Introduction to Accounting & Business

1. Universidad
Cuauhtémoc Maestría en Administración de Hospitales
Educación a Distancia
Introduction to
Accounting and Business
Contabilidad Administrativa

2. Index
1. Describe the nature of a business, the role of accounting,
and ethics in business
2. Summarize the development of accounting principles
and relate them to practice
3. State the accounting equation and define each element
of the equation
4. Describe and illustrate how business transactions can be
recorded in terms of the resulting change in the elements
of the accounting equation
5. Describe the financial statements of a corporation and
explain how they interrelate
1-2

3. 1
1
Describe the nature of a
business, the role of
accounting, and ethics in
business.
1-3

4. 1
Types of Businesses
Service Business Service
Delta Air Lines Transportation services
Merchandising Business Product
Wal-Mart General merchandise
Manufacturing Business Product
General Motors Corp. Cars, trucks, vans
1-4

5. 1
The Role of Accounting in Business
Accounting can be defined as an
information system that provides
reports to users about the economic
activities and condition of a business.
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6. 1
Managerial Accounting
The area of accounting that provides
internal users with information is called
managerial accounting.
The objective of managerial
accounting is to provide relevant and
timely information for managers’ and
employees’ decision-making needs.
1-6

7. 1
Financial Accounting
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.
1-7

8. 1
Role of Ethics in
Accounting and Business
Ethics are moral principles
that guide the conduct of
individuals.
1-8

9. 2
Summarize the
development of accounting
principles and relate them
to practice.
1-9

10. 2
Business Entity Concept
Under the business entity
concept, the activities of a
business are recorded
separately from the activities
of its owners, creditors, or
other businesses.
1-10

11. 2
Business Entity Concept
A proprietorship is owned by one
individual.
• 70% of business entities in the United
States.
• Easy and cheap to organize.
• Resources are limited to those of the
owner.
• Used by small businesses.
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12. 2
Business Entity Concept
A corporation is organized under state or
federal statutes as a separate legal taxable
entity.
• Generates 90% of business revenues.
• 20% of the business organizations in the United
States.
• Ownership is divided into shares called stock.
• Can obtain large amounts of resources by issuing
stocks.
• Used by large businesses.
1-12

13. 2
Cost Concept
Under the cost concept,
amounts are initially recorded
in the accounting records at
their cost or purchase price.
1-13

14. 2
Objectivity Concept
The objectivity concept requires
that the amounts recorded in the
accounting records be based on
objective evidence.
1-14

15. 2
Unit of Measure Concept
The unit of measure concept
requires that economic data
be recorded in currency.
1-15

16. 3
State the accounting
equation and define each
element of the equation.
1-16

17. 3
The Accounting Equation
Assets = Liabilities + Owner’s Equity
The rights of the rights of the
The resources The
creditors are the owners
owned by a
business debts of the
business.
1-17

18. 4
Describe and illustrate how
business transactions can be
recorded in terms of the resulting
change in the elements of the
accounting equation.
1-18
18

19. 4
Business Transaction
A business transaction is an
economic event or condition that
directly changes an entity’s
financial condition or its results
of operations.
1-19

20. 4
Transaction A
On November 1, 2009, Chris Clark
deposits $25,000 in a bank account in
the name of NetSolutions in return for
shares of stock in the corporation.
1-20

21. 4
Transaction A (continued)
Stockholders’
Assets = Equity
CASH CAPITAL STOCK
a. 25,000 = 25,000
1-21

22. 4
Transaction B
On November 5, 2009, NetSolutions
paid $20,000 for the purchase of land
as a future building site.
1-22

23. 4
Transaction B (continued)
Stockholders’
Assets = Equity
CASH + LAND CAPITAL STOCK
Bal. 25,000 = 25,000
b. –20,000 +20,000
Bal. 5,000 20,000 25,000
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24. 4
Transaction C
On November 10, 2009,
NetSolutions purchased supplies
for $1,350 and agreed to pay the
supplier in the near future.
1-24

25. 4
Transaction C (continued)
Stockholders’
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
1-25

26. 4
Transaction D
On November 18, 2009, 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.
1-26

27. 4
Transaction D (continued)
Assets
CASH + SUPPLIES + LAND
Bal. 5,000 1,350 20,000
d. +7,500
Bal. 12,500 1.350 20,000
1-27

28. 4
Transaction D (continued)
Liabilities + Stockholders’ Equity
ACCOUNTS CAPITAL FEES
PAYABLE + STOCK + EARNED
Bal. 1,350 25,000
d. +7,500
Bal. 1,350 25,000 7,500
1-28

