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c. 2014 Cengage Learning.   All Rights Reserved.  May not be ...
Learning Objectives
1.
2.
3.
4.
5.
6.

Describe the nature of a business and the role of
accounting and ethics in business...
Lear
ning
Obje
ctive
Desc
r ibe
the n
and
at
tu
t he r
ole o re of a b
usine
f ac c
ethic ounting ss
and
s in b
usine
ss.
...
Nature of Business and Accounting

o

A business is an organization in which basic
resources (inputs), such as materials a...
Nature of Business and Accounting

o The objective of most businesses is to earn a
profit.

o Profit is the difference bet...
TYPES OF
BUSINESSES
Service Business

Service

Delta Air Lines

Transportation services

The Walt Disney Company

Entertai...
The Role of Accounting in Business

o

Accounting can be defined as an information
system that provides reports to users a...
The Role of Accounting in Business

o The process by which accounting provides
information to users is as follows:
 Ident...
THE ROLE OF
ACCOUNTING IN
BUSINESS
Managerial Accounting

o

The area of accounting that provides internal
users with information is called managerial
accoun...
Financial Accounting

o
o

o

The area of accounting that provides external
users with information is called financial
acc...
Role of Ethics in Accounting and Business

o The objective of accounting is to provide

relevant, timely information for u...
ROLE OF ETHICS
IN ACCOUNTING
AND BUSINESS
ROLE OF ETHICS IN ACCOUNTING AND
BUSINESS
The answer to …



Failure of individual
character

“What went wrong for
these ...
ROLE OF ETHICS
IN ACCOUNTING
AND BUSINESS
Opportunities for Accountants

o

Accountants and their staffs who provide
services on a fee basis are said to be
employed...
OPPORTUNITIES
FOR
ACCOUNTANTS
Lear
ning
Obje
ctive
Su m
acco marize th
u
e
e dev
nting
el op
pr i n
men
ciple
t of
s an d
them
r
to pr elate
actic
e.

2...
Generally Accepted Accounting Principles

o

Financial accountants follow generally
accepted accounting principles (GAAP) ...
Generally Accepted Accounting Principles

o The Securities and Exchange Commission

(SEC), an agency of the U.S. governmen...
Business Entity Concept

o

Under the business entity concept, the
activities of a business are recorded
separately from t...
PROPRIETORSHIP
A proprietorship is
owned by one
individual.






70% of business
entities in the U.S.
are
proprietors...
PARTNERSHIP
A partnership is
similar to a
proprietorship
except that it is
owned by two or
more individuals.



10% of bu...
CORPORATION
A corporation is
organized under state
or federal statutes as a
separate legal taxable
entity.







Cor...
LIMITED LIABILITY COMPANY
(LLC)
A limited liability
company (LLC)
combines the
attributes of a
partnership and a
corporati...
Cost Concept

o Under the cost concept, amounts are initially
recorded in the accounting records at their
cost or purchase...
Cost Concept

o Aaron Publishers purchased a building on

February 20, 2012, for $150,000. Other amounts
related to this p...
Cost Concept
• Price listed by seller on January 1, 2012

$160,000

• Aaron Publishers’ initial offer to buy on
January 31...
Objectivity Concept

o

The objectivity concept requires that the
amounts recorded in the accounting records
be based on o...
Unit of Measure Concept

o

The unit of measure concept requires that
economic data be recorded in dollars.

c. 2014 Cenga...
Lear
ning
Obje
State
ctive
th e a
ccou
nt
in
defin
e ea g equat
ch e l
ion a
e me
n
nt of d
equa the
tion.

3

c. 2014 Cen...
The Accounting Equation

o
o

The resources owned by a business are its assets.

o

The rights of the owners are called st...
THE
ACCOUNTING
EQUATION
Assets = Liabilities + Stockholders’ Equity

The resources
owned by a
business
THE
ACCOUNTING
EQUATION
Assets = Liabilities + Stockholders’ Equity

The rights of
creditors are the
debts of the
business
THE
ACCOUNTING
EQUATION
Assets = Liabilities + Stockholders’ Equity
The rights of the
owners
Lear
ning
Obje
Desc
ctive
ribe
trans
actio and illus
o
t
n
f the

n
r
resu s can be ate how
lting
busi
reco
ness
rded
chan...
Business Transaction

1. A business transaction is an economic event or
condition that directly changes an entity’s
financ...
TRANSACTION A

On November 1, 2013, Chris Clark deposited
$25,000 in a bank account in the name of
NetSolutions.
TRANSACTION B

On November 5, 2013, NetSolutions paid
$20,000 for the purchase of land as a future
building site.
TRANSACTION C

