1. 1
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2. 2
Optional Exercises:
P 1-10, 15 & 22
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Solutions to Recommended
Problems
3. 3
OUTLINE FOR TODAY
ACCT Ch. 2 pp. 76-85
What is Accounting
The Accounting Equation
Financing, Investing, Operating Activities
4. 2-4
Objective
2
What is Accounting?
How does it measure and
record business activities?
5. 2-5
Accounting for Business Activities
Accounting transactions are
events and activities that cause
increases and decreases in
account balances.
6. 2-6
Accounting for Business Activities
An account
• Is a record of the increases and
decreases in the dollar amount
associated with a specific
resource or activity.
9. 2-8
The Accounting Equation
Owners’
Assets = Liabilities + Equity
Resources The claims of Owners’ claims
controlled by the creditors to a on the company’s
business company’s resources assets
17. 2-16
Balance Sheet: Owner’s Equity
Account
•Investment by Owner(s)
•Contributed Capital (for
Proprietorships/
Partnerships)
•Stock (for Corporations)
PLUS
•Retained Earnings
18. 2-17
In Class Exercise: E 2-11
Let’s work this…
Supplies Inventory 4,350
Buildings 79,500
Cash 1,500
Equipment 12,750
Flowers and Plants 26,000
Notes Payable 57,500
Proprietor’s Capital 66,600
Assets = Liabilities + Owner’s Equity
19. 2-18
Exercise: E 2-11
Answer
Assets = Liabilities + Owners’ Equity
Cash $ 1,500
Flowers and Plants 26,000
Supplies Inventory 4,350
Buildings 79,500
Equipment 12,750
Notes Payable $57,500
Proprietor’s Capital $66,600
Total $124,100 = $57,500 + $66,600
$124,100
20. 2-19
Day to day activities
need to be categorized
into 3 different types of
activities because of
their different purpose!
21. 2-20
3 Types of Activities:
Types of Transactions/
Activities
•Operating Activities
•Financing Activities
•Investing Activities
22. 2-21
Objective
1
Financing Activities:
How do business
raise money?
23. 2-22
Financing Activities
METHOD #1:
Contributions by owners to a
business.
• Stock Issues (Corporations)
• Owner Contributions
(Proprietorships/Partnerships)
• Recorded under owners’ equity
24. 2-22
Financing Activities
METHOD #1:
Contributions by owners to a
business.
• Stock Issues (Corporations)
• Owner Contributions
(Proprietorships/Partnerships)
• Recorded under owners’ equity
25. 2-23
Financing Activities
METHOD #2:
Borrowing from creditors.
• Amount borrowed is the principal
of a loan.
• Interest is the cost of borrowing
and is paid to creditors in addition to
the repayment of principal.
26. 2-24
Exhibit 1 Financing from Owners
and Creditors
Favorite
Issue Stocks
Issue Bonds
27. 2-25
Objective
3
Investing Activities
How does a
company obtain
long-term
resources (assets)?
28. 2-26
Investing Activities
Investing activities
•involve the acquisition or disposal of
long-term assets used by a business.
29. 2-27
Exhibit 4 Investing in Long-Term Resources
Favorite
30. 2-28
Objective
4 Operating Activities
What are the day to day
operations?
32. 2-30
Operating Activities
Some examples:
•Purchasing merchandise inventory
•Purchasing supplies
•Paying rent
•Paying for employee wages
•Paying for utilities
•Selling your product or service
33. 2-31
Operating Activities
Revenue money received when
goods or services are sold.
Expense money paid during
the process of acquiring and
selling goods and services.
34. 2-32
Operating Activities
Merchandise
inventory
•is an asset account
and identifies the cost
of goods a company
has purchased that are
available for sale to
customers.
35. 2-33
Operating Activities
Cost of Goods Sold cost to the
company of the goods
transferred to customers.
Cost of Goods Sold
is an Expense
36. 2-34
Operating Activities
Retained Earnings is a subcategory of
Owner’s Equity.
