1. Chapter 1 Accounting in Action
Prepared by:
Debbie Musil
Kwantlen University College

2. Agenda Learning goals Vocabulary Ethics in financial accounting
Who uses accounting information
Building blocks of accounting
Forms of business organization
Accounting equation
Transaction analysis
Financial statements

3. Learning goals
Explain why accounting is important to accountants and non-accountants.
Explain generally accepted accounting principles and assumptions
Use the accounting equation and explain the meaning of assets, liabilities and owner's equity.
Analyze the affects of business transaction on the accounting equation
Prepare financial statements

4. Vocabulary Accounting equation Economic entity assumption
Monetary unit assumption
Assets
Ethics
Net income/loss
Assumption
Expenses
Owner’s equity
Balance sheet
GAAP
Proprietorship Partnership
Cash flow statement
Going concern assumption
Statement of owner’s equity
Corporation
Income statement
Transactions
Cost principle
Investment
Drawings
Liabilities

5. Accounting & Ethics Accounting - “The Language of Business”
Must be understandable, useful, truthful
Ethics
Standards of conduct used to judge actions
To Solve Ethical Dilemmas
Recognize situation and ethical issues involved
Identify and analyse elements: stakeholder who may be harmed or benefited
Identify alternatives and weigh effects on stakeholders
Select the most ethical alternative

6. Users of Accounting Information
Internal Users
Includes Marketing, Human Resources, Production, Senior Management
Used for planning, organizing and running the business
External Users
Investors, Creditors, Labour Unions, Customers, Regulators and other authorities
Used for decisions of ownership, credit, lending, assess compliance, performance

7. Accounting as an Information System
Is a an information system that identifies, records, and communicated the economic event of an organization to internal and external users.

8. GAAP “Generally Accepted Accounting Principles”
Common set of accounting standards
Developed by the Canadian Institute of Chartered Accountants (“CICA”)
Consult with organizations and individuals
Authority through Canadian and provincial business and securities statutes
Moving towards international financial reporting standards (“IFRS”)

9. GAAPS Cost Principle – assets are recorded at original cost
Assumptions:
Going concern – organization will continue to operate in the foreseeable future
Monetary unit – only transaction data that can be expressed as an amount of money be included in the accounting records.
Economic entity – activities of a unit or organization in society are kept separate and distinct from other entities and owner

10. Forms of business Organization
Proprietorship: a business owned by one person. Examples: hair stylists, plumber…
Partnership: similar to a proprietorship only owned by two or more people.
Corporation: is a separate legal entity from it’s owners. The corporate ownership is divided between the shareholders.

11. Forms of business Organization
Public corporation: shares are publicly traded and companies issue financial report on regular basis (quarterly)
Private corporation: shares are not publicly owned and financial statement are not available to the general public.

12. Assets & Liabilities Assets Liabilities Owner’s Equity
Resources owned by the organization
Liabilities
Claims against assets
Existing debts and obligations
Owner’s Equity
Equals total assets less total liabilities
Represents ownership claim on assets
Components:
Investments – assets put into business by owner
Drawings – cash or other assets withdrawn by owner for personal use
Net income (loss) – revenues less expenses

13. Owner’s Equity Equals total assets less total liabilities
Represents ownership claim on assets
Components of owner’s equity:
Investments – assets put into business by owner
Drawings – cash or other assets withdrawn by owner for personal use
Net income (loss) – revenues less expenses

14. Revenues & Expenses Revenues Expenses
Result from business activities that are performed to earn income
Result in an increase in an asset and in owner’s equity
Expenses
The cost of assets consumed or services used in order to earn revenue
Result in an decrease in an asset and in owner’s equity

15. Accounting Equation Revisited
Assets = Liabilities Owner’s Equity
Investments Drawings +/ Net Income (Loss)
Revenues Expenses

16. Accounting Equation Distinctions by Type of Organization
Sole Proprietorship:
Assets = Liabilities + Owner’s Equity
Partnership:
Assets = Liabilities + Partner’s Equity
Corporation:
Assets = Liabilities + Shareholders’ Equity

17. Transaction Analysis
Review how to record transaction analysis from page 16-20
Do the exercise on the bottom on page 20

18. Financial Statements
Prepared after all transactions identified, recorded and summarized:
Income Statement – presents revenues, expenses and net income (loss) for a specific period of time
Statement of Owner’s Equity – summarizes the changes in owner’s equity for a specific time period
Balance Sheet – reports assets, liabilities and owner’s equity at a specific date
Cash Flow Statement – summarizes cash inflows and outflows for a specific period of time

19. Income Statement

20. Statement of Owner’s Equity

21. Balance Sheet
Owner’s capital of $16,450 is brought forward from the Statement of Owner’s Equity

22. Cash Flow Statement
Cash shown on the Balance Sheet equals ending cash on the Cash Flow Statement

23. Exercise Do the demonstration problem on page 25
Homework: self study questions 1-10
Homework: questions 6, 14, 20
Homework: exercises: BE1-3, BE1-4, E1-2, P1-5A