On November 10, 2013, NetSolutions
purchased supplies for $1,350 and agreed to
pay the supplier in the near...
Transaction C

o The liability created by a purchase on account
is called an account payable.

o Items such as supplies th...
TRANSACTION D
On November 18, 2013, NetSolutions received cash of
$7,500 for providing services to customers. A business
e...
Transaction D

o Revenue from providing services is recorded
as fees earned.

o Revenue from the sale of merchandise is
re...
TRANSACTION E

During the month, NetSolutions spent cash or
used up other assets in earning revenue.
Assets used in this p...
TRANSACTION E

On November 30, 2013, NetSolutions paid the
following expenses: wages, $2,125; rent, $800;
utilities, $450;...
TRANSACTION F

On November 30, 2013, NetSolutions paid
creditors on account, $950.
TRANSACTION G

On November 30, 2013, Chris Clark
determined that the cost of supplies on
hand at the end of the period was...
TRANSACTION H

On November 30, 2013, NetSolutions paid
$2,000 to stockholders (Chris Clark) as
dividends.
SUMMARY
RETAINED
EARNINGS
You Should Note the Following:

o The effect of every transactions is an increase

or a decrease in one or more of the acc...
You Should Note the Following:

o The stockholders’ equity (owner’s equity) is
increased by revenues and decreased by
expe...
TYPES OF
TRANSACTIONS
AFFECTING OWNER’S
EQUITY
Lear
ning
Obje
De s c
ctive
ribe
the f
a c or
inan
po r
c
ation
ci
and al statem
expl
ain h ents of
ow th
ey
inter
relat
e...
Financial Statements

o

After transactions have been recorded and
summarized, reports are prepared for users.
The account...
FINANCIAL
STATEMENTS
Income Statement

o

The income statement reports the revenues and
expenses for a period of time, based on the
matching co...
Retained Earnings Statement

o

The retained earnings statement reports the
changes in the retained earnings for a period
...
Retained Earnings Statement

o To illustrate, assume that NetSolutions earned net
income of $4,155 and paid dividends of $...
INCOME
STATEMENT

Net income is carried to the
retained earnings statement
RETAINED
EARNINGS
STATEMENT
From the income statement

To the balance sheet
Balance Sheet

o

A balance sheet is a list of the assets,
liabilities, and stockholders’ equity as of a
specific date.

c...
Account Form

o

The account form of a balance sheet lists the
assets on the left and the liabilities and
stockholders’ eq...
BALANCE SHEET

This amount is compared
to the net cash flow on the
statement of cash flows.

From the retained
earnings st...
Statement of Cash Flows

o

A statement of cash flows is a summary of the
cash receipts and cash payments for a specific
p...
STATEMENT OF
CASH FLOWS

This amount should match
Cash on the balance sheet.
Cash Flows from Operating Activities

o

The cash flows from operating activities
section reports a summary of cash receip...
Cash Flows from Investing Activities

o

The cash flows from investing activities section
reports the cash transactions fo...
Cash Flows from Financing Activities

o

The cash flows from financing activities
section reports the cash transactions re...
INTERRELATIONS
HIPS AMONG
FINANCIAL
STATEMENTS
Interrelationships Among Financial Statements

o In Exhibit 6, NetSolutions’ net income of $3,050
for November is added to...
INTERRELATIONS
HIPS AMONG
FINANCIAL
STATEMENTS
Interrelationships Among Financial Statements

o In Exhibit 6, NetSolutions’ retained earnings of
$1,050 as of November 30...
INTERRELATIONS
HIPS AMONG
FINANCIAL
STATEMENTS
Interrelationships Among Financial Statements

o In Exhibit 6, cash of $5,900 reported on the
balance sheet as of November...
Lear
ning
Obje
Desc
ctive
r ibe
and
illu
sto
ockh
s
olde the ratio trate the
us e o
of lia
com rs’ equi
f
biliti
pany
ty i...
RATIO OF
LIABILITIES TO
STOCKHOLDERS’
EQUITY
Ratio of Liabilities
to Stockholders’
Equity
Ratio of Liabilities
to Stockhol...
to
ion
ct
du
tro ing and
In
unt iness
cco Bus
A
nd
eE
Th
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Ch 01 Warren Financial Accounting

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Transcript of "Ch 01 Warren Financial Accounting"