•Accumulation of the Net Profit year
to year. These are the profits that are
“retained” and have been reinvested in
the business.
37. 2-35
Examples of each type of activity for a
Cookie Business
(Operating, Financing, Investing):
38. 2-36
•Operating- Company buys merchandise
(ingredients to bake cookies such as flour,
chocolate, milk, sugar).
•Financing- Company borrows $10,000
from Bank of America to purchase oven.
•Investing- Company buys oven (long
term asset) with $10,000 to bake cookies
for business.
39. 2-37
Exercise: E 2-16
Determine Cash Flow
from Operations – DIRECT METHOD:
Cash collected from customers $270,000
Cash paid for merchandise inventory 83,500
Cash paid for utilities 25,000
Cash paid for insurance 23,000
Cash paid for equipment 76,500
Cash paid to employees 58,000
Cash paid for postage 7,500
Cash paid to owners 5,000
Cash received from sale of old equipment 18,500
40. 2-38
Exercise: E 2-16
Determine Cash Flow from Operations:
In or List
Outflow? Category
Cash collected from customers $ 270,000 $ Operating
270,000
$
Cash paid for merchandise inventory $ 83,500 Operating
(83,500)
$
Cash paid for utilities $ 25,000 Operating
(25,000)
$
Cash paid for insurance $ 23,000 Operating
(23,000)
Cash paid for equipment $ 76,500 $ Investing
(76,500)
$
Cash paid to employees $ 58,000 Operating
(58,000)
$
Cash paid for postage $ 7,500 Operating
(7,500)
Cash paid to owners $ 5,000 $ Financing
(5,000)
$
Cash received from sale of old equipment $ 18,500 18,500 Investing
Cash Flow from Operating
73,000
Cash Flow from Investing
(58,000)
Cash Flow from Financing
(5,000)
Net Cash Flow
10,000
41. 2-39
Objective
5 Describe how financial
reports summarize
business activities and
provide information for
business decisions.
42. 2-40
Financial statements are
reports that summarize the
results of a company’s
accounting transactions for
a fiscal period.
43. 2-41
What are the 3 main Financial
Statements?
What is some general information
you would find in each?
44. 2-42
1. Income Statement (Revenues and
Expenses)
2. Balance Sheet (Assets, Liabilities and
Owners Equity)
3. Statement of Cash Flows (Operating,
Investing and Financing Activities)
45. 2-43
Financing Activities
•First day for company January 1
•On January 2, the owners of the
business contributed $10,000.
•On January 3, the owners
borrowed $8,000 from the local
bank.
47. 2-45
Investing Activities
•On January 5, Favorite Cookie
Company paid $6,000 for office
equipment.
•On January 6, the company
bought a delivery van for
$25,000. It paid $3,000 in cash
and financed the remaining
$22,000 of the purchase price
with a note payable.
48. 2-46
Investing Activities
Exhibit 3
OWNERS’
ASSETS = LIABILITIES +
EQUITY
Date Accounts
Beginning Amounts 18,000 = 8,000 + 10,000
1/5 Equipment 6,000
Cash –6,000
1/6 Equipment 25,000
Cash On January 5, one asset increased
–3,000
Notes Payable and another asset decreased
(Equipment) 22,000
(Cash) by the same amount, so30,000 +
Ending Amounts 40,000 = the accounting
10,000 equation remained unchanged.
49. 2-46
Investing Activities
Exhibit 3
OWNERS’
ASSETS = LIABILITIES +
EQUITY
Date Accounts
Beginning Amounts 18,000 = 8,000 + 10,000
1/5 Equipment 6,000
Cash –6,000
1/6 Equipment 25,000
Cash On January 5, one asset increased
–3,000
Notes Payable and another asset decreased
(Equipment) 22,000
(Cash) by the same amount, so30,000 +
Ending Amounts 40,000 = the accounting
10,000 equation remained unchanged.
