Hhtfa8e ch01 stud devry Accounting 212 FINANCIAL ACCOUNTING

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devry Accounting 212 FINANCIAL ACCOUNTING

devry Accounting 212 FINANCIAL ACCOUNTING

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  • 1. 1Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 2. 2Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 3. The Financial StatementsChapter 1 3 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 4. Use accounting vocabulary 4 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 5. The Language of Business 5 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 6. Users of Accounting Information 6 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 7. Types of AccountingFinancial Managerial• Provides information • Provides information for external users for internal users – managers 7 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 8. Forms of Business Organization Proprietorship Partnership LLC CorporationOwner(s) Proprietor -One Partners – two Members Stockholders – or more usually manyPersonalliability ofowner forbusinessdebts 8 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 9. Proprietorship• Single owner• Common business form for small retails stores and professional service providers• Proprietor personally liable for business debts 9 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 10. Partnerships• Not a taxpaying entity• Governed by an agreement• Mutual agency• Unlimited liability• Involve risk 10 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 11. Limited Liability Companies (LLC)• Like a partnership, not a taxpaying entity• Popular form of business due to combination of tax status and limited liability 11 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 12. Corporations• Formed under state law• Double taxation• Stockholders elect Board of Directors 12 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 13. Learn the underlying concepts, assumptionsand principles of accounting 13 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 14. Conceptual Foundations 14 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 15. To provide financial information that is useful to present and potential Objective capital providers in making investment and lending decisions Fundamental Faithful Relevance Qualitative Characteristics representation EnhancingComparability Verifiability Timeliness Understandability QualitativeCharacteristicsConstraints Materiality Cost Financial Reporting Standards 15 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 16. Assumptions & Principles 16 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 17. International Financial Standards• Historically, different countries use their own accounting standards.• The IASB has developed international standards (IFRS)• In November 2008, the SEC announced it will require all U.S. public companies to adopt IFRS 17 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 18. International Financial Standards• In the long run, global use of IFRS could reduce cost of doing business internationally• Will U.S. GAAP continue to exist?• U.S. GAAP is rule-based• IFRS allows more judgment 18 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 19. Apply the accounting equation to businessorganizations 19 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 20. Accounting Equation Elements 20 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 21. Assets = Liabilities + Owner’s Equity Liabilities Assets Assets Owner’s equity 21 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 22. ASSETS LIABILITIES 22 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 23. Corporate Accounting EquationAssets Liabilities + Stockholders’ equity Paid-in capital Retained earnings Amounts Amounts 1-23 shareholders earned and have kept by invested business Common Common stock stock 23 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 24. Retained Earnings 24 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 25. 25Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 26. Net Income If Revenues expenses exceed revenues Expenses A net loss results Net Income 26 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 27. Exercise 1-17A Assets $290 $490 $150Liabilities $150 $310 Assets Liabilities Equity 27 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 28. Exercise 1-17A Assets $290 $490 $150 Assets = resourcesLiabilities $150 $310 Liabilities = amounts owed to creditors Assets Liabilities Equity Stockholder ownership 28 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 29. Evaluate business operations 29 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 30. The Financial Statements 30 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 31. The Income Statement• Also called the Statement of Operations• Reports two main categories• Shows the “bottom line”• Net income is the most important item in the financial statements 31 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 32. ABC Corporation Income Statement For the year ending December 31, 2010Net