Learning Objectives 1.Nature of a Business 2.The Role of Accounting in Business 3.Business Ethics 4.Profession of Accounting 5.Generally Accepted Accounting.

Learning Objectives 1.Nature of a Business 2.The Role of Accounting in Business 3.Business Ethics 4.Profession of Accounting 5.Generally Accepted Accounting Principles 6.Assets, Liabilities, and Owner’s Equity 7.Business Transactions 8.Financial Statