51. C1 - 51 OWNER’S EQUITY Effects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s Equity Owner’s withdrawals Expenses Owner’s investments Revenues decreased bydecreased by increased byincreased by
  • 52. C1 - 52 OWNER’S EQUITY Effects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s Equity Owner’s withdrawals Expenses Owner’s investments Revenues decreased bydecreased by increased byincreased by NET INCOME
  • 53. C1 - 53 Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements NetSolutions Income Statement For the Month Ended November 30, 2002 Fees earned $7,500 Operating expenses: Wages expense $2,125 Rent expense 800 Supplies expense 800 Utilities expense 450 Miscellaneous expense 275 Total operating expenses 4,450 Net income $3,050
  • 54. C1 - 54 Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements NetSolutions Income Statement For the Month Ended November 30, 2002 Fees earned $7,500 Operating expenses: Wages expense $2,125 Rent expense 800 Supplies expense 800 Utilities expense 450 Miscellaneous expense 275 Total operating expenses 4,450 Net income $3,050
  • 55. C1 - 55 Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements NetSolutions Income Statement For the Month Ended November 30, 2002 Fees earned $7,500 Operating expenses: Wages expense $2,125 Rent expense 800 Supplies expense 800 Utilities expense 450 Miscellaneous expense 275 Total operating expenses 4,450 Net income $3,050
  • 56. C1 - 56 Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements NetSolutions Income Statement For the Month Ended November 30, 2002 Fees earned $7,500 Operating expenses: Wages expense $2,125 Rent expense 800 Supplies expense 800 Utilities expense 450 Miscellaneous expense 275 Total operating expenses 4,450 Net income $3,050
  • 57. C1 - 57 NetSolutions Statement of Owner’s Equity For the Month Ended November 30, 2002 Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements Chris Clark, capital, November 1, 2002 $ 0 Investment on November 1, 2002 $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, 2002 $26,050
  • 58. C1 - 58 NetSolutions Statement of Owner’s Equity For the Month Ended November 30, 2002 Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements Chris Clark, capital, November 1, 2002 $ 0 Investment on November 1, 2002 $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, 2002 $26,050
  • 59. C1 - 59 NetSolutions Statement of Owner’s Equity For the Month Ended November 30, 2002 Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements Chris Clark, capital, November 1, 2002 $ 0 Investment on November 1, 2002 $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, 2002 $26,050
  • 60. C1 - 60 NetSolutions Statement of Owner’s Equity For the Month Ended November 30, 2002 Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements Chris Clark, capital, November 1, 2002 $ 0 Investment on November 1, 2002 $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, 2002 $26,050
  • 61. C1 - 61 NetSolutions Statement of Owner’s Equity For the Month Ended November 30, 2002 Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements Chris Clark, capital, November 1, 2002 $ 0 Investment on November 1, 2002 $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, 2002 $26,050
  • 62. C1 - 62 NetSolutions Balance Sheet November 30, 2002 Assets Cash $5,900 Supplies 550 Land 20,000 Total assets $26,450 Liabilities Accounts payable $ 400 Owner’s Equity Chris Clark, capital 26,050 Total liabilities and owner’s equity $26,450 Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
  • 63. C1 - 63 NetSolutions Balance Sheet November 30, 2002 Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements Assets Cash $5,900 Supplies 550 Land 20,000 Total assets $26,450 Liabilities Accounts payable $ 400 Owner’s Equity Chris Clark, capital 26,050 Total liabilities and owner’s equity $26,450
  • 64. C1 - 64 NetSolutions Balance Sheet November 30, 2002 Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements Assets Cash $5,900 Supplies 550 Land 20,000 Total assets $26,450 Liabilities Accounts payable $ 400 Owner’s Equity Chris Clark, capital 26,050 Total liabilities and owner’s equity $26,450
  • 65. C1 - 65 NetSolutions Balance Sheet November 30, 2002 Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements Assets Cash $5,900 Supplies 550 Land 20,000 Total assets $26,450 Liabilities Accounts payable $ 400 Owner’s Equity Chris Clark, capital 26,050 Total liabilities and owner’s equity $26,450
  • 66. C1 - 66 NetSolutions Statement of Cash Flows For the Month Ended November 30, 2002 Cash flows from operating activities: Cash received from customers $ 7,500 Deduct cash payments for expenses and payments to creditors 4,600 Net cash flow from operating activities $ 2,900 Cash flows from investing activities: Cash payments for acquisition of land (20,000) Cash flows from financing activities: Cash received as owner’s investment $25,000 Deduct cash withdrawal by owner 2,000 Net cash flow from financing activities 23,000 Net cash flow and Nov. 30, 2002 cash balance $5,900 Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
  • 67. C1 - 67 NetSolutions Statement of Cash Flows For the Month Ended November 30, 2002 ) Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements Cash flows from operating activities: Cash received from customers $ 7,500 Deduct cash payments for expenses and payments to creditors 4,600 Net cash flow from operating activities $ 2,900 Cash flows from investing activities: Cash payments for acquisition of land (20,000 Cash flows from financing activities: Cash received as owner’s investment $25,000 Deduct cash withdrawal by owner 2,000 Net cash flow from financing activities 23,000 Net cash flow and Nov. 30, 2002 cash balance $5,900
  • 68. C1 - 68 NetSolutions Statement of Cash Flows For the Month Ended November 30, 2002 ) Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements Cash flows from operating activities: Cash received from customers $ 7,500 Deduct cash payments for expenses and payments to creditors 4,600 Net cash flow from operating activities $ 2,900 Cash flows from investing activities: Cash payments for acquisition of land (20,000) Cash flows from financing activities: Cash received as owner’s investment $25,000 Deduct cash withdrawal by owner 2,000 Net cash flow from financing activities 23,000 Net cash flow and Nov. 30, 2002 cash balance $5,900
  • 69. C1 - 69 NetSolutions Statement of Cash Flows For the Month Ended November 30, 2002 Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements Cash flows from operating activities: Cash received from customers $ 7,500 Deduct cash payments for expenses and payments to creditors 4,600 Net cash flow from operating activities $ 2,900 Cash flows from investing activities: Cash payments for acquisition of land (20,000 Cash flows from financing activities: Cash received as owner’s investment $25,000 Deduct cash withdrawal by owner 2,000 Net cash flow from financing activities 23,000 Net cash flow and Nov. 30, 2002 cash balance $5,900 )
  • 70. C1 - 70 Ratio of Liabilities to Owner’s EquityRatio of Liabilities to Owner’s EquityRatio of Liabilities to Owner’s EquityRatio of Liabilities to Owner’s Equity Ratio of liabilities to owner’s equity = FormulaFormula Objective: Use the ratio of liabilities to owner’s equity to analyze the ability of a business to withstand poor business conditions and to pay its creditors. Total liabilities Total owner’s equity NetSolutions = ExampleExample $400 $16,050 .025 or 2.5%
  • 71. C1 - 71 Note: To see the topic slide, type 2 and press Enter. This is the last slide in Chapter 1.This is the last slide in Chapter 1. Power NotesChapter 1 Introduction to Accounting and BusinessIntroduction to Accounting and Business