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 Business Introduction to Accounting and Business Chapter F1 C1

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 Stockholders Equity Slide #Power Note Topics Power Notes Introduction to Accounting and Business Introduction to Accounting and Business Chapter F

C1 - 3 Accounting — An Information Process Accounting — An Information Process Identification of Users

C1 - 4 User Information Needs Accounting — An Information Process Accounting — An Information Process Identification of Users

C1 - 5 Identification of Users User Information Needs Accounting System Accounting — An Information Process Accounting — An Information Process

C1 - 6 Identification of Users User Information Needs Accounting System Economic Data and Activities Accounting — An Information Process Accounting — An Information Process

C1 - 7 Identification of Users User Information Needs Accounting System Economic Data and Activities Reports Accounting — An Information Process Accounting — An Information Process

C1 - 8 a.Chris Clark deposits $25,000 in a bank account for NetSolutions in return for shares of stock in the corporation. ASSETS = Business Transactions Cash25,000 LIABILITIES Capital Stock 25,000 STOCKHOLDERS’ EQUITY

C1 - 9 Business Transactions b.NetSolutions buys land for $20,000. ASSETS = LIABILITIES Cash(20,000) Land20,000 STOCKHOLDERS’ EQUITY

C Business Transactions ASSETS = LIABILITIES c. NetSolutions buys supplies for $1,350, agreeing to pay the supplier in the near future. Accounts Payable 1,350 Supplies1,350 STOCKHOLDERS’ EQUITY

C Business Transactions ASSETS = LIABILITIES Cash7,500 Fees Earned 7,500 d.NetSolutions earns fees of $7,500, receiving cash. STOCKHOLDERS’ EQUITY

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

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

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

C Business Transactions ASSETS = LIABILITIES Cash(2,000) Dividends(2,000) h. NetSolutions pays $2,000 to stockholders (Chris Clark) as dividends. STOCKHOLDERS’ EQUITY

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

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

C Financial Statements NetSolutions Income Statement For the Month Ended November 30, 2002 Fees earned$7,500 Operating expenses: Wages expense$2,125 Rent expense800 Supplies expense800 Utilities expense450 Miscellaneous expense275 Total operating expenses4,450 Net income$3,050

C NetSolutions Retained Earnings Statement For the Month Ended November 30, 2002 Financial Statements Net income for November $ 3,050 Less dividends 2,000 Retained earnings, November 30, 2002 $ 1,050

C NetSolutions Balance Sheet November 30, 2002 Assets Cash$ 5,900 Supplies550 Land20,000 Total assets$26,450 Liabilities Accounts payable$ 400 Stockholders’ Equity Capital stock$25,000 Retained earnings1,05026,050 Total liabilities and stockholders’ equity$26,450 Financial Statements

C 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 creditors4,600 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 from sale of stock$25,000 Deduct cash dividends2,000 Net cash flow from financing activities23,000 Net cash flow and Nov. 30, 2002 cash balance$5,900 ) Financial Statements

C Ratio of Liabilities to Stockholders’ Equity Ratio of liabilities to stockholders’ equity = Formula Objective: Use the ratio of liabilities to stockholders’ equity to analyze the ability of a business to withstand poor business conditions and to pay its creditors. Total liabilities Total stockholders’ equity NetSolutions = Example $400 $26,

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

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

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

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

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

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

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

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

C ASSETS = Business Transactions STOCKHOLDERS’ EQUITY LIABILITIES a.Chris Clark deposits $25,000 in a bank account for NetSolutions in return for shares of stock in the corporation.

C ASSETS = Business Transactions Cash25,000 LIABILITIES a.Chris Clark deposits $25,000 in a bank account for NetSolutions in return for shares of stock in the corporation. STOCKHOLDERS’ EQUITY

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

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

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

C Business Transactions ASSETS = LIABILITIES Supplies1,350 c. NetSolutions buys supplies for $1,350, agreeing to pay the supplier in the near future. STOCKHOLDERS’ EQUITY

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

C Business Transactions ASSETS = LIABILITIES Cash7,500 d.NetSolutions earns fees of $7,500, receiving cash. STOCKHOLDERS’ EQUITY

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

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

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

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

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

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

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

C Business Transactions ASSETS = LIABILITIES h. NetSolutions pays $2,000 to stockholders (Chris Clark) as dividends. STOCKHOLDERS’ EQUITY

C Business Transactions ASSETS = LIABILITIES Cash(2,000) h. NetSolutions pays $2,000 to stockholders (Chris Clark)as dividends. STOCKHOLDERS’ EQUITY

C Transaction Summary ASSETS = LIABILITIES Cash5,900 Supplies550 Land20,000 STOCKHOLDERS’ EQUITY

C Transaction Summary ASSETS = LIABILITIES Cash5,900 Supplies550 Land20,000 Accts. Payable400 STOCKHOLDERS’ EQUITY