50. 2-46
Investing Activities
Exhibit 3
OWNERS’
ASSETS = LIABILITIES +
EQUITY
Date Accounts
Beginning Amounts 18,000 = 8,000 + 10,000
1/5 Equipment 6,000
Cash –6,000
1/6 Equipment 25,000
Cash On January 5, one asset increased
–3,000
Notes Payable and another asset decreased
(Equipment) 22,000
(Cash) by the same amount, so30,000 +
Ending Amounts 40,000 = the accounting
10,000 equation remained unchanged.
51. 2-46
Investing Activities
Exhibit 3
OWNERS’
ASSETS = LIABILITIES +
EQUITY
Date Accounts
Beginning Amounts 18,000 = 8,000 + 10,000
1/5 Equipment 6,000
Cash –6,000
1/6 Equipment 25,000
Cash On January 5, one asset increased
–3,000
Notes Payable and another asset decreased
(Equipment) 22,000
(Cash) by the same amount, so30,000 +
Ending Amounts 40,000 = the accounting
10,000 equation remained unchanged.
52. 2-46
Investing Activities
Exhibit 3
OWNERS’
ASSETS = LIABILITIES +
EQUITY
Date Accounts
Beginning Amounts 18,000 = 8,000 + 10,000
1/5 Equipment 6,000
Cash –6,000
1/6 Equipment 25,000
Cash On January 5, one asset increased
–3,000
Notes Payable and another asset decreased
(Equipment) 22,000
(Cash) by the same amount, so30,000 +
Ending Amounts 40,000 = the accounting
10,000 equation remained unchanged.
53. 2-47
Investing Activities
Exhibit 3
OWNERS’
ASSETS = LIABILITIES +
EQUITY
Date Accounts
Beginning Amounts 18,000 = 8,000 + 10,000
1/5 Equipment 6,000
Cash –6,000
1/6 Equipment 25,000
Cash –3,000
Notes Payable 22,000
Ending Amounts 40,000 = 30,000 +
On January 6, the company acquired
10,000
a delivery van for $25,000.
54. 2-47
Investing Activities
Exhibit 3
OWNERS’
ASSETS = LIABILITIES +
EQUITY
Date Accounts
Beginning Amounts 18,000 = 8,000 + 10,000
1/5 Equipment 6,000
Cash –6,000
1/6 Equipment 25,000
Cash –3,000
Notes Payable 22,000
Ending Amounts 40,000 = 30,000 +
On January 6, the company acquired
10,000
a delivery van for $25,000.
55. 2-47
Investing Activities
Exhibit 3
OWNERS’
ASSETS = LIABILITIES +
EQUITY
Date Accounts
Beginning Amounts 18,000 = 8,000 + 10,000
1/5 Equipment 6,000
Cash –6,000
1/6 Equipment 25,000
Cash –3,000
Notes Payable 22,000
Ending Amounts 40,000 = 30,000 +
On January 6, the company acquired
10,000
a delivery van for $25,000.
74. 2-56
Operating Activities
•In January, Favorite Cookie
Company sells 380 boxes of
cookies (cost to purchase =
$6,080) to the store for
$11,400, receiving cash.
84. 2-62
Operating Activities
Cost of Goods Sold identifies the
cost to the company of goods
transferred to customers.
85. 2-63
Operating Activities
On January 6, paid $300 for
supplies used during January.
ASSETS = LIABILITIES + OWNERS’ EQUITY
Exhibit 10
Other Contributed Retained
Cash
Date Accounts Assets Capital Earnings
86. 2-63
Operating Activities
On January 6, paid $300 for
supplies used during January.
ASSETS = LIABILITIES + OWNERS’ EQUITY
Exhibit 10
Other Contributed Retained
Cash
Date Accounts Assets Capital Earnings
1/6 Supplies Expense –300
87. 2-63
Operating Activities
On January 6, paid $300 for
supplies used during January.
ASSETS = LIABILITIES + OWNERS’ EQUITY
Exhibit 10
Other Contributed Retained
Cash
Date Accounts Assets Capital Earnings
1/6 Supplies Expense –300
Cash –300
89. 2-65
Operating Activities
On January 8, paid $600 for
rent for January.
