1. Chapter 1 Power Notes
Introduction to Accounting and Business
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
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2. Chapter 1 Power Notes
Introduction to Accounting and Business
Slide # Power Note Topics
3 • Accounting – An Information Process
9 • Users of Accounting Information
11 • Profession of Accounting
16 • The Accounting Equation
19 • Business Transactions
53 • Financial Statements
70 • Ratio of Liabilities to Owner’s Equity
Note: To select a topic, type the slide # and press Enter.
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3. Accounting — An Information Process
Identification
of Users
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4. Accounting — An Information Process
Identification
of Users
User
Information
Needs
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5. Accounting — An Information Process
Identification
of Users
User
Information
Needs
Accounting
System
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6. Accounting — An Information Process
Identification
of Users
User
Information
Needs
Economic Data Accounting
and Activities System
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7. Accounting — An Information Process
Identification
of Users
User
Information
Needs
Economic Data Accounting
and Activities System
Reports
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8. Accounting — An Information Process
Identification
of Users
User
Information
Needs
Economic Data Accounting
and Activities System
User
Reports
Decisions
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9. Users of Accounting Information
• investors
Financial Accounting • creditors
EXTERNAL USERS • regulators
• customers
• competitors
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10. Users of Accounting Information
• investors
Financial Accounting • creditors
EXTERNAL USERS • regulators
• customers
• competitors
Managerial Accounting
INTERNAL USERS • owners
• managers
• employees
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11. The Accounting Profession
Government Industry CPA Firms
Staff Junior
Auditor Accountant Accountant
College Graduates
What are the starting rates for new graduates?
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12. The Accounting Profession
Government Industry CPA Firms
Chief Senior
Supervisor Accountant Accountant
Staff Junior
Auditor Accountant Accountant
College Graduates
How soon would I get promoted?
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13. The Accounting Profession
Government Industry CPA Firms
Director Controller Manager
Senior
Supervisor Chief Accountant
Accountant
Staff Junior
Auditor Accountant Accountant
College Graduates
What are the top positions in each category?
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14. The Accounting Profession
Government Industry CPA Firms
Vice President
Administrator Finance Partner
Director Manager
Controller
Senior
Supervisor Chief Accountant
Accountant
Staff Junior
Auditor Accountant Accountant
College Graduates
What is the fastest path to top management?
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15. The Accounting Profession
Government Industry CPA Firms
Administrator Vice President Partner
Finance
1 2
Director Manager
Controller
Senior
Supervisor Chief Accountant
Accountant
Staff Junior
Auditor Accountant Accountant
College Graduates
1 10 to 20 years of experience 2 6 to 8 years of experience
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16. The Accounting Equation
Resources
What are an organization’s resources called?
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17. The Accounting Equation
Resources = Sources
Assets
Cost of What are the
resources used sources of the
in the business assets?
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18. The Accounting Equation
Resources = Sources
Liabilities
Assets
Owner’s
Equity
Cost of Resources
resources used supplied by
in the business creditors and
owners
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19. Business Transactions
a. Chris Clark deposits $25,000 cash for NetSolutions.
ASSETS LIABILITIES
= OWNER’S EQUITY
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20. Business Transactions
a. Chris Clark deposits $25,000 cash for NetSolutions.
ASSETS LIABILITIES
Cash
25,000
= OWNER’S EQUITY
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21. Business Transactions
a. Chris Clark deposits $25,000 cash for NetSolutions.
ASSETS LIABILITIES
Cash
25,000
= OWNER’S EQUITY
Chris Clark,
Capital
25,000
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22. Business Transactions
b. NetSolutions buys land for $20,000.
ASSETS LIABILITIES
= OWNER’S EQUITY
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23. Business Transactions
b. NetSolutions buys land for $20,000.
ASSETS LIABILITIES
Cash
(20,000)
= OWNER’S EQUITY
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24. Business Transactions
b. NetSolutions buys land for $20,000.
ASSETS LIABILITIES
Cash
(20,000)
= OWNER’S EQUITY
Land
20,000
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25. Business Transactions
c. NetSolutions buys supplies for $1,350, agreeing to
pay the supplier in the near future.
ASSETS LIABILITIES
= OWNER’S EQUITY
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26. Business Transactions
c. NetSolutions buys supplies for $1,350, agreeing to
pay the supplier in the near future.
ASSETS LIABILITIES
Supplies
1,350 = OWNER’S EQUITY
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27. Business Transactions
c. NetSolutions buys supplies for $1,350, agreeing to
pay the supplier in the near future.
ASSETS LIABILITIES
Accounts Payable
1,350
Supplies
1,350 = OWNER’S EQUITY
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28. Business Transactions
d. NetSolutions earns fees of $7,500, receiving cash.
ASSETS LIABILITIES
= OWNER’S EQUITY
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29. Business Transactions
d. NetSolutions earns fees of $7,500, receiving cash.
ASSETS LIABILITIES
Cash =
7,500 OWNER’S EQUITY
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30. Business Transactions
d. NetSolutions earns fees of $7,500, receiving cash.
