1. Accounting 1 MGT 130 Lecture 02

2. Overview of Lecture 01 Lecture 02

3. Business Organizations – Proprietorships, – partnerships – corporations. Business Types – Manufacturing – Merchandizing – Services business.

4. Business strategy Low-cost strategy Differential strategy

5. STAKEHOLDERS Internal: Owners, managers, employees External: Customers, creditors, government

6. The Process of Providing Information 1.Identify stake-holders. 2.Assess stakeholders’ informational needs 3.Design the accounting information system to meet stakeholders’ needs 4.Record economic data about business activities and events 5.Prepare accounting reports for stakeholders

7. Purpose of Information The Purpose of Accounting Accounting System Accounting

8. Accounting System  Financial Accounting  Balance Sheet  Income Statement  Cash Flow Statement  Statement of Changes in Owner’s Equity  Managerial Accounting  Cost Accounting

9. Distinction Between Financial Accounting and Managerial Accounting Users of information Regulations Source of Data Nature of Reports and Procedures

11. Accounting Equation Techniques of calculating – Assets, – Liabilities and – Owner’s equity Transactions in Accounting Equation

14. Fees earnedRs. 7500 Operating expenses: Rent expense Rs. 2125 Wages expense 800 Supplies expense 450 Utilities expense 275 Miscellaneous expense Total operating expenses 4450 Opportunities Inc. Income Statement For the Month Ended November 30, 2010 800 Net income Rs.3050

15. Javid Iqbal, capital, November 1, 2010Rs. Opportunities Inc. Statement of Owner’s Equity For the Month Ended November 30, 2010 Investment on November 1Rs.25 000 Net income for November3 050 Rs.28 050 Less withdrawals 2 000 Increase in owner’s equity26 050 Javid Iqbal, capital, November 30, 2010Rs.26 050

17. Javid Iqbal, capital, November 1, 2010Rs. Opportunities Inc. Statement of Owner’s Equity For the Month Ended November 30, 2010 Investment on November 1Rs.25 000 Net income for November3 050 Rs.28 050 Less withdrawals 2 000 Increase in owner’s equity26 050 Javid Iqbal, capital, November 30, 2010Rs.26 050

18. Fees earnedRs. 7500 Operating expenses: Rent expense Rs. 2125 Wages expense 800 Supplies expense 450 Utilities expense 275 Miscellaneous expense Total operating expenses 4450 Opportunities Inc. Income Statement For the Month Ended November 30, 2010 800 Net income Rs.3050

19. Javid Iqbal, capital, November 1, 2010Rs. Opportunities Inc. Statement of Owner’s Equity For the Month Ended November 30, 2010 Investment on November 1Rs.25 000 Net income for November3 050 Rs.28 050 Less withdrawals 2 000 Increase in owner’s equity26 050 Javid Iqbal, capital, November 30, 2010Rs.26 050

20. Assets Liabilities Opportunities Inc. Balance Sheet November 30, 2010 CashRs, 5 900Accounts PayableRs. 400 Supplies550 Owner’s Equity Land20 000Javid Iqbal, cap.26 050 Total liabilities and Total assetsRs.26 450 owner’s equityRs.26 450 This balance sheet presented using the account form

23. Cash Flows from Operating Activities—This section reports a summary of cash receipts and cash payments from operations. Cash Flows from Investing Activities—This section reports the cash transactions for the acquisition and sale of relatively permanent assets. Cash Flows from Financing Activities—This section reports the cash transactions related to cash investments by the owner, borrowings, and cash withdrawals by the owner.

24. Cash flows from operating activities: Cash received from customersRs. 7 500 Deduct cash payments for expenses and payments to creditors4 600 Net cash flow from operating activities2 900 Cash flows from investing activities: Cash payment for acquisition of land(20 000 Cash flows from financing activities: Cash received as owner’s investmentRs.25000 Deduct cash withdrawal by owner2000 Net cash flow from financing activities23 000 Net cash flow and Nov. 30, 2005 cash bal.Rs. 5 900 Opportunities Inc. Statement of Cash Flows For the Month Ended November 30, 2010 )

25. Assets Liabilities Opportunities Inc. Balance Sheet November 30, 2010 CashRs, 5 900Accounts PayableRs. 400 Supplies550 Owner’s Equity Land20 000Javid Iqbal, cap.26 050 Total liabilities and Total assetsRs.26 450 owner’s equityRs.26 450 This balance sheet presented using the account form

27. Ratio of liabilities to owner’s equity = Total Liabilities Total owner’s equity (or total stockholders’ equity) The ratio of liabilities to owner’s equity allows owners like Javid Iqbal to analyze the firm’s ability to withstand poor business conditions.

28. Ratio of liabilities to owner’s equity = Rs.400 Rs.26,050 = 0.015 / 15% Ratio of liabilities to owner’s equity

29. Collective Transactions of Accounting equations Treatment of these transactions Income Statement Statement of Owner’s Equity Balance Sheet Statement of Cash Flows

32. A list of the accounts in a ledger is called a chart of accounts.

33. Cash Supplies Building Accounts receivable Accounts payable Notes payable Wages payable

34. Cash Supplies Building Accounts receivable Accounts payable Notes payable Wages payable

35. Javid Iqbal, Capital Javid Iqbal, Drawing Fees Earned Fares Earned Commission Revenue Rent Expense Salary Expense Utilities Expense Major Account Classifications

37. Cash

38. Left side debit

39. Cash Left side debit Right side credit

40. Cash 3,750 4,300 2,900 850 1,400 700 2,900 Typical entries

42. Cash 3,750 4,300 2,900 850 1,400 700 2,900 10,950 First, total the debit side.

43. 850 1,400 700 2,900 Cash 3,750 4,300 2,900 10,950 5,850 Next, total the credit side. Next, total the credit side.

44. 850 1,400 700 2,900 Cash 3,750 4,300 2,900 10,950 5,850 5,100

45. Transactions and Balance Sheet Accounts

46. Debits Credits Asset accounts……….Increase (+)Decrease (-) Liability accounts……Decrease (-)Increase (+) Owner’s equity (capital) accounts….Decrease (-)Increase (+) Rules of Debit / Credit Balance Sheet Accounts

47. Chapter 01 Lecture 02