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  1. 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. 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. 3. C1 - 3 Accounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information Process Identification of Users
  4. 4. C1 - 4 User Information Needs Accounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information Process Identification of Users
  5. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 16. C1 - 16 Resources The Accounting EquationThe Accounting Equation What are an organization’s resources called?
  17. 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. 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. 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. 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. 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. 22. C1 - 22 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions b. NetSolutions buys land for $20,000. ASSETS = OWNER’S EQUITY LIABILITIES
  23. 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. 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. 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. 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. 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. 28. C1 - 28 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES d. NetSolutions earns fees of $7,500, receiving cash.
  29. 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. 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. 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. 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. 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. 34. C1 - 34 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES f. NetSolutions pays $950 to creditors on account.
  35. 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. 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. 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. 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. 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. 40. C1 - 40 Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions ASSETS = OWNER’S EQUITY LIABILITIES h. Chris Clark withdraws $2,000 in cash.
  41. 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. 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. 43. C1 - 43 Transaction SummaryTransaction SummaryTransaction SummaryTransaction Summary ASSETS = OWNER’S EQUITY LIABILITIES CashCash 5,9005,900 SuppliesSupplies 550550 LandLand 20,00020,000
  44. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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

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