ASSETS = LIABILITIES + OWNERS’ EQUITY
Exhibit 10
Other Contributed Retained
Cash
Date Accounts Assets Capital Earnings
90. 2-65
Operating Activities
On January 8, paid $600 for
rent for January.
ASSETS = LIABILITIES + OWNERS’ EQUITY
Exhibit 10
Other Contributed Retained
Cash
Date Accounts Assets Capital Earnings
1/8 Rent Expense –600
91. 2-65
Operating Activities
On January 8, paid $600 for
rent for January.
ASSETS = LIABILITIES + OWNERS’ EQUITY
Exhibit 10
Other Contributed Retained
Cash
Date Accounts Assets Capital Earnings
1/8 Rent Expense –600
Cash –600
92. 2-66
Operating Activities
On January 31, paid $1,000 for
wages for January.
ASSETS = LIABILITIES + OWNERS’ EQUITY
Exhibit 10
Other Contributed Retained
Cash
Date Accounts Assets Capital Earnings
93. 2-66
Operating Activities
On January 31, paid $1,000 for
wages for January.
ASSETS = LIABILITIES + OWNERS’ EQUITY
Exhibit 10
Other Contributed Retained
Cash
Date Accounts Assets Capital Earnings
1/31 Wages Expense –1,000
94. 2-66
Operating Activities
On January 31, paid $1,000 for
wages for January.
ASSETS = LIABILITIES + OWNERS’ EQUITY
Exhibit 10
Other Contributed Retained
Cash
Date Accounts Assets Capital Earnings
1/31 Wages Expense –1,000
Cash –1,000
95. 2-67
Operating Activities
On January 31, paid $200 for
utilities for January.
ASSETS = LIABILITIES + OWNERS’ EQUITY
Exhibit 10
Other Contributed Retained
Cash
Date Accounts Assets Capital Earnings
96. 2-67
Operating Activities
On January 31, paid $200 for
utilities for January.
ASSETS = LIABILITIES + OWNERS’ EQUITY
Exhibit 10
Other Contributed Retained
Cash
Date Accounts Assets Capital Earnings
1/31 Utilities Expense –200
97. 2-67
Operating Activities
On January 31, paid $200 for
utilities for January.
ASSETS = LIABILITIES + OWNERS’ EQUITY
Exhibit 10
Other Contributed Retained
Cash
Date Accounts Assets Capital Earnings
1/31 Utilities Expense –200
Cash –200
98. 2-67
Operating Activities
On January 31, paid $200 for
utilities for January.
ASSETS = LIABILITIES + OWNERS’ EQUITY
Exhibit 10
Other Contributed Retained
Cash
Date Accounts Assets Capital Earnings
1/31 Utilities Expense –200
Cash –200
Ending Amounts 11,100 +32,120 = 30,000 + 10,000 + 3,220
99. 2-68
Transaction Review for January
• Received from Owners $10,000
• Received from Creditors $8,000 & $22,000
• Paid for Equipment $6,000; Paid for Van $25,000
• On January 5, Favorite Cookie Company paid $6,000 for
office equipment.
• On January 6, the company bought a delivery van for
$25,000. It paid $3,000 in cash and financed the
• remaining $22,000 of the purchase price with a note payable.
• On January 7, Favorite Cookie Company purchased cookies
from the bakery at a cost of $7,200
• In January, Favorite Cookie Company sells 380 boxes of
cookies to the store for $11,400, receiving cash.
100. 2-69
Transaction Review for January
Transaction Review
• In January, Favorite Cookie Company sells 380 boxes
of cookies whose cost to purchase was $6,080
• A second entry in needed to record the cost and
inventory impact
• On January 6, paid $300 for supplies used during
January.
• On January 8, paid $600 for rent for January
• On January 31, paid $1,000 for wages for January.
• On January 31, paid $200 for utilities for January.