C Transaction Summary ASSETS = LIABILITIES Cash5,900 Supplies550 Land20,000 Accts. Payable400 Capital Stock25,000 Dividends(2,000) Fees Earned7,500 Wages Expense(2,125) Rent Expense(800) Supplies Expense(800) Utilities Expense(450) Misc. Expense(275) STOCKHOLDERS’ EQUITY

C STOCKHOLDERS’ EQUITY Effects of Transactions on Stockholders’ Equity

C decreased by STOCKHOLDERS’ EQUITY Effects of Transactions on Stockholders’ Equity

C decreased by STOCKHOLDERS’ EQUITY Dividends Expenses Effects of Transactions on Stockholders’ Equity

C STOCKHOLDERS’ EQUITY increased by Effects of Transactions on Stockholders’ Equity

C STOCKHOLDERS’ EQUITY increased by Stockholders’ investments Revenues Effects of Transactions on Stockholders’ Equity

C STOCKHOLDERS’ EQUITY Dividends Expenses decreased by increased by Stockholders’ investments Revenues Effects of Transactions on Stockholders’ Equity

C STOCKHOLDERS’ EQUITY decreased by increased by NET INCOME Dividends Expenses Stockholders’ investments Revenues Effects of Transactions on Stockholders’ Equity

C Financial Statements NetSolutions Income Statement For the Month Ended November 30, 2002 Fees earned$7,500 Operating expenses: Wages expense$2,125 Rent expense800 Supplies expense800 Utilities expense450 Miscellaneous expense275 Total operating expenses4,450 Net income$3,050

C Financial Statements NetSolutions Income Statement For the Month Ended November 30, 2002 Fees earned$7,500 Operating expenses: Wages expense$2,125 Rent expense800 Supplies expense800 Utilities expense450 Miscellaneous expense275 Total operating expenses4,450 Net income$3,050

C Financial Statements NetSolutions Income Statement For the Month Ended November 30, 2002 Fees earned$7,500 Operating expenses: Wages expense$2,125 Rent expense800 Supplies expense800 Utilities expense450 Miscellaneous expense275 Total operating expenses4,450 Net income$3,050

C Net income for November $ 3,050 Less dividends2,000 Retained earnings, November 30, 2002$ 1,050 NetSolutions Retained Earnings Statement For the Month Ended November 30, 2002 Financial Statements

C Net income for November $ 3,050 Less dividends2,000 Retained earnings, November 30, 2002$ 1,050 NetSolutions Retained Earnings Statement For the Month Ended November 30, 2002 Financial Statements

C Net income for November $ 3,050 Less dividends2,000 Retained earnings, November 30, 2002$ 1,050 NetSolutions Retained Earnings Statement For the Month Ended November 30, 2002 Financial Statements

C Assets Cash$ 5,900 Supplies550 Land20,000 Total assets$26,450 Liabilities Accounts payable$ 400 Stockholders’ Equity Capital stock$25,000 Retained earnings1,05026,050 Total liabilities and stockholders’ equity$26,450 NetSolutions Balance Sheet November 30, 2002 Financial Statements

C Assets Cash$ 5,900 Supplies550 Land20,000 Total assets$26,450 Liabilities Accounts payable$ 400 Stockholders’ Equity Capital stock$25,000 Retained earnings1,05026,050 Total liabilities and stockholders’ equity$26,450 NetSolutions Balance Sheet November 30, 2002 Financial Statements

C Assets Cash$ 5,900 Supplies550 Land20,000 Total assets$26,450 Liabilities Accounts payable$ 400 Stockholders’ Equity Capital stock$25,000 Retained earnings1,05026,050 Total liabilities and stockholders’ equity$26,450 NetSolutions Balance Sheet November 30, 2002 Financial Statements

C NetSolutions Statement of Cash Flows For the Month Ended November 30, 2002 ) Financial Statements Cash flows from operating activities: Cash received from customers$ 7,500 Deduct cash payments for expenses and payments to creditors4,600 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 from sale of stock$25,000 Deduct cash dividends2,000 Net cash flow from financing activities23,000 Net cash flow and Nov. 30, 2002 cash balance$5,900

C NetSolutions Statement of Cash Flows For the Month Ended November 30, 2002 ) Financial Statements Cash flows from operating activities: Cash received from customers$ 7,500 Deduct cash payments for expenses and payments to creditors4,600 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 from sale of stock$25,000 Deduct cash dividends2,000 Net cash flow from financing activities23,000 Net cash flow and Nov. 30, 2002 cash balance$5,900

C NetSolutions Statement of Cash Flows For the Month Ended November 30, 2002 Financial Statements Cash flows from operating activities: Cash received from customers$ 7,500 Deduct cash payments for expenses and payments to creditors4,600 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 from sale of stock$25,000 Deduct cash dividends2,000 Net cash flow from financing activities23,000 Net cash flow and Nov. 30, 2002 cash balance$5,900 )

C Note: To see the topic slide, type 2 and press Enter. This is the last slide in Chapter F1. Power Notes Chapter F1 Introduction to Accounting and Business Introduction to Accounting and Business