1. 1 1 Introduction to Accounting and Business

2. 2 Service Business Service Service Business Service The Walt Disney CompanyEntertainment Delta Air LinesTransportation Marriott International HotelsHospitality and lodging Bank of America CorporationFinancial services XM Satellite RadioSatellite radio The Walt Disney CompanyEntertainment Delta Air LinesTransportation Marriott International HotelsHospitality and lodging Bank of America CorporationFinancial services XM Satellite RadioSatellite radio 1-1 Types of Businesses

3. 3 Merchandising Business Product Wal-MartGeneral merchandise GameStop CorporationVideo games and accessories Best BuyConsumer electronics Gap Inc.Apparel Amazon.comInternet books, music, video Wal-MartGeneral merchandise GameStop CorporationVideo games and accessories Best BuyConsumer electronics Gap Inc.Apparel Amazon.comInternet books, music, video Types of Businesses 1-1

4. 4 Manufacturing Business Product General Motors Corp.Cars, trucks, vans SamsungCell phones Dell Inc.Personal computers NikeAthletic shoes and apparel The Coca-Cola CompanyBeverages Sony CorporationStereos and televisions General Motors Corp.Cars, trucks, vans SamsungCell phones Dell Inc.Personal computers NikeAthletic shoes and apparel The Coca-Cola CompanyBeverages Sony CorporationStereos and televisions Types of Businesses 1-1

5. 5 Proprietorship Partnership Corporation Limited liability company Common Forms of Business Organizations 1-1

6. 6 A business stakeholder is a person or entity having an interest in the economic performance and well-being of a business. 1-1

7. 7 Accounting can be defined as an information system that provides reports to stakeholders about the economic activities and condition of a business. 1-1

8. 8 The process by which accounting provides information to business stakeholders is as follows:  Identify stakeholders.  Assess stakeholders’ information needs.  Design the accounting information system to meet stakeholders’ needs.  Record economic data about business activities and events.  Prepare accounting reports for stakeholders. 1-1

9. 9 23 1-1

10. 10 Financial accounting is primarily concerned with the recording and reporting of economic data and activities for a business. Managerial accounting uses both financial accounting and estimated data to aid management in running day-to-day operations and in planning future operations. 1-1

11. 11 The limits the economic data in the accounting system to data related directly to the activities of the business. The business entity concept limits the economic data in the accounting system to data related directly to the activities of the business. 1-2

12. 12 The cost concept is the basis for entering the exchange price, or cost of an acquisition in the accounting records. 1-2

13. 13 The objectivity concept requires that the accounting records and reports be based upon objective evidence. 1-2

14. 14 The unit of measure concept requires that economic data be recorded in dollars. 1-2

15. 15 Assets = Liabilities + Owner’s Equity The resources owned by a business The Accounting Equation 1-3

16. 16 The rights of the creditors, which represent debts of the business Assets = Liabilities + Owner’s Equity The Accounting Equation 1-3

17. 17 The rights of the owners Assets = Liabilities + Owner’s Equity The Accounting Equation 1-3

18. 18 A business transaction is an economic event or condition that directly changes an entity’s financial condition or directly affects its results of operations. 1-4

19. 19 On November 1, 2007, Chris Clark begins a business that will be known as NetSolutions. 1-4

20. 20 a. Chris Clark deposits $25,000 in a bank account in the name of NetSolutions. Chris Clark, Capital 25,000Investment by Chris Clark Cash 25,000 a. = Assets Owner’s Equity = 40 1-4

21. 21 b. NetSolutions exchanged $20,000 for land. Chris Clark, Capital 25,000 Cash + Land 25,000 Bal. Assets Owner’s Equity = = b. –20,000+20,000 Bal. 5,00020,00025,000 41 1-4

22. 22 Accounts Chris Clark, Cash + Supplies + Land Payable Capital Assets c. During the month, NetSolutions purchased supplies for $1,350 and agreed to pay the supplier in the near future (on account). Owner’s Liabilities + Equity = 5,00020,00025,000 =+1,350c. Bal. 5,0001,35020,0001,35025,000 Bal. 42 1-4

23. 23 Beginning with entry (d) the asset section will be shown first, then the liabilities and owner’s equity will be shown in the following slide. 1-4

24. 24 Cash + Supplies + Land Assets 5,0001,35020,000 d. NetSolutions provided services to customers, earning fees of $7,500 and received the amount in cash. Bal. 12,5001,35020,000 +7,500 d.d. Bal. 44 1-4

25. 25 d. NetSolutions provided services to customers, earning fees of $7,500 and received the amount in cash. 45 1-4 Liabilities + Owner’s Equity Accounts Chris Clark, Fees Payable Capital + Earned 1,350 25,000 Bal. +7,500 d. + 25,000 7,500 Bal. 1,350

26. 26 1-4 The amounts used in earning revenue are called expenses. Adding expenses to the owner’s equity section results in a space problem. To adjust for these added headings, the word “Bal.” has been omitted from Slides 48, 50, 52, and 54. The bottom row in these four slides provides the balances after each transaction. Expenses

27. 27 Cash + Supplies + Land Assets e. NetSolutions paid the following expenses: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. Bal.12,5001,35020,000 Bal.8,8501,35020,000 e.–3,650 47 1-4