106. 2-73
…So what comes next…after
knowing the balances, we need to
create the Financial Statements:
1.Income Statement
2.Balance Sheet
3.Statement of Cash Flows
108. 2-75
Income Statement
Example Accounts
• Sales Revenue
• Cost of Goods Sold
• Interest Expense
• Wages Expense
• Net Income
109. 2-76
The income statement reports
revenues and expenses for a
fiscal period as a means of
determining how well a
company has performed in
creating profit for its owners.
Bottom line is NET INCOME!
110. 2-77
Favorite Cookie Company Exhibit 13
Income Statement
For the Month Ended January 31, 2007
Sales revenue $11,400
Cost of goods sold (6,080)
Wages expense (1,000)
Rent expense (600)
Supplies expense (300)
Utilities expense (200)
Net income $ 3,220
Account January 31
Balance
Owners’ Equity:
Contributed Capital 10,000
Sales Revenue 11,400
Cost of Goods Sold (6,080)
Wages Expense (1,000)
Rent Expense (600)
Supplies Expense (300)
Utilities Expense (200)
111. 2-77
Favorite Cookie Company Exhibit 13
Income Statement
For the Month Ended January 31, 2007
Sales revenue $11,400
Cost of goods sold (6,080)
Wages expense (1,000)
Rent expense (600)
Supplies expense (300)
Utilities expense (200)
Net income $ 3,220
Account January 31
Balance
Owners’ Equity:
Contributed Capital 10,000
Sales Revenue 11,400
Cost of Goods Sold (6,080)
Wages Expense (1,000)
Rent Expense (600)
Supplies Expense (300)
Utilities Expense (200)
112. 2-78
Favorite Cookie Company
Income Statement
For the Month Ended January 31, 2007
Sales revenue $11,400
Cost of goods sold (6,080)
Wages expense (1,000)
Rent expense (600)
Supplies expense (300)
Utilities expense (200)
Net income $ 3,220
113. 2-78
Favorite Cookie Company
Income Statement
For the Month Ended January 31, 2007
Sales revenue $11,400
Cost of goods sold (6,080)
Wages expense A fiscal period is (1,000)
Rent expense the time period (600)
Supplies expense (300)
Utilities expense for which a (200)
Net income company reports $ 3,220
its financial
activities.
114. 2-78
Favorite Cookie Company
Income Statement
For the Month Ended January 31, 2007
Sales revenue $11,400
Cost of goods sold (6,080)
Wages expense (1,000)
Rent expense (600)
Supplies expense (300)
Utilities expense (200)
Net income $ 3,220
115. 2-79
Favorite Cookie Company
Income Statement
For the Month Ended January 31, 2007
Sales revenue $11,400
Cost of goods sold (6,080)
Wages expense (1,000)
Rent expense (600)
Supplies expense (300)
Utilities expense (200)
Net income $ 3,220
Net income is the amount of profit earned
by a business during a fiscal period.
116. 2-80
A balance sheet identifies a
company’s assets and claims
to those assets by creditors
and owners at a specific date.
117. 2-81
Exhibit 14
Favorite Cookie Company
Balance Sheet
At January 31, 2007
Assets:
Cash $11,100
Merchandise inventory 1,120
Equipment 31,000
Total assets $43,220
Liabilities and Owners’ Equity
Notes payable $30,000
Contributed capital 10,000
Retained earnings 3,220
Total liabilities and owners’ equity $43,220
118. 2-81
Exhibit 14
Favorite Cookie Company
Balance Sheet
At January 31, 2007
Assets:
Cash $11,100
Merchandise inventory 1,120
Equipment 31,000
Total assets $43,220
Liabilities and Owners’ Equity
Notes payable $30,000
Contributed capital 10,000 equal
Retained earnings 3,220
Total liabilities and owners’ equity $43,220
119. 2-82
Exhibit 14
Favorite Cookie Company
Balance Sheet
At January 31, 2007
Assets:
Cash $11,100
Merchandise inventory 1,120
Equipment 31,000
Total assets $43,220
Liabilities and Owners’ Equity
Notes payable $30,000
Contributed capital 10,000
Retained earnings 3,220
Total liabilities and owners’ equity $43,220 note
120. 2-83
The statement of cash flows
reports events that affected a
company’s cash account
during a fiscal period.
