2. There are three types of
business organizations
Proprietorship
Partnership
Corporation
3. A proprietorship Advantages
is owned by one • Ease in organizing
individual. • Low cost of
organizing
Disadvantage
Joe’s • Limited source of
financial resources
• Unlimited liability
4. Advantages
A partnership is • More financial
owned by two or resources than a
more individuals. proprietorship.
• Additional
management skills.
Joe and Marty’s Disadvantage
• Unlimited liability.
5. A corporation is
organized under state Advantage
or federal statutes as a • The ability to obtain
separate legal entity. large amounts of
resources by issuing
stocks.
J & M, Inc. Disadvantage
• Double taxation.
6. Business Strategies
A business strategy is an integrated
set of plans and actions designed to
enable the business to gain an
advantage over its competitors, and
in doing so, to maximize its profits.
7. Business Strategies
Under a low-cost strategy, a business
designs and produces products or
services of acceptable quality at a cost
lower than that of its competitors.
Under a differential strategy, a business
designs and produces products or services
that possess unique attributes or
characteristics which customers are willing
to pay a premium price.
8. Business Stakeholders
A business stakeholder is a person or
entity having an interest in the
economic performance of the business.
9. The Process of Providing
Information
STAKEHOLDERS
Internal: External:
Identify
Owners, Customers,
1 stake-
holders.
managers, creditors,
government
employees
Assess
stakeholders’
2 informational
needs.
10. The Process of Providing
Information
Design the
Record accounting
economic Accounting
4 data about
business
Information
System
3 information
system to meet
stakeholders’
activities needs.
and events.
11. The Process of Providing
Information
STAKEHOLDERS
Internal: External:
Owners, Customers,
managers, creditors,
employees government
Prepare
accounting
5 reports for
stakeholders.
Accounting
Information
System
12. Profession of Accounting
Accountants employed by a business firm or
a not-for-profit organization are said to be
engaged in private accounting.
Accountants and their staff who provide
services on a fee basis are said to be
employed in public accounting.
14. The business entity concept
limits the economic data in
the accounting system to
data related directly to the
activities of the business.
The cost concept is the
basis for entering the
exchange price, or cost
of an acquisition in the
accounting records.
15. The objectivity concept
requires that the accounting
records and reports be based
upon objective evidence.
The unit-of-measure
concept requires that
economic data be
recorded in dollars.
16. The Accounting Equation
Assets = Liabilities + Owners’ Equity
The resources
owned by a
business
17. The Accounting Equation
Assets = Liabilities + Owners’ Equity
The rights of the
creditors, which
represent debts
of the business
19. What is a business
transaction?
A business transaction is an economic event or
condition that directly changes an entity’s financial
condition or directly affects its results of operations.
20. On June 2011,
Toby Bryant
organized a
corporation that
will be known as
Quorum Group
of Companies.
21. a. Toby Bryant deposits $25,000 in a bank
account in the name of Quorum Group
of Companies in return for shares of
stock in the corporation.
Assets = Owners’ Equity
Cash Capital Stock
=
a. 25,000 25,000 Investment by
stockholder
22. b. Quorum Group of Companies exchanged
$20,000 for land.
Assets = Owners’ Equity
Cash + Land Capital Stock
Bal. 25,000 = 25,000
b. –20,000 +20,000
Bal. 5,000 20,000 25,000
23. c. During the month, Quorum Group of
Companies purchased supplies for $1,350
and agreed to pay the supplier in the near
future (on account).
Owners’
Assets = Liabilities + Equity
Accounts Capital
Cash + Supplies + Land Payable Stock
=
Bal. 5,000 20,000 25,000
c. + 1,350 + 1,350
Bal. 5,000 1,350 20,000 1,350 25,000
24. d. Quorum Group of Companies
provided services to customers,
earning fees of $7,500 and received
the amount in cash.
Owners’
Assets = Liab . + Equity
Accounts Capital Retained
Cash + Supplies + Land Payable + Stock + Earnings
Bal. 5,000 1,350 20,000 = 1,350 25,000
d. + 7,500 + 7,500
Bal. 12,500 1,350 20,000 1,350 25,000 7,500
Fees
earned
25. e. Quorum Group of Companies paid the
following expenses: wages, $2,125;
rent, $800; utilities, $450; and
miscellaneous, $275.
