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 1 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 Owner’s Equity Slide #Power Note Topics Power Notes Introduction to Accounting and Business Introduction to Accounting and Business Chapter

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

C1 - 9 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 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 Owner’s Equity Resources = Sources Cost of resources used in the business Resources supplied by creditors and owners The Accounting Equation

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

C a.Chris Clark deposits $25,000 in a bank account for NetSolutions. ASSETS = Business Transactions OWNER’S EQUITY Cash25,000 LIABILITIES

C a.Chris Clark deposits $25,000 in a bank account for NetSolutions. ASSETS = Business Transactions OWNER’S EQUITY Cash25,000 LIABILITIES Chris Clark, Capital 25,000

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

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

C Business Transactions b.NetSolutions buys land for $20,000. ASSETS = OWNER’S EQUITY LIABILITIES Cash(20,000) Land20,000

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

C Transaction Summary ASSETS = OWNER’S EQUITY LIABILITIES Cash5,900 Supplies550 Land20,000 Accts. Payable400 C. Clark, Capital25,000 C. Clark, Drawing(2,000) Fees Earned7,500 Wages Expense(2,125) Rent Expense(800) Supplies Expense(800) Utilities Expense(450) Misc. Expense(275)

C OWNER’S EQUITY Effects of Transactions on Owner’s Equity

C OWNER’S EQUITY Effects of Transactions on Owner’s Equity decreased by

C OWNER’S EQUITY Effects of Transactions on Owner’s Equity Owner’s withdrawals Expenses decreased by

C OWNER’S EQUITY Effects of Transactions on Owner’s Equity increased by

C OWNER’S EQUITY Effects of Transactions on Owner’s Equity Owner’s investments Revenues increased by

C OWNER’S EQUITY Effects of Transactions on Owner’s Equity Owner’s withdrawals Expenses Owner’s investments Revenues decreased by increased by

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

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 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 Statement of Owner’s Equity For the Month Ended November 30, 2002 Financial Statements Chris Clark, capital, November 1, 2002$ 0 Investment on November 1, 2002$25,000 Net income for November 3,050 $28,050 Less withdrawals2,000 Increase in owner’s equity26,050 Chris Clark, capital, November 30, 2002$26,050

C NetSolutions Statement of Owner’s Equity For the Month Ended November 30, 2002 Financial Statements Chris Clark, capital, November 1, 2002$ 0 Investment on November 1, 2002$25,000 Net income for November3,050 $28,050 Less withdrawals2,000 Increase in owner’s equity26,050 Chris Clark, capital, November 30, 2002$26,050

C NetSolutions Statement of Owner’s Equity For the Month Ended November 30, 2002 Financial Statements Chris Clark, capital, November 1, 2002$ 0 Investment on November 1, 2002$25,000 Net income for November3,050 $28,050 Less withdrawals2,000 Increase in owner’s equity26,050 Chris Clark, capital, November 30, 2002$26,050

C NetSolutions Statement of Owner’s Equity For the Month Ended November 30, 2002 Financial Statements Chris Clark, capital, November 1, 2002$ 0 Investment on November 1, 2002$25,000 Net income for November3,050 $28,050 Less withdrawals2,000 Increase in owner’s equity26,050 Chris Clark, capital, November 30, 2002$26,050

C NetSolutions Statement of Owner’s Equity For the Month Ended November 30, 2002 Financial Statements Chris Clark, capital, November 1, 2002$ 0 Investment on November 1, 2002$25,000 Net income for November3,050 $28,050 Less withdrawals2,000 Increase in owner’s equity26,050 Chris Clark, capital, November 30, 2002$26,050

C NetSolutions Balance Sheet November 30, 2002 Assets Cash$5,900 Supplies550 Land20,000 Total assets$26,450 Liabilities Accounts payable$ 400 Owner’s Equity Chris Clark, capital26,050 Total liabilities and owner’s equity$26,450 Financial Statements

C NetSolutions Balance Sheet November 30, 2002 Financial Statements Assets Cash$5,900 Supplies550 Land20,000 Total assets$26,450 Liabilities Accounts payable$ 400 Owner’s Equity Chris Clark, capital26,050 Total liabilities and owner’s equity$26,450

C NetSolutions Balance Sheet November 30, 2002 Financial Statements Assets Cash$5,900 Supplies550 Land20,000 Total assets$26,450 Liabilities Accounts payable$ 400 Owner’s Equity Chris Clark, capital26,050 Total liabilities and owner’s equity$26,450

C NetSolutions Balance Sheet November 30, 2002 Financial Statements Assets Cash$5,900 Supplies550 Land20,000 Total assets $26,450 Liabilities Accounts payable$ 400 Owner’s Equity Chris Clark, capital26,050 Total liabilities and owner’s equity$26,450

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 as owner’s investment$25,000 Deduct cash withdrawal by owner2,000 Net cash flow from financing activities23,000 Net cash flow and Nov. 30, 2002 cash balance$5,900 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 as owner’s investment$25,000 Deduct cash withdrawal by owner2,000 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 as owner’s investment$25,000 Deduct cash withdrawal by owner2,000 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 as owner’s investment$25,000 Deduct cash withdrawal by owner2,000 Net cash flow from financing activities23,000 Net cash flow and Nov. 30, 2002 cash balance$5,900 )

C Ratio of Liabilities to Owner’s Equity Ratio of liabilities to owner’s equity = Formula 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 = Example $400 $16, or 2.5%

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