28. 28 Accounts Chris Clark, Fees Wages Rent Utilities Misc. Payable + Capital + Earned Expense Expense Expense Expense Liabilities + Owner’s Equity 1,35025,0007,500 –2,125–800–450 –275 e. 1,35025,0007,500–2,125–800–450–275 48 e. NetSolutions paid the following expenses: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. 1-4

29. 29 f. NetSolutions paid $950 to creditors during the month. Cash + Supplies + Land Assets Bal.8,8501,35020,000 Bal.7,9001,35020,000 f.–950 49 1-4

30. 30 Accounts Chris Clark, Fees Wages Rent Utilities Misc. Payable + Capital + Earned Expense Expense Expense Expense Liabilities + Owner’s Equity 1,35025,0007,500 –2,125–800–450 –275 40025,0007,500–2,125–800–450–275 f. NetSolutions paid $950 to creditors during the month. f. –950 50 1-4

31. 31 g. At the end of the month, the cost of supplies on hand is $550, so $800 of supplies were used. Cash + Supplies + Land Assets Bal.7,9001,35020,000 Bal.7,90055020,000 g.–800 51 1-4

32. 32 Accounts Chris Clark, Fees Wages Rent Supplies Util. Misc. Payable + Capital + Earned Exp. Exp. Exp. Exp. Exp. Liabilities + Owner’s Equity 40025,0007,500 –2,125–800–450 –275 g. At the end of the month, the cost of supplies on hand is $550, so $800 of supplies were used. g. –800 40025,0007,500–2,125–800–800–450–275 52 1-4

33. 33 Cash + Supplies + Land Assets Bal.7,90055020,000 Bal.5,90055020,000 h.–2,000 h. At the end of the month, Chris withdrew $2,000 in cash from the business for personal use. 53 1-4

34. 34 Accounts Chris Clark, Chris Clark Fees Wages Rent Supplies Util. Misc. Payable + Capital + Drawing Earned Exp. Exp. Exp. Exp. Exp. Liabilities + Owner’s Equity 40025,0007,500 –2,125–800–800–450 –275 h. –2,000 h. At the end of the month, Chris withdrew $2,000 in cash from the business for personal use. 40025,000–2,0007,500–2,125–800–800–450–275 54 1-4

35. 35 Owner’s withdrawals Expenses Decreased by Owner’s Equity Increased by Owner’s investments Revenues 55 1-4

36. 36 Accounting reports, called financial statements, provide summarized information to the owner. 1-5

37. 37 The income statement is a summary of the revenue and expenses for a specific period of time, such as a month or a year. 1-5

38. 38 1-5 62 Net income is carried to the statement of owner’s equity Income Statement

39. 39 A statement of owner’s equity is a summary of the changes in the owner’s equity that have occurred during a specific period of time. 1-5

40. 40 64 1-5 From the income statement To the balance sheet Statement of Owner’s Equity

41. 41 A balance sheet is a list of the assets, liabilities, and owner’s equity as of a specific date. 1-5

42. 42 66 1-5 This amount is compared to the net cash flow on the statement of cash flows From the statement of owner’s equity Balance Sheet

43. 43 A statement of cash flows is a summary of the cash receipts and payments for a specific period of time. 1-5

44. 44 68 This amount should match Cash on the balance sheet. Statement of Cash Flows 1-5

45. 45 The income statement reports the revenues and expenses for a period of time based on the matching concept. This concept is applied by matching the expenses with the revenue generated during a period by those expenses. 1-5 Income Statement

46. 46 The excess of revenue over the expenses is called net income or net profit. If the expenses exceed the revenue, the excess is a net loss. 1-5

47. 47 The statement of owner’s equity reports the changes in the owner’s equity for a period of time. It is prepared after the income statement. 1-5 Statement of Owner’s Equity

48. 48 The balance sheet reports the amounts of a firm’s assets, liabilities, and owner’s equity at the end of a specific period. 1-5 Balance Sheet

49. 49 The account form of balance sheet lists the assets on the left and the liabilities and owner’s equity on the right—similar to design of an account. 1-5

50. 50 The report form of balance sheet presents the liabilities and owner’s equity sections below the assets section. 1-5

51. 51 The statement of cash flows consists of three sections: 1-5 (1)Operating activities (2)Investing activities (3)Financing activities Statement of Cash Flows

52. 52 The cash flows from operating activities section reports a summary of cash receipts and cash payments from operations. 1-5

53. 53 The cash flows from investing activities section reports the cash transactions for the acquisition and sale of relatively permanent assets. 1-5

54. 54 The cash flows from financing activities section reports the cash transactions related to cash investments by the owner, borrowings, and cash withdrawals by the owner. 1-5

55. 55  The income statement and the statement of owner’s equity are interrelated. Net income or net loss appears on both statements. 1-5 Interrelationships Among Financial Statements

56. 56  The statement of owner’s equity and the balance sheet are interrelated. The owner’s capital at the end of the period on the statement of owner’s equity also appears on the balance sheet as owner’s capital. 1-5

57. 57  The balance sheet and the statement of cash flows are interrelated. The cash on the balance sheet also appears as the end-of-period cash on the statement of cash flows. 1-5