29. 4
Transaction E
On November 30, 2009, NetSolutions
paid the following expenses during
the month: wages, $2,125; rent, $800;
utilities, $450; and miscellaneous,
$275.
1-29

30. 4
Transaction E (continued)
Assets
CASH + SUPPLIES + LAND
Bal. 12,500 1,350 20,000
e. –3,650
Bal. 8,850 1.350 20,000
1-30

31. 4
Transaction E (continued)
Liabilities + Stockholders’ Equity
ACCOUNTS CAPITAL FEES WAGES RENT UTIL. MISC.
PAYABLE + STOCK + EARNED – EXP. – EXP. – EXP. – EXP.
Bal. 1,350 25,000 7,500
e. –2,125 –800 –450 –275
Bal. 1,350 25,000 7,500 –2,125 –800 –450 –275
1-31

32. 4
Transaction F
On November 30, 2009,
NetSolutions paid creditors on
account, $950.
1-32

33. 4
Transaction F (continued)
Assets
CASH + SUPPLIES + LAND
Bal. 8,850 1,350 20,000
f. –950
Bal. 7,900 1.350 20,000
1-33

34. 4
Transaction F (continued)
Liabilities + Stockholders’ Equity
ACCOUNTS CAPITAL FEES WAGES RENT UTIL. MISC.
PAYABLE + STOCK + EARNED – EXP. – EXP. – EXP. – EXP.
Bal. 1,350 25,000 7,500
f. –950
Bal. 400 25,000 7,500 –2,125 –800 –450 –275
1-34

35. 4
Transaction G
On November 30, 2009, Chris Clark
determined that the cost of supplies
on hand at the end of the period was
$550.
1-35

36. 4
Transaction G (continued)
Assets
CASH + SUPPLIES + LAND
Bal. 7,900 1,350 20,000
g. –800
Bal. 7,900 550 20,000
1-36

37. 4
Transaction G (continued)
Liabilities + Stockholders’ Equity
ACCOUNTS CAPITAL FEES WAGES RENT SUP. UTIL. MISC.
PAYABLE + STOCK + EARNED – EXP. – EXP. – EXP. – EXP. – EXP.
Bal. 400 25,000 7,500 –2,125 –800 –450 –275
g. –800
Bal. 400 25,000 7,500 –2,125 –800 –800 –450 –275
1-37

38. 4
Transaction H
On November 30, 2009, NetSolutions
pays $2,000 to stockholders (Chris
Clark) as dividends.
1-38

39. 4
Transaction H (continued)
Assets
CASH + SUPPLIES + LAND
Bal. 7,900 550 20,000
h. –2,000
Bal. 5,900 550 20,000
1-39

40. 4
Transaction H (continued)
Liabilities + Stockholders’ Equity
ACCTS. CAPITAL, DIVI- FEES WAGES RENT SUP. UTIL. MISC.
PAY. + STOCK – DENDS + EARNED – EXP. – EXP. – EXP. – EXP. – EXP.
Bal. 400 25,000 7,500 –2,125 –800 –800 –450 –275
h. –2,000
Bal.400 25,000 –2,000 7,500 –2,125 –800 –800 –450 –275
1-40

41. 5
Describe the financial
statements of a
corporation and explain
how they interrelate.
1-41

42. 5
Income Statement
The income statement reports
the revenues and expenses for
a period of time, based on the
matching concept.
1-42

43. 5
Matching Concept
The matching concept is
applied by matching the
expenses with the revenue
generated during a period
by those expenses.
1-43

44. 5
The excess of revenue over
the expenses is called net
income or net profit. If the
expenses exceed the
revenue, the excess is a net
loss.
1-44

45. 5
Exhibit 6 Financial Statements for NetSolutions
Net income is carried
to the retained
earnings statement.
1-45

46. 5
Exhibit 6 Financial Statements for NetSolutions (continued)
From the income statement
To the balance sheet
1-46

47. 5
Exhibit 6 Financial Statements for NetSolutions (continued)
This amount is compared
to the net cash flow on the From the retained
statement of cash flows. earnings statement
1-47

48. 5
Exhibit 6 Financial Statements for NetSolutions (continued)
This amount should match
Cash on the balance sheet.
1-48

49. Universidad
Cuauhtémoc Maestría en Administración de Hospitales
Educación a Distancia
The End
1-49 Contabilidad Administrativa