CHAPTER 1 T.Haya Alajaji BUSINESS DECISIONS BUSINESS DECISIONS And FINANCIAL ACCOUNTING..

1. ACCOUNTING FOR BUSINESS DECISIONS 2. Users of accounting. 3. Generally Accepted Accounting Principles (GAAP). 4. THE BASIC ACCOUNTING EQUATION 5. FINANCIAL STATEMENTS

Objectives user of accounting Accounting Financial Statement 4 Bisic Accounting equation A= L + OE Form of Business 3 GAAP kinds of Reports

ACCOUNTING FOR BUSINESS DECISIONS Accounting ( المحاسبة ): Accounting ( المحاسبة ): A system of (analyze, record, and summarize) the results of a business’s activities and then reporting the results to decision makers.

Users of accounting can be divided into two groups: ( المستخدمون للمحاسبة )  Internal Users  external users

This information can be presented in two kinds of reports. Managerial accounting reports. ( التقارير المحاسبية الإدارية ) Include detailed financial plans and continually updated reports about the operating performance of the company. These reports are made available only to the company’s employees (internal users). 1-

Financial accounting reports, called financial statements. ( التقارير المالية ) 2- Which are prepared periodically to provide information to people not employed by the business. These external financial statement users aren’t given access to detailed internal records of the company. Creditors and investors are the two primary external user.

G enerally A ccepted A ccounting P rinciples GAAP ( المبادئ المحاسبية المتعارف عليها )

accounting concept Principles ( المبادئ ) 1- cost 2- Revenues recognition 3- Matching 4- Full Disclosure Assumptions ( الفروض ) 1- unit of measure 2- separate Entity 3- Going Concern 4- time period

Some of Accounting Concepts GAAP

Assets ( الأصول ) Assets are resources owned by the business. 1- Cash 2- Account receivable 3- Note Receivable 4- Inventory Cash and other resources that are expected to turn to cash or to be used up within one year of the balance sheet date 1- Current Assets Type of assets 1- Land. 2-Buildings. 3-Cars 4- Equipment. A long-term, tangible asset held for business use and not expected to be converted to cash in the current fiscal yearlong-termtangible asset heldbusiness cash infiscal year 2- Fixes Assets 3- Intangible Assets

Land Equipment Buildings Cash Store Supplies Notes Receivable Accounts Receivable Resources owned or controlled by a company A1 1-14

Liabilities ( الخصوم – الالتزامات ) The rights of creditors. Type of Liabilities 1- Long-Term Liabilities  Bonds and Long-Term Loans. 2- Short-Term Liabilities  Accounts Payable = is liability created by a purchase on account. Notes Payable Accrued Expenses = is expense which has been incurred but not yet paid. Unearned Revenues. = the customer pays in advance for services that have not yet been performed by the recipient of the payment Liability accounts will normally have credit balances

owner’s Equity ( حقوق الملكية ) It is the right of the owners. 1.Capital. 2.Drawing : account represents the amount of withdrawals made by the owner. 3.Net Income (Revenues – Expenses) Owner's equity accounts will normally have credit balances.

THE BASIC ACCOUNTING EQUATION Assets=Liabilities + Assets=Liabilities + Owner’s Equity Credit Accounts If  Credit, and if  Debit Debit Accounts If  Debit, and if  Credit

Assets Liabilities + Equity Liabilities Equity Assets =+ A1 1-18

FINANCIAL STATEMENTS

Order Prepared Financial Statement Description of Statements 1 Income Statement A summary of the revenue and expenses for a specific period of time, such as a month or a year. 2 Statement of Owner's Equity A summary of the changes in the owner's equity that have occurred during a specific period of time, such as a month or a year. 3 Balance Sheet A list of the assets, liabilities, and owner's equity as of a specific date, usually at the close of the last day of a month or a year. 4Statement of Cash flows A summary of cash receipts and cash payments for a specific period of time, such as a month or a year.

NetSolutions Income statement For the Month Ended November 30, 2011 Fees earned……………………………………………………………………… ………. $ 7,500 Expenses: Wages expense………………………………………………………………… …. $ 2,125 Rent expense………………………………………………………………… …… Supplies expense…………………………………………………………………. 800 Utilities expense…………………………………………………………………. 450 Miscellaneous expense………………………………………………………… 275 Total expense……………………………………………………………….. 4,450 Net Income…………………………………………………………………… ………….. $ 3,050

NetSolutions Statement of Owner’s Equity For the Month Ended November 30, 2011 Chris Clark, Capital, November 1, 2011 ………………………………. $ 0 Investment on November 1, 2011 …………………………………………. $ 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, 2011 …………………………… $ 26,050

NetSolutions Balance Sheet November 30, 2011 Assets Liabilities Cash …………………………… … $ 5,900 Account payable …………………………………… $ 400 Supplies ……………………….. 550Owner’s Equity Land …………………………… … 20,000 Chris Clark, capital ……………………………… 26,050 Total assets ……………….. $ 26,050Total liabilities and owner’s equity …..$26,050

Self-Study Practice In the space provided, indicate: (1) the type of account (A = asset, L = liability, OE = ownership equity, R = revenue, E = expense), and (2) whether it is reported on the income statement (I/S), statement of cash flows (SCF), or balance sheet (B/S). Account Title Type Statement 1.Land 2.Wages Expense 3.Accounts Receivable 4.Rent Revenue 5.Contributed Capital 6.Note Payable ـــــــــــــــــــــ