  1. 1. to ion ct du tro ing and In unt iness cco Bus A r1 pt e ha C c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  2. 2. Learning Objectives 1. 2. 3. 4. 5. 6. Describe the nature of a business and the role of accounting and ethics in business. Summarize the development of accounting principles and relate them to practice. State the accounting equation and define each element of the equation. Describe and illustrate how business transactions can be recorded in terms of the resulting change in the elements of the accounting equation. Describe the financial statements of a corporation and explain how they interrelate. Describe and illustrate the use of the ratio of liabilities to stockholders’ equity in evaluating a company’s financial condition.
  3. 3. Lear ning Obje ctive Desc r ibe the n and at tu t he r ole o re of a b usine f ac c ethic ounting ss and s in b usine ss. 1 c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  4. 4. Nature of Business and Accounting o A business is an organization in which basic resources (inputs), such as materials and labor, are assembled and processed to provide goods or services (outputs) to customers. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  5. 5. Nature of Business and Accounting o The objective of most businesses is to earn a profit. o Profit is the difference between the amounts received from customers for goods or services and the amounts paid for the inputs used to provide the goods or services. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  6. 6. TYPES OF BUSINESSES Service Business Service Delta Air Lines Transportation services The Walt Disney Company Entertainment services Merchandising Business Product Walmart General merchandise Amazon.com Internet books, music, videos Manufacturing Business Product Ford Motor Company Cars, trucks, vans Dell, Inc. Personal computers
  7. 7. The Role of Accounting in Business o Accounting can be defined as an information system that provides reports to users about the economic activities and condition of a business. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  8. 8. The Role of Accounting in Business o The process by which accounting provides information to users is as follows:  Identify users.  Assess users’ information needs.  Design the accounting information system to meet users’ needs.  Record economic data about business activities and events.  Prepare accounting reports for users. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  9. 9. THE ROLE OF ACCOUNTING IN BUSINESS
  10. 10. Managerial Accounting o The area of accounting that provides internal users with information is called managerial accounting or management accounting. o Managerial accountants employed by a business are employed in private accounting. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  11. 11. Financial Accounting o o o The area of accounting that provides external users with information is called financial accounting. The objective of financial accounting is to provide relevant and timely information for the decision-making needs of users outside of the business. General-purpose financial statements are one type of financial accounting report that is distributed to external users. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  12. 12. Role of Ethics in Accounting and Business o The objective of accounting is to provide relevant, timely information for user decision making. o Accountants must behave in an ethical manner so that the information they provide users will be trustworthy and, thus, useful for decision making. o Ethics are moral principles that guide the conduct of individuals. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  13. 13. ROLE OF ETHICS IN ACCOUNTING AND BUSINESS
  14. 14. ROLE OF ETHICS IN ACCOUNTING AND BUSINESS The answer to …  Failure of individual character “What went wrong for these companies?”  Firm culture of greed and ethical indifference involves one or both of these factors. (Exhibit 2)
  15. 15. ROLE OF ETHICS IN ACCOUNTING AND BUSINESS
  16. 16. Opportunities for Accountants o Accountants and their staffs who provide services on a fee basis are said to be employed in public accounting. o Accountants employed by a business firm or a not-for-profit organization are said to be employed in private accounting. o Public accountants who have met a state’s education, experience, and examination requirements may become Certified Public Accountants (CPAs). c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  17. 17. OPPORTUNITIES FOR ACCOUNTANTS
  18. 18. Lear ning Obje ctive Su m acco marize th u e e dev nting el op pr i n men ciple t of s an d them r to pr elate actic e. 2 c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  19. 19. Generally Accepted Accounting Principles o Financial accountants follow generally accepted accounting principles (GAAP) in preparing reports. o Within the U.S., the Financial Accounting Standards Board (FASB) has the primary responsibility for developing accounting principles. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  20. 20. Generally Accepted Accounting Principles o The Securities and Exchange Commission (SEC), an agency of the U.S. government, has authority over the accounting and financial disclosures for companies whose shares of ownership (stock) are traded and sold to the public. o Many countries outside the United States use generally accepted accounting principles adopted by the International Accounting Standards Board (IASB). c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  21. 21. Business Entity Concept o Under the business entity concept, the activities of a business are recorded separately from the activities of its owners, creditors, or other businesses. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  22. 22. PROPRIETORSHIP A proprietorship is owned by one individual.     70% of business entities in the U.S. are proprietorships. They are easy and cheap to organize. Resources are limited to those of the owner. Used by small businesses.
