1. Power Notes Chapter 1 Introduction to Accounting and Business
Learning Objectives
What is Business?
Business Stakeholders
What is Accounting?
History of accounting
The relationship between accounting and bookkeeping
What is the role of Accounting in business?
Why do the stakeholders need accounting information?
Accounting – An information process
Users of accounting information
Generally Accepted Accounting Principles
Types of business organization
Types of business C1

2. What is a business? Celcom Axiata, TESCO, McDonalds, Sime Darby
Provision shops, gift shops, beauty salons, restaurants, law firms, clinics
A business is an organisation in which basic resources (inputs) are assembled and processed to provide goods or services (outputs) to customers. Customers pay for these goods or services.

3. Business stakeholders
Owners
Employees
Customers
Creditors
Governments

4. What is Accounting?
Accounting is the process of identifying, measuring, recording and communicating economic information to permit informed judgments and decisions by users of the communication

5. The history of Accounting
Accounting began because people needed to :
Record business transactions
Know if they were being financially successful
Know how much they owned and how much they owed

6. The relationship between Bookkeeping and Accounting
Until about 100 years ago all accounting data was kept by being recorded manually in books, so the part of accounting that is concerned with recording data if often known as BOOKKEEPING
Nowadays although handwritten books may be used (particularly by smaller organizations)most accounting data is recorded electronically and stored electronically using computers
Bookkeeping is the process of recording data relating to accounting transactions in the accounting books

7. What is the role of accounting in business?
Accounting provides information.
To who? Owners, managers and other business stakeholders
What information? How the business is performing
Accounting is the language of business.

8. Why do the stakeholders need accounting information?
Manager – to decide whether to stop or continue a new product
Bank – to decide whether to lend money to the business
Suppliers – to decide whether to sell to the business on credit
Government – to determine the amount of tax on the business

9. Accounting — An Information Process
Identification
of Users

10. Accounting — An Information Process
Identification
of Users
User
Information
Needs

11. Accounting — An Information Process
Identification
of Users
User
Information
Needs
Accounting
System

12. Accounting — An Information Process
Identification
of Users
User
Information
Needs
Economic Data
and Activities
Accounting
System

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

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

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

16. Internal Users:
Those individuals inside a company who plan, organize and run the business.
Example:
Owners interested in profits earned, financial stability and business growth
Managers need accounting information to guide it in business planning, organizing and control
Employees interested in business stabilities to know whether the owners can pay increased wages and benefits

17. External Users:
Individuals and organization outside a company who wants financial information about the company.
Direct financial interest:
Investors who use accounting information to make decision to buy, hold or sell the stock
Creditors (suppliers/bankers) use accounting information to evaluate the risk of granting credits or lending money
Indirect financial interest:
Government use accounting information for taxes and others regulatory requirements.
Public (customers) interested in whether a company will continue to honor products warranties and support its product line

18. Generally Accepted Accounting Principles
Business entity concept
Historical cost concept
Objectivity concept
Unit of measure concept

19. Business Entity Concept
Business is separate from the owner
Business
Owner
Business’ cash
Owner’s cash

20. Historical Cost concept
Transactions are recorded at the cost at the point of transaction
175,000
130,000
170,000
$150,000

21. Historical Cost concept
Objectivity Concept
Accounting records are based on objective evidence
175,000
170,000
130,000
$150,000

22. Objectivity Concept
Accounting records are based on objective evidence

23. Unit of Measure concept
For example kilogram is used to measure weight
Money is used for measurement in accounting

24. Types of business organisations
Sole proprietorship
Partnership
Company

25. A business is normally organized as one of three different forms:
Sole proprietorship / Sole Trader – business is owned by a single or sole owner. The owner is responsible for all the losses and liabilities of the business.
Partnership – business is owned at lest (two) owners. The partnership is formed with a partnership agreement.
Company / Corporation – A company owned by many owners known as shareholders. A company is formed by statute. Company can divided into two type; limited liability and unlimited liability

26. Types of businesses Manufacturing business Trading business
Service business

27. Power Notes Chapter 2 Accounting Classification and Equation
Learning Objectives
The Accounting Equation
The relationship between Accounting Equation and the layout of the Balance Sheet
The meaning of the term Asset, Liabilities, Capital (Owner’s Equity), Accounts Receivables and Accounts Payable.
How accounting transactions affect the items in the accounting equation.
The meaning of the revenue and expenses
Relationship of the profit to the accounting equation
Financial Statement (will be discussed more in Chapter 6) C2

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

29. The Accounting Equation Resources supplied by creditors and owners
Resources = Sources
Liabilities
Assets
Owner’s
Equity
Resources supplied by creditors and owners
Cost of
resources used
in the business

30. The Accounting Equation
Assets = Liabilities and Owner’s Equity
Assets - Liabilities = Owner’s Equity

31. RESOURCE SUPPLIED BY THE OWNER =
RESOURCES IN THE BUSINESS

32. The relationship between Accounting Equation and the layout of the Balance Sheet
The introduction of capital
On 1 May 2007, B Blake started in business and deposited £60,000 into a bank account opened specially for the business. The balance sheet would show :
B Blake
Balance Sheet as at 1 May 2007
Assets: Cash at banks 60,000
Capital ,000

33. The purchase of an asset by cheque
On 3 May 2007, Blake buys a small shop for £32,000 paying by cheque
B Blake
Balance Sheet as at 3 May 2007
Assets
Shop ,000
Cash at bank 28, ,000
Capital ,000

