Power Notes Chapter 1 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 C1

Power Notes Chapter 1 Introduction to Accounting and Business Slide # Power Note Topics 3 9 11 16 19 53 70 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 Note: To select a topic, type the slide # and press Enter.

Accounting — An Information Process Identification of Users

Accounting — An Information Process Identification of Users User Information Needs

Accounting — An Information Process Identification of Users User Information Needs Accounting System

Accounting — An Information Process Identification of Users User Information Needs Economic Data and Activities Accounting System

Accounting — An Information Process Identification of Users User Information Needs Economic Data and Activities Accounting System Reports

Accounting — An Information Process Identification of Users User Information Needs Economic Data and Activities Accounting System User Decisions Reports

Users of Accounting Information investors creditors regulators customers competitors Financial Accounting EXTERNAL USERS

Users of Accounting Information investors creditors regulators customers competitors Financial Accounting EXTERNAL USERS Managerial Accounting INTERNAL USERS owners managers employees

The Accounting Profession Government Industry CPA Firms Staff Accountant Junior Accountant Auditor College Graduates What are the starting rates for new graduates?

The Accounting Profession Government Industry CPA Firms Senior Accountant Chief Accountant Supervisor Staff Accountant Junior Accountant Auditor College Graduates How soon would I get promoted?

The Accounting Profession Government Industry CPA Firms Director Manager Controller Senior Accountant Chief Accountant Supervisor Staff Accountant Junior Accountant Auditor College Graduates What are the top positions in each category?

The Accounting Profession Government Industry CPA Firms Vice President Finance Administrator Partner Director Manager Controller Senior Accountant Chief Accountant Supervisor Staff Accountant Junior Accountant Auditor College Graduates What is the fastest path to top management?

The Accounting Profession Government Industry CPA Firms Administrator Vice President Finance Partner 2 1 Director Manager Controller Senior Accountant Chief Accountant Supervisor Staff Accountant Junior Accountant Auditor College Graduates 10 to 20 years of experience 1 6 to 8 years of experience 2

The Accounting Equation Resources What are an organization’s resources called?

The Accounting Equation Resources = Sources Assets What are the sources of the assets? Cost of resources used in the business

The Accounting Equation Resources supplied by creditors and owners Resources = Sources Liabilities Assets Owner’s Equity Resources supplied by creditors and owners Cost of resources used in the business

Business Transactions a. Chris Clark deposits $25,000 in a bank account for NetSolutions. ASSETS LIABILITIES = OWNER’S EQUITY

Business Transactions a. Chris Clark deposits $25,000 in a bank account for NetSolutions. ASSETS LIABILITIES Cash 25,000 = OWNER’S EQUITY

Business Transactions a. Chris Clark deposits $25,000 in a bank account for NetSolutions. ASSETS LIABILITIES Cash 25,000 = OWNER’S EQUITY Chris Clark, Capital 25,000

Business Transactions b. NetSolutions buys land for $20,000. ASSETS LIABILITIES = OWNER’S EQUITY

Business Transactions b. NetSolutions buys land for $20,000. ASSETS LIABILITIES Cash (20,000) = OWNER’S EQUITY

Business Transactions b. NetSolutions buys land for $20,000. ASSETS LIABILITIES Cash (20,000) = OWNER’S EQUITY Land 20,000

Business Transactions c. NetSolutions buys supplies for $1,350, agreeing to pay the supplier in the near future. ASSETS LIABILITIES = OWNER’S EQUITY

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

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

Business Transactions d. NetSolutions earns fees of $7,500, receiving cash. ASSETS LIABILITIES = OWNER’S EQUITY

Business Transactions d. NetSolutions earns fees of $7,500, receiving cash. ASSETS LIABILITIES Cash 7,500 = OWNER’S EQUITY

Business Transactions d. NetSolutions earns fees of $7,500, receiving cash. ASSETS LIABILITIES Cash 7,500 = OWNER’S EQUITY Fees Earned 7,500

Business Transactions e. NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. ASSETS LIABILITIES = OWNER’S EQUITY

Business Transactions e. NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. ASSETS LIABILITIES Cash (3,650) = OWNER’S EQUITY

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)

Business Transactions f. NetSolutions pays $950 to creditors on account. ASSETS LIABILITIES = OWNER’S EQUITY

Business Transactions f. NetSolutions pays $950 to creditors on account. ASSETS LIABILITIES Cash (950) = OWNER’S EQUITY

Business Transactions f. NetSolutions pays $950 to creditors on account. ASSETS LIABILITIES Accounts Payable (950) Cash (950) = OWNER’S EQUITY

Business Transactions g. At the end of the month, the cost of supplies on hand is $550. ASSETS LIABILITIES = OWNER’S EQUITY

Business Transactions g. At the end of the month, the cost of supplies on hand is $550. ASSETS LIABILITIES Supplies (800) = OWNER’S EQUITY

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)

Business Transactions h. Chris Clark withdraws $2,000 in cash. ASSETS LIABILITIES = OWNER’S EQUITY

Business Transactions h. Chris Clark withdraws $2,000 in cash. ASSETS LIABILITIES Cash (2,000) = OWNER’S EQUITY

Business Transactions h. Chris Clark withdraws $2,000 in cash. ASSETS LIABILITIES Cash (2,000) = OWNER’S EQUITY Chris Clark, Drawing (2,000)

= Transaction Summary ASSETS LIABILITIES Cash 5,900 OWNER’S EQUITY Supplies 550 Land 20,000 = OWNER’S EQUITY

= Transaction Summary ASSETS LIABILITIES Accts. Payable 400 Cash 5,900 Supplies 550 Land 20,000 = OWNER’S EQUITY

= Transaction Summary ASSETS LIABILITIES Accts. Payable 400 Cash 5,900 Supplies 550 Land 20,000 = OWNER’S EQUITY 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)

Effects of Transactions on Owner’s Equity

Effects of Transactions on Owner’s Equity decreased by

Effects of Transactions on Owner’s Equity decreased by Owner’s withdrawals Expenses

Effects of Transactions on Owner’s Equity increased by

Effects of Transactions on Owner’s Equity increased by Owner’s investments Revenues

Effects of Transactions on Owner’s Equity decreased by increased by Owner’s withdrawals Expenses Owner’s investments Revenues

Effects of Transactions on Owner’s Equity decreased by increased by Owner’s withdrawals Expenses Owner’s investments Revenues NET INCOME

For the Month Ended November 30, 2002 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

For the Month Ended November 30, 2002 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

For the Month Ended November 30, 2002 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

For the Month Ended November 30, 2002 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

Statement of Owner’s Equity For the Month Ended November 30, 2002 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

Statement of Owner’s Equity For the Month Ended November 30, 2002 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

Statement of Owner’s Equity For the Month Ended November 30, 2002 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

Statement of Owner’s Equity For the Month Ended November 30, 2002 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

Statement of Owner’s Equity For the Month Ended November 30, 2002 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

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

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

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

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

Statement of Cash Flows For the Month Ended November 30, 2002 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

Statement of Cash Flows For the Month Ended November 30, 2002 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 )

Statement of Cash Flows For the Month Ended November 30, 2002 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 )

Statement of Cash Flows For the Month Ended November 30, 2002 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 )

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 to owner’s equity Total liabilities = Total owner’s equity Example $400 NetSolutions = .025 or 2.5% $16,050

Power Notes This is the last slide in Chapter 1. Chapter 1 Introduction to Accounting and Business This is the last slide in Chapter 1. Note: To see the topic slide, type 2 and press Enter.