  23. 23. PARTNERSHIP A partnership is similar to a proprietorship except that it is owned by two or more individuals.  10% of business organizations in the U.S. (combined with limited liability companies) are partnerships.  Combines the skills and resources of more than one person.
  24. 24. CORPORATION A corporation is organized under state or federal statutes as a separate legal taxable entity.      Corporations generate 90% of business revenues. 20% of the business organizations in the U.S. are corporations. Ownership is divided into shares, called stock. Can obtain large amounts of resources by issuing stocks. Used by large businesses.
  25. 25. LIMITED LIABILITY COMPANY (LLC) A limited liability company (LLC) combines the attributes of a partnership and a corporation.  10% of business organizations in the U.S. (combined with partnerships).  Often used as an alternative to a partnership.  Has tax and legal liability advantages for owners.
  26. 26. Cost Concept o Under the cost concept, amounts are initially recorded in the accounting records at their cost or purchase price. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  27. 27. Cost Concept o Aaron Publishers purchased a building on February 20, 2012, for $150,000. Other amounts related to this purchased are shown on the next slide. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  28. 28. Cost Concept • Price listed by seller on January 1, 2012 $160,000 • Aaron Publishers’ initial offer to buy on January 31, 2012 140,000 • Purchase price on February 20, 2012 150,000 • Estimated selling price on December 31, 2014 220,000 • Assessed value for property taxes, December 31, 2014 190,000 Under the cost concept, Aaron Publishers records the purchase of the building on February 20, 2012, at the purchase price of $150,000 The other amounts listed above have no effect on the accounting records. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  29. 29. Objectivity Concept o The objectivity concept requires that the amounts recorded in the accounting records be based on objective evidence. o Only the final agreed-upon amount is objective enough to be recorded in the accounting records. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  30. 30. Unit of Measure Concept o The unit of measure concept requires that economic data be recorded in dollars. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  31. 31. Lear ning Obje State ctive th e a ccou nt in defin e ea g equat ch e l ion a e me n nt of d equa the tion. 3 c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  32. 32. The Accounting Equation o o The resources owned by a business are its assets. o The rights of the owners are called stockholders’ equity for a corporation and owner’s equity for a proprietorship, partnership, or limited liability company. o The equation Assets = Liabilities + Stockholders’ Equity is called the accounting equation. The rights of creditors are the debts of the business and are called liabilities. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  33. 33. THE ACCOUNTING EQUATION Assets = Liabilities + Stockholders’ Equity The resources owned by a business
  34. 34. THE ACCOUNTING EQUATION Assets = Liabilities + Stockholders’ Equity The rights of creditors are the debts of the business
  35. 35. THE ACCOUNTING EQUATION Assets = Liabilities + Stockholders’ Equity The rights of the owners
  36. 36. Lear ning Obje Desc ctive ribe trans actio and illus o t n f the n r resu s can be ate how lting busi reco ness rded chan g in of th e acc e in the e terms l ount ing e ements quat io n . 4 c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  37. 37. Business Transaction 1. A business transaction is an economic event or condition that directly changes an entity’s financial condition or its results of operations.
  38. 38. TRANSACTION A On November 1, 2013, Chris Clark deposited $25,000 in a bank account in the name of NetSolutions.
  39. 39. TRANSACTION B On November 5, 2013, NetSolutions paid $20,000 for the purchase of land as a future building site.
  40. 40. TRANSACTION C On November 10, 2013, NetSolutions purchased supplies for $1,350 and agreed to pay the supplier in the near future.
  41. 41. Transaction C o The liability created by a purchase on account is called an account payable. o Items such as supplies that will be used in the business in the future are called prepaid expenses, which are assets. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  42. 42. TRANSACTION D On November 18, 2013, NetSolutions received cash of $7,500 for providing services to customers. A business earns money by selling goods or services to its customers. This amount is called revenue.
  43. 43. Transaction D o Revenue from providing services is recorded as fees earned. o Revenue from the sale of merchandise is recorded as sales. o Other examples of revenue include rent, which is recorded as rent revenue, and interest, which is recorded as interest revenue. o An account receivable is a claim against a customer, which is an asset. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  44. 44. TRANSACTION E During the month, NetSolutions spent cash or used up other assets in earning revenue. Assets used in this process of earning revenue are called expenses.
  45. 45. TRANSACTION E On November 30, 2013, NetSolutions paid the following expenses: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275.
  46. 46. TRANSACTION F On November 30, 2013, NetSolutions paid creditors on account, $950.
  47. 47. TRANSACTION G On November 30, 2013, Chris Clark determined that the cost of supplies on hand at the end of the period was $550.
  48. 48. TRANSACTION H On November 30, 2013, NetSolutions paid $2,000 to stockholders (Chris Clark) as dividends.
  49. 49. SUMMARY