Owners’
Assets = Liab . + Equity
Accounts Capital Retained
Cash + Supplies + Land Payable + Stock + Earnings
Bal. 12,500 1,350 20,000 1,350 25,000 7,500
e. – 3,650 –2,125
=
Expenses – 800
– 450
– 275
Bal. 8,850 1,350 20,000 1,350 25,000 3,850
26. f. NetSolutions paid $950 to
creditors during the month.
Owners’
Assets = Liab . + Equity
Accounts Capital Retained
Cash + Supplies + Land Payable + Stock + Earnings
Bal. 8,850 1,350 20,000 = 1,350 25,000 3,850
f. – 950 – 950
Bal. 7,900 1,350 20,000 400 25,000 3,850
27. g. At the end of the month, the cost
of supplies on hand is $550, so
$800 of supplies were used.
Owners’
Assets = Liab . + Equity
Accounts Capital Retained
Cash + Supplies + Land Payable + Stock + Earnings
Bal. 7,900 1,350 20,000 = 400 25,000 3,850
g. – 800 Supplies – 800
Expense
Bal. 7,900 550 20,000 400 25,000 3,050
28. h. At the end of the month, NetSolutions
pays $2,000 to stockholders.
Owners’
Assets = Liab . + Equity
Accounts Capital Retained
Cash + Supplies + Land Payable + Stock + Earnings
Bal. 7,900 550 20,000 = 400 25,000 3,050
h. –2,000 Dividends –2,000
Bal. 5,900 550 20,000 400 25,000 1,050
29. Effects of Transactions on Owners’ Equity
Capital Stock
Increased by
Stockholders’
investments
+
30. Effects of Transactions on Owners’ Equity
Retained Earnings
Decreased by Decreased by
Increased by
Revenues Expenses Dividends
+ – –
32. Financial Statements
• Income statement—A summary of the
revenue and expenses for a specific
period of time.
• Retained earnings statement—A
summary of the earnings retained in the
corporation for a specific period of time.
• Balance sheet—A list of the assets,
liabilities, and stockholders’ equity as of a
specific date.
• Statement of cash flows—A summary of
the cash receipts and disbursements for a
specific period of time.
33. Quorum Group of Companies
Income Statement
For the Month Ended June 30, 2011
Fees earned $7 500 00
Operating expenses:
Wages expense $2 125 00
Rent expense 800 00
Supplies expense 800 00
Utilities expense 450 00
Miscellaneous expense 275 00
Total operating expenses Transfer this 4 450 00
Net income
amount to the $3 050 00
retained earnings
statement.
34. Quorum Group of Companies
Retained Earnings Statement
For the Month June 30, 2011
From the income
Net income for November $3 050 00
statement
Less dividends 2 000 00
Transferred to the
Retained earnings, November 30, 2005 $1 050 00
balance sheet
35. Quorum Group of Companies
Balance Sheet
June 30, 2011
From the
Assets Liabilities earnings
retained
Cash $ 5 900 00 Accounts Payable
statement 400 00
$
Supplies 550 00 Stockholders’ Equity
Land 20 000 00 Capital Stock $25,000
Ret. Earnings l,050 26 050 00
Total liabilities and
Total assets $26 450 00 stockholder’s equity $26 450 00
This balance sheet presented
using the account form
36. Quorum Group of Companies
Statement of Cash Flows
For the Month Ended June 30, 2011
Cash flows from operating activities:
Cash received from customers $ 7 500 00
Deduct cash payments for expenses
and payments to creditors 4 600 00
Net cash flow from operating activities 2 900 00
Cash flows from investing activities:
Cash payment for acquisition of land (20 000 00 )
Cash flows from financing activities:
Cash received as owner’s investment $25 000 00
Deduct cash withdrawal by owner 2 000 00
Net cash flow from financing activities 23 000 00
Net cash flow and Nov. 30, on thecash bal. sheet
Should match Cash 2005 balance $ 5 900 00
37. Statement of Cash Flows
Cash Flows from Operating Activities—This
section reports a summary of cash receipts and
cash payments from operations.
Cash Flows from Investing Activities—This section
reports the cash transactions for the acquisition and
sale of relatively permanent assets.
Cash Flows from Financing Activities—This
section reports the cash transactions related to cash
investments by the owner, borrowings, and cash
withdrawals by the owner.
