1. Accounting Concepts and Procedures
Chapter 1 2

2. Defining and listing the function of accounting.
Learning Objective 1
Defining and listing the
function of accounting. 3

3. Users of Accounting Information
Insider managers and owners
Outsiders: – potential investors
– government 3

4. Definition of Accounting
Accounting is the process that...
analyzes,
records,
classifies,
summarizes,
reports, and...
interprets financial information. 5

5. Definition of Accounting
Accounting converts events into measurable, monetary numbers.
Information is crucial to decision making. 4

6. Categories of Business Organizations
Sole Proprietorship
Partnerships
Corporations

7. Categories of Business Organizations
Sole proprietorship:
has one owner
manages the business
personal assets at risk 7

8. Categories of Business Organizations
Partnership:
two or more owners
shared decision making and risk taking
ends when partner dies or leaves
is always a voluntary association
easy to form but personal assets are at risk
partnership agreement a must 8

9. Categories of Business Organizations
Corporation:
many owners who are called stockholders
personal assets are not at risk, just the amount invested in the shares of stock
indefinite life, but difficult to form 9

10. Classifying Business Organizations
Service businesses provide services.
Merchandise businesses sell products.
Manufacturing businesses make products. 10

11. Recording transactions in the basic accounting equation.
Learning Objective 2
Recording transactions in the
basic accounting equation. 3

12. Learning Unit 1-1 What is the accounting equation?
ASSETS = LIABILITIES + OWNER’S EQUITY
Assets are the
resources
of the business.
Liabilities are
the creditor’s
equity.
Owners’ equity
are the rights
of ownership. 11

13. Learning Unit 1-1 Does owner provide 100% financing? Yes No
Owner has all
of the equity.
Creditor
equity exists.

14. Learning Unit 1-1
The accounting equation must remain in balance at all times.
An increase to the left side must result in an increase to the right side.
An increase to the left side causes a simultaneous decrease in another account on the left side.
A plus represents an increase and a minus represents a decrease to a balance. 13

15. Learning Unit 1-2 What is the balance sheet?
It is a formal financial report that contains the accounting equation in a different format.
It shows the financial position for a certain date.
It has a definite format including heading, company name, and date.

16. Seeing how revenue, expenses, and withdrawals expand the
Learning Objective 3
Seeing how revenue, expenses,
and withdrawals expand the
basic accounting equation. 3

17. Learning Unit 1-3
An expanded accounting equation includes the following:
revenues
expenses
withdrawals 15

18. Learning Unit 1-3
Assets
Liabilities
Owners’ Equity
Normal Balance 15

19. Learning Unit 1-3
Revenues
Expenses
Withdrawals
Normal Balance 15

20. Learning Unit 1-3 Example
Clara J. started her accounting practice on June 1, 200x by investing $5,000.
On June 2, the business purchased supplies on credit for $300 and paid $1,200 for a computer.
During the month, she performed services for $1,600 and was paid. 15

21. Learning Unit 1-3 Example
She paid $300 for advertising.
The business paid $200 for electricity and utilities.
She paid $400 for rent.
What are the effect of these events on the accounting equation? 15

22. Learning Unit 1-3 Example
Assets = Liabilities Owner’s
Equity
a) Cash +$5, $5,000
b) Cash – 1,200
Supplies
Computer + 1,200
c) Cash , ,600
d) Cash – –
e) Cash – –
f) Cash – –
Totals +$6, $+5,700

23. Learning Objective 4 Preparing an income statement, a statement
of owner’s equity,
and a balance sheet. 3

24. Learning Unit 1-4 Example
Clara J. Accounting Practice
Income Statement
June 30, 200x
Revenues:
Fees Earned $1,600
Expenses:
Advertising Expense $300
Electricity and Utilities Expense 200
Rental Expense
Net Income $ 700 15

25. Learning Unit 1-4 Example
Clara J. Accounting Practice
Statement of Owner’s
June 30, 200x
Clara J., Capital, June 1, 200x $ 0
Contribution Of Capital ,000
Clara J., Capital, June 30, 200x $ 5,000

26. Learning Unit 1-4 Example
Clara J. Accounting Practice
Balance Sheet
June 30, 200x
Assets
Cash $4,500
Supplies
Equipment 1,200
Total Assets $6,000
Liabilities and Owner’s Equity
Accounts Payable $ 300
Owner’s Equity
Clara J., Capital 5,700
Total $6,000 15

27. End of Chapter 1