  50. 50. RETAINED EARNINGS
  51. 51. You Should Note the Following: o The effect of every transactions is an increase or a decrease in one or more of the accounting equation elements. o The two sides of the accounting equation are always equal. o The stockholders’ equity (owner’s equity) is increased by amounts invested by stockholders (capital stock). c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  52. 52. You Should Note the Following: o The stockholders’ equity (owner’s equity) is increased by revenues and decreased by expenses. o The stockholders’ equity (owner’s equity) is decreased by dividends paid to stockholders. o Retained earnings is the stockholders’ equity created from business operations through revenue and expense transactions. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  53. 53. TYPES OF TRANSACTIONS AFFECTING OWNER’S EQUITY
  54. 54. Lear ning Obje De s c ctive ribe the f a c or inan po r c ation ci and al statem expl ain h ents of ow th ey inter relat e. 5 c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  55. 55. Financial Statements o After transactions have been recorded and summarized, reports are prepared for users. The accounting reports providing this information are called financial statements. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  56. 56. FINANCIAL STATEMENTS
  57. 57. Income Statement o The income statement reports the revenues and expenses for a period of time, based on the matching concept. o The matching concept is applied by “matching” the expenses incurred during a period with the revenue that those expenses generated. o The excess of the revenue over the expenses is called net income, net profit, or earnings. If expenses exceed revenue, the excess is a net loss. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  58. 58. Retained Earnings Statement o The retained earnings statement reports the changes in the retained earnings for a period of time. o It is prepared after the income statement because the net income or net loss for the period must be reported in this statement. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  59. 59. Retained Earnings Statement o To illustrate, assume that NetSolutions earned net income of $4,155 and paid dividends of $2,000 during December. The following statement would be prepared. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  60. 60. INCOME STATEMENT Net income is carried to the retained earnings statement
  61. 61. RETAINED EARNINGS STATEMENT From the income statement To the balance sheet
  62. 62. Balance Sheet o A balance sheet is a list of the assets, liabilities, and stockholders’ equity as of a specific date. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  63. 63. Account Form o The account form of a balance sheet lists the assets on the left and the liabilities and stockholders’ equity on the right. It resembles the basic format of the accounting equation. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  64. 64. BALANCE SHEET This amount is compared to the net cash flow on the statement of cash flows. From the retained earnings statement
  65. 65. Statement of Cash Flows o A statement of cash flows is a summary of the cash receipts and cash payments for a specific period of time.  It consists of three sections: (1) operating activities (2) investing activities (3) financing activities c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  66. 66. STATEMENT OF CASH FLOWS This amount should match Cash on the balance sheet.
  67. 67. Cash Flows from Operating Activities o The cash flows from operating activities section reports a summary of cash receipts and cash payments from operations. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  68. 68. Cash Flows from Investing Activities o The cash flows from investing activities section reports the cash transactions for the acquisition and sale of relatively permanent assets. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  69. 69. Cash Flows from Financing Activities o The cash flows from financing activities section reports the cash transactions related to cash investments by stockholders, borrowings, and cash dividends. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  70. 70. INTERRELATIONS HIPS AMONG FINANCIAL STATEMENTS
  71. 71. Interrelationships Among Financial Statements o In Exhibit 6, NetSolutions’ net income of $3,050 for November is added to the beginning retained earnings on November 1, 2013, in the retained earnings statement. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  72. 72. INTERRELATIONS HIPS AMONG FINANCIAL STATEMENTS
  73. 73. Interrelationships Among Financial Statements o In Exhibit 6, NetSolutions’ retained earnings of $1,050 as of November 30, 2013, on the retained earnings statement also appears on the November 30, 20l3, balance sheet as retained earnings. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  74. 74. INTERRELATIONS HIPS AMONG FINANCIAL STATEMENTS
  75. 75. Interrelationships Among Financial Statements o In Exhibit 6, cash of $5,900 reported on the balance sheet as of November 30, 2013, is also reported on the November statement of cash flows as the end-of-period cash. c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  76. 76. Lear ning Obje Desc ctive r ibe and illu sto ockh s olde the ratio trate the us e o of lia com rs’ equi f biliti pany ty i n es to ’s fin e ancia valuatin ga l con ditio n. 6 c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  77. 77. RATIO OF LIABILITIES TO STOCKHOLDERS’ EQUITY Ratio of Liabilities to Stockholders’ Equity Ratio of Liabilities to Stockholders’ Equity = Total Liabilities Total Stockholders’ Equity = $400 $26,050 = 0.015
  78. 78. to ion ct du tro ing and In unt iness cco Bus A nd eE Th c. 2014 Cengage Learning.   All Rights Reserved.  May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
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