34. The purchase of an asset incurring of a liability
On 6 May 2007 Blake buys some goods for £7,000 from D Smith and agrees to pay from them some time within the next two weeks
B Blake
Balance Sheet as at 6 May 2007
Assets
Shop ,000
Inventory ,000
Cash at bank , ,000
Less : Account Payable (7,000)
60,000
Capital ,000

35. Sale of an asset on credit
On 10 May 2007 goods which cost £600 were sold to J Brown for the same amount, the money to be paid letter.
B Blake
Balance Sheet as at 6 May 2007
Assets
Shop ,000
Inventory ,400
Accounts receivable
Cash at bank , ,000
Less : Account Payable (7,000)
60,000
Capital ,000

36. Sale of an asset for immediate payment
On 13 May 2007, goods which cost £400 were sold to D Daley for the same amount.
B Blake
Balance Sheet as at 6 May 2007
Assets
Shop ,000
Inventory ,000
Accounts receivable
Cash at bank , ,000
Less : Account Payable (7,000)
60,000
Capital ,000

37. The payment of liability
On 15 May 2007, Blake pays a cheque for £3,000 to D Smith in the part payment of the amount owing.
B Blake
Balance Sheet as at 6 May 2007
Assets
Shop ,000
Inventory ,000
Accounts receivable
Cash at bank , ,000
Less : Account Payable (4,000)
60,000
Capital ,000

38. Collection of asset
J Brown who owed Blake £600, makes part payment of £200 by cheque on 31 May 2007.
B Blake
Balance Sheet as at 6 May 2007
Assets
Shop ,000
Inventory ,000
Accounts receivable
Cash at bank , ,000
Less : Account Payable (4,000)
60,000
Capital ,000

39. Assets
What are your assets?

40. Asset Resources owned by the business Cash, land, buildings, equipment
Assets
Resources owned by the business
Cash, land, buildings, equipment

41. Assets are economic resources owned by a business that are expected to benefit future operations.
Monetary items.
Non-monetary physical things.

42. Liability Liabilities
Say you borrowed $5 from your friend for lunch. You have a liability or debt of $5. You friend is your creditor.
You
Your friend
Liability- $5
Your creditor

43. Liabilities are amounts due or the present obligations of a business to pay cash, transfer assets, or provide services to other parties in the future.

44. Owner’s equity Amounts belonging to the owner.
Say Sally puts $10,000 into the business. Therefore $10,000 of the business belongs to Sally. Owner’s equity = $10,000

45. Owners’ equity represents the claims by the owners of a business to the assets of the business.
Owners’ equity is the residual equity that remains after deducting liabilities from assets.
OE = Assets - Liabilities.
Assets = Liabilities + OE.
OE = Contributed Capital + Retained Earnings.

46. Account Receivable = Debtor
Money owed by customers (individuals or corporations) to another entity in exchange for goods or services that have been delivered or used, but not yet paid for. Receivables usually come in the form of operating lines of credit and are usually due within a relatively short time period, ranging from a few days to a year. On a public company's balance sheet,  accounts receivable is often recorded as an asset because this represents a legal obligation for the customer to remit cash for its short-term debts

47. Account Payable = Creditor
An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable entry is found on a balance sheet under the heading current liabilities. Accounts payable are often referred to as "payables". Another common usage of AP refers to a business department or division that is responsible for making payments owed by the company to suppliers and other creditors.

48. HOW ACCOUNTING TRANSACTIONS AFFECT THE ITEMS IN THE ACCOUNTING EQUATION

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

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

51. Business Transactions
a. Chris Chee deposits $25,000 in a bank account for NetSolutions.
ASSETS
LIABILITIES
Cash
25,000 =
OWNER’S EQUITY
Chris Chee, Capital
25,000

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

73. = Transaction Summary ASSETS LIABILITIES Cash 5,900 OWNER’S EQUITY
Supplies 550
Land 20,000 =
OWNER’S EQUITY

74. = Transaction Summary ASSETS LIABILITIES Accts. Payable 400 Cash 5,900
Supplies 550
Land 20,000 =
OWNER’S EQUITY

75. = Transaction Summary ASSETS LIABILITIES Accts. Payable 400 Cash 5,900
Supplies 550
Land 20,000
26,450 =
OWNER’S EQUITY
C. Chee, Capital 25,000
C. Chee, Drawing (2,000)
Fees Earned 7,500
Salaries Expense (2,125)
Rent Expense (800)
Supplies Expense (800)
Utilities Expense (450)
Misc. Expense (275)
26,050

76. The meaning of Revenue and Expenses
REVENUES
It represent the gross increase in owners’ equity resulting from business activities entered into for the purpose of earning income. Trading businesses derived their revenue from the sale of goods whilst service businesses derived their main form of revenue from the performance of services
EXPENCES
The cost of assets consumed or services used in the process of earning revenues. A business must incur expenses items which are necessary for the continuing operation of the business but for which no long term benefit will be obtained.

77. Relationship of Profit to the Accounting Equation
Profit is the difference between revenues and expenses
Since profit belongs to the owner of the businesses, it should be added to the capital of the business.
A = C + P + L
IF PROFIT (P) = REVENUES (R) - EXPENCES (E)
THUS,
A = C + R - E + L

78. The expanded accounting equation is :
ASSET + EXPENCES = CAPITAL + REVENUES +LIABILITIES (Refer to the page 11 and 12)

79. Effects of Transactions on Owner’s Equity
decreased by
Owner’s withdrawals
Expenses

80. Effects of Transactions on Owner’s Equity
decreased by
increased by
Owner’s withdrawals
Expenses
Owner’s investments
Revenues

81. End of Chapter 1 and 2