ASSETS LIABILITIES
Cash =
7,500 OWNER’S EQUITY
Fees Earned
7,500
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31. Business Transactions
e. NetSolutions paid: wages, $2,125; rent, $800;
utilities, $450; and miscellaneous, $275.
ASSETS LIABILITIES
= OWNER’S EQUITY
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32. Business Transactions
e. NetSolutions paid: wages, $2,125; rent, $800;
utilities, $450; and miscellaneous, $275.
ASSETS LIABILITIES
Cash =
(3,650) OWNER’S EQUITY
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33. Business Transactions
e. NetSolutions paid: wages, $2,125; rent, $800;
utilities, $450; and miscellaneous, $275.
ASSETS LIABILITIES
Cash =
(3,650) OWNER’S EQUITY
Expenses
(3,650)
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34. Business Transactions
f. NetSolutions pays $950 to creditors on account.
ASSETS LIABILITIES
= OWNER’S EQUITY
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35. Business Transactions
f. NetSolutions pays $950 to creditors on account.
ASSETS LIABILITIES
Cash =
(950) OWNER’S EQUITY
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36. Business Transactions
f. NetSolutions pays $950 to creditors on account.
ASSETS LIABILITIES
Accounts Payable
(950)
Cash =
(950) OWNER’S EQUITY
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37. Business Transactions
g. At the end of the month, the cost of supplies on
hand is $550.
ASSETS LIABILITIES
= OWNER’S EQUITY
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38. Business Transactions
g. At the end of the month, the cost of supplies on
hand is $550.
ASSETS LIABILITIES
Supplies =
(800) OWNER’S EQUITY
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39. Business Transactions
g. At the end of the month, the cost of supplies on
hand is $550.
ASSETS LIABILITIES
Supplies =
(800) OWNER’S EQUITY
Supplies Expense
(800)
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40. Business Transactions
h. Chris Clark withdraws $2,000 in cash.
ASSETS LIABILITIES
= OWNER’S EQUITY
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41. Business Transactions
h. Chris Clark withdraws $2,000 in cash.
ASSETS LIABILITIES
Cash =
(2,000) OWNER’S EQUITY
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42. Business Transactions
h. Chris Clark withdraws $2,000 in cash.
ASSETS LIABILITIES
Cash =
(2,000) OWNER’S EQUITY
Chris Clark,
Drawing
(2,000)
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43. Transaction Summary
ASSETS LIABILITIES
Cash 5,900 OWNER’S EQUITY
Supplies
Land
550
20,000
=
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44. Transaction Summary
ASSETS LIABILITIES
Accts. Payable 400
Cash 5,900 OWNER’S EQUITY
Supplies
Land
550
20,000
=
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45. Transaction Summary
ASSETS LIABILITIES
Accts. Payable 400
Cash 5,900 OWNER’S EQUITY
Supplies
Land
550
20,000
= C. Clark, Capital 25,000
C. Clark, Drawing (2,000)
Fees Earned 7,500
Wages Expense (2,125)
Rent Expense (800)
Supplies Expense (800)
Utilities Expense (450)
Misc. Expense (275)
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46. Effects of Transactions on Owner’s Equity
OWNER’S EQUITY
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47. Effects of Transactions on Owner’s Equity
OWNER’S EQUITY
decreased by
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48. Effects of Transactions on Owner’s Equity
OWNER’S EQUITY
decreased by
Owner’s withdrawals
Expenses
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49. Effects of Transactions on Owner’s Equity
OWNER’S EQUITY
increased by
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50. Effects of Transactions on Owner’s Equity
OWNER’S EQUITY
increased by
Owner’s investments
Revenues
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51. Effects of Transactions on Owner’s Equity
OWNER’S EQUITY
decreased by increased by
Owner’s withdrawals Owner’s investments
Expenses Revenues
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52. Effects of Transactions on Owner’s Equity
OWNER’S EQUITY
decreased by increased by
Owner’s withdrawals Owner’s investments
Expenses Revenues
NET INCOME
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53. Financial 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
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54. Financial 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
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55. Financial 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
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56. Financial 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
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57. Financial Statements
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002
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
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58. Financial Statements
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002
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
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59. Financial Statements
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002
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
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60. Financial Statements
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002
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
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61. Financial Statements
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002
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
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62. Financial Statements
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
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63. Financial Statements
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
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64. Financial Statements
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
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65. Financial Statements
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
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66. Financial Statements
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
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67. Financial Statements
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
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68. Financial Statements
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
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69. Financial Statements
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
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70. Ratio of Liabilities to Owner’s Equity
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.
Formula
Ratio of liabilities Total liabilities
to owner’s equity
= Total owner’s equity
Example
NetSolutions $400
$16,050
= .025 or 2.5%
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71. Chapter 1 Power Notes
Introduction to Accounting and Business
This is the last slide in Chapter 1.
Note: To see the topic slide, type 2 and press Enter.
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