121. 2-84
The information used for preparing
the statement of cash flows comes
from what account?
In what statement is that account
found?
122. 2-85
Cash Account found on the
Balance Sheet.
Look at all Inflows and
Outflows of CASH ONLY!
123. 2-86
Exhibit 15
Favorite Cookie Company
Statement of Cash Flows
For the Month Ended January 31, 2007
Operating Activities
Received from customers $11,400
Paid for merchandise (7,200)
Paid for wages (1,000)
Paid for rent (600)
Paid for supplies (300)
Paid for utilities (200)
Net cash flow from operating activities $ 2,100
Investing Activities
Paid for equipment (31,000)
Net cash flow from investing activities ($ 31,000)
124. 2-86
Exhibit 15
Favorite Cookie Company
Statement of Cash Flows
For the Month Ended January 31, 2007
Operating Activities
Received from customers $11,400
Paid for merchandise (7,200)
Paid for wages (1,000)
Paid for rent (600)
Paid for supplies (300)
Paid for utilities (200)
Net cash flow from operating activities $ 2,100
Investing Activities
Paid for equipment (31,000)
Net cash flow from investing activities ($ 31,000)
Continued
125. 2-87
Carried forward $(28,900)
Financing Activities
Received from creditors $30,000
Received from owners 10,000
Net cash flow from financing activities 40,000
Net cash flow for January 11,100
Cash balance, January 1 0
Cash balance, January 31 $ 11,100
126. 2-87
Carried forward $(28,900)
Financing Activities
Received from creditors $30,000
Received from owners 10,000
Net cash flow from financing activities 40,000
Net cash flow for January 11,100
Cash balance, January 1 0
Cash balance, January 31 $ 11,100
The statement of cash flows is useful for
identifying how much cash a company has,
where that cash came from, and how the
company used its cash during a fiscal period.
127. 2-88
Exercise 2-17
Listed below and on the next slide are typical accounts or
titles that appear on financial statements. For each item,
identify the financial statement(s) on which it appears.
Wages expense
Cost of goods sold
Sales revenue
Merchandise inventory
Net income
Retained earnings
128. 2-88
Exercise 2-17
Listed below and on the next slide are typical accounts or
titles that appear on financial statements. For each item,
identify the financial statement(s) on which it appears.
Wages expense Income statement
Cost of goods sold
Sales revenue
Merchandise inventory
Net income
Retained earnings
129. 2-88
Exercise 2-17
Listed below and on the next slide are typical accounts or
titles that appear on financial statements. For each item,
identify the financial statement(s) on which it appears.
Wages expense Income statement
Cost of goods sold Income statement
Sales revenue
Merchandise inventory
Net income
Retained earnings
130. 2-88
Exercise 2-17
Listed below and on the next slide are typical accounts or
titles that appear on financial statements. For each item,
identify the financial statement(s) on which it appears.
Wages expense Income statement
Cost of goods sold Income statement
Sales revenue Income statement
Merchandise inventory
Net income
Retained earnings
131. 2-88
Exercise 2-17
Listed below and on the next slide are typical accounts or
titles that appear on financial statements. For each item,
identify the financial statement(s) on which it appears.
Wages expense Income statement
Cost of goods sold Income statement
Sales revenue Income statement
Merchandise inventory Balance sheet
Net income
Retained earnings
132. 2-88
Exercise 2-17
Listed below and on the next slide are typical accounts or
titles that appear on financial statements. For each item,
identify the financial statement(s) on which it appears.
Wages expense Income statement
Cost of goods sold Income statement
Sales revenue Income statement
Merchandise inventory Balance sheet
Net income Income statement
Retained earnings
133. 2-88
Exercise 2-17
Listed below and on the next slide are typical accounts or
titles that appear on financial statements. For each item,
identify the financial statement(s) on which it appears.