sales $$,$$$Other revenue $$,$$$Total revenues $$,$$$Cost of goods sold $$,$$$Gross profit $$,$$$Selling, general and administrative expenses $$,$$$Income from operations $$,$$$Interest expense $$,$$$Income before income taxes $$,$$$Income tax expense $$,$$$Net Income $$,$$$ 32 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 33. Statement of Retained Earnings• Retained earnings is portion of net income company has kept• Positive balance indicates revenues exceeded expenses• Accumulated deficit indicates expenses have exceed revenues• Net income (or net loss) flows from the Income Statement to the Statement of Retained Earnings 33 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 34. ABC Corporation Statement of Retained Earnings For the year ending December 31, 2010Retained earnings, December 31, 2009 $$,$$$Plus: Net income $$,$$$Less: Dividends $$,$$$Retained earnings, December 31, 2010 $$,$$$ 34 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 35. The Balance Sheet• Also called the Statement of Financial Position 35 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 36. Assets on the Balance SheetCurrent Long-term• Expected to be converted to • Will be held longer than one cash, sold or consumed in year the next year or within the business’s operating cycle 36 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 37. Liabilities on the Balance SheetCurrent Long-term• Debts payable in the next • Debts payable more than year or within the business’s one year from balance sheet operating cycle date 37 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 38. Stockholders’ Equity on the BalanceSheet• Represents stockholders ownership of the business assets 38 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 39. ABC Corporation Balance Sheet December 31, 2010 Assets Liabilities and Stockholders EquityCash and cash equivalents Accounts payableMerchandise inventory Taxes payablePrepaid expenses Total current liabilities Total current assets Long-term debt Total liabilitiesProperty and Equipment Common stockLess: accumulated depreciation Additional paid-in capital Net Property and Equipment Retained earningsOther assets Total stockholders equityTotal assets Total liabilities & stockholders equity 39 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 40. The Statement of Cash Flows• Measures cash receipts and cash payments• Fourth required financial statement 40 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 41. Cash Flow Categories 41 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 42. Exercise 1-20A(a) Common stock (h) Revenue(b) Income tax payable (I) Cash spent to acquire a building(c) Dividends (j) Selling, general & administrative expenses(d) Income tax expense (k) Adjustments to reconcile net income to net cash from operations(e) Ending balance of retained (l) Ending cash balance earnings(f) Total assets (m) Current liabilities(g) Long-term debt (n) Net income 42 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 43. Exercise 1-20A(a) (h)(b) (I)(c) (j)(d) (k)(e) (l)(f) (m)(g) (n) 43 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 44. Use information in financial statements tomake business decisions, which are informed byeconomic, legal and ethical guidelines 44 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 45. Relationships between FinancialStatements Income Statement For the year ended December 31, 2010 Revenues $$$,$$$ Expenses ($$,$$$) Net income $$,$$$ Statement of Retained Earnings For the year ended December 31, 2010 Beginning retained earnings $$$,$$$ Net income $$,$$$ Cash dividends ($$,$$$) Ending retained earnings $$,$$$ 45 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 46. Statement of Retained Earnings For the year ended December 31, 2010Beginning retained earnings $$$,$$$Net income $$,$$$Cash dividends ($$,$$$)Ending retained earnings $$,$$$ Balance Sheet December 31, 2010Assets $$$,$$$Liabilities $$$,$$$Stockholders’ equity: Common stock $$$,$$$ Retained earnings $$$,$$$Total liabilities and equity $$$,$$$ 46 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 47. Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall. Balance Sheet December 31, 2010 Assets $$$,$$$ Liabilities Cash from $$$,$$$ the Asset Stockholders’ equity: section of Common stock $$$,$$$ the Retained earnings $$$,$$$ Balance Total liabilities and equity $$$,$$$ Sheet Statement of Cash Flows equals For the year ended December 31, 2010 ending Cash flows from operating activities $$$,$$$ Cash on Cash flows from investing activities $$,$$$ the Cash flows from financing activities $$,$$$ Statement Net cash flows $$,$$$ of Cash Cash balance, December 31, 2009 $$,$$$ Flows Cash balance, December 31, 2010 $$,$$$ 47
  • 48. Evaluating a Company 48 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 49. Why are Ethics Important?• What decisions have you made today?• Who is impacted by your decisions?• What factors influence our decisions? 49 Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.
  • 50. 50Copyright ©2010 Pearson Education Inc. Publishing as Prentice Hall.