Wages expense Income statement
Cost of goods sold Income statement
Sales revenue Income statement
Merchandise inventory Balance sheet Continued
Net income Income statement
Retained earnings Balance sheet
136. 2-89
Exercise 2-17
Contributed capital Balance sheet
Rent expense Income statement
Cash
Notes payable
137. 2-89
Exercise 2-17
Contributed capital Balance sheet
Rent expense Income statement
Cash Balance sheet
Notes payable
138. 2-89
Exercise 2-17
Contributed capital Balance sheet
Rent expense Income statement
Cash Balance sheet
Notes payable Balance sheet
139. 2-90
Reporting the Transformation Process
Assets
$40,000 Profit
+11,400 Revenues $11,400
-8,180 Expenses -8,180
$43,220 Net Income $ 3,220
Liabilities $30,000
Owners’ Equity:
Contributed Capital 10,000
Retained Earnings 3,220
$43,220 Exhibit 16
140. 2-90
Reporting the Transformation Process
Assets
$40,000 Profit
+11,400 Revenues $11,400
-8,180 Expenses -8,180
1 $43,220 Net Income $ 3,220
Liabilities $30,000
Owners’ Equity:
Contributed Capital 10,000
Retained Earnings 3,220
$43,220 Exhibit 16
141. 2-90
Reporting the Transformation Process
Assets
$40,000 Profit
2
+11,400 Revenues $11,400
-8,180 Expenses -8,180
1 $43,220 Net Income $ 3,220
Liabilities $30,000
Owners’ Equity:
Contributed Capital 10,000
Retained Earnings 3,220
$43,220 Exhibit 16
142. 2-90
Reporting the Transformation Process
Assets
$40,000 Profit
2
+11,400 Revenues $11,400
-8,180 Expenses -8,180
3
1 $43,220 Net Income $ 3,220
Liabilities $30,000
Owners’ Equity:
Contributed Capital 10,000
Retained Earnings 3,220
$43,220 Exhibit 16
143. 2-90
Reporting the Transformation Process
Assets
$40,000 Profit
2
+11,400 Revenues $11,400
-8,180 Expenses -8,180
3
1 $43,220 Net Income $ 3,220
Liabilities $30,000 4
Owners’ Equity:
Contributed Capital 10,000
Retained Earnings 3,220
$43,220 Exhibit 16
144. 2-90
Reporting the Transformation Process
Assets
$40,000 Profit
2
+11,400 Revenues $11,400
-8,180 Expenses -8,180
3
1 $43,220 Net Income $ 3,220
Liabilities $30,000 4
Owners’ Equity:
Contributed Capital 10,000
5
Retained Earnings 3,220
$43,220 Exhibit 16
145. 2-91
Financial Analysis
Return on Assets (ROA)
is the ratio of net income
to total assets.
146. 2-91
Financial Analysis
Return on Assets (ROA)
is the ratio of net income
to total assets.
Net Income
ROA =
Total Assets
147. 2-92
Financial Analysis
For Favorite Cookie
Company at January 31, 2007,
ROA is 7.5%
Net Income
ROA =
Total Assets
148. 2-92
Financial Analysis
For Favorite Cookie
Company at January 31, 2007,
ROA is 7.5%
Net Income
ROA =
Total Assets
149. 2-93
Financial Analysis
For Favorite Cookie
Company at January 31, 2007,
ROA is 7.5%
$3,220
Net Income
ROA =
Total Assets
150. 2-93
Financial Analysis
For Favorite Cookie
Company at January 31, 2007,
ROA is 7.5%
$3,220
Net Income
ROA =
Total Assets
$43,220
151. 2-93
Financial Analysis
For Favorite Cookie
Company at January 31, 2007,
ROA is 7.5%
$3,220
Net Income
ROA = = 7.5%
Total Assets
$43,220
152. 2-94
Financial Analysis
Return on Investment
(ROI) is the ratio of net
income to investment.
153. 2-94
Financial Analysis
Return on Investment
(ROI) is the ratio of net
income to investment.
Net Income
ROI =
Investment
154. 2-95
Financial Analysis
For Favorite Cookie
Company at January 31, 2007,
ROI is 32%
Net Income
Net Income
ROI =
Total Assets
155. 2-95
Financial Analysis
For Favorite Cookie
Company at January 31, 2007,
ROI is 32%
Net Income
Net Income
ROI =
Total Assets
Investment
156. 2-95
Financial Analysis
For Favorite Cookie
Company at January 31, 2007,
ROI is 32%
Net Income
Net Income
ROI = = 32%
Total Assets
Investment
157. 2-96
Financial Analysis
For Favorite Cookie
Company at January 31, 2007,
ROI is 32%
$3,220
Net Income
ROI =
Total Assets
158. 2-96
Financial Analysis
For Favorite Cookie
Company at January 31, 2007,
ROI is 32%
$3,220
Net Income
ROI =
Total Assets
$10,000
159. 2-96
Financial Analysis
For Favorite Cookie
Company at January 31, 2007,
ROI is 32%
$3,220
Net Income
ROI = = 32%
Total Assets
$10,000
160. 2-97
Financial Analysis
Return on Sales (ROS)
is the ratio of net income
to sales.
161. 2-97
Financial Analysis
Return on Sales (ROS)
is the ratio of net income
to sales.
Net Income
ROS =
Sales
162. 2-98
Financial Analysis
For Favorite Cookie
Company at January 31, 2007,
ROS is 28%
Net Income
ROS=
Sales
163. 2-98
Financial Analysis
For Favorite Cookie
Company at January 31, 2007,
ROS is 28%
Net Income
ROS=
Sales
Sales
164. 2-98
Financial Analysis
For Favorite Cookie
Company at January 31, 2007,
ROS is 28%
Net Income
ROS= = 28%
Sales
Sales
165. 2-99
Financial Analysis
For Favorite Cookie
Company at January 31, 2007,
ROS is 28%
Net Income
$3,220
ROS= Sales
166. 2-99
Financial Analysis
For Favorite Cookie
Company at January 31, 2007,
ROS is 28%
Net Income
$3,220
ROS= Sales
$11,400
167. 2-99
Financial Analysis
For Favorite Cookie
Company at January 31, 2007,
ROS is 28%
Net Income
$3,220
ROS= = 28%
Sales
$11,400
168. 2-100
CHAPTER 2
THE END –
See you on Thursday!
Don’t forget assignments due:
1. Homework #1
Editor's Notes
Accounting information is like a map of an organization. Accounting measures an organization’s activities by the dollar amounts associated with the activities.
Accounting information is like a map of an organization. Accounting measures an organization’s activities by the dollar amounts associated with the activities.
Accounting information is like a map of an organization. Accounting measures an organization’s activities by the dollar amounts associated with the activities.
Financing activities- Occur when owners or creditors provide resources to a company or when a company transfers resources to owners or creditors.
Accounting information is like a map of an organization. Accounting measures an organization’s activities by the dollar amounts associated with the activities.
$7,200 initial investment in merchandize inventory less $6,080 cost of goods sold = $1,120
$7,200 initial investment in merchandize inventory less $6,080 cost of goods sold = $1,120
Purchases of office equipment and delivery van
Company’s initial loan for $8,000 plus additional loan of $22,000
![1
REMINDERS:
If you don’t have the Day by Day Schedule with all assignments,
please download from Blackboard under Syllabus!
WEEK OF 9/15 AND 9/17
• Homework #1: Ch. 2- E2-9 & P2-3 (Due 9/17/09 by Midnight) - 10 points
– [Log in blackboard under course documents >> click on ILRN Assignments & Grades]
• Review CAPSIM simulation slides
• Complete CAPSIM “Introductory Lesson” & “Rehearsal 4](https://image.slidesharecdn.com/d-acctchapter2-key-100414200504-phpapp02/85/D-acct-chapter-2-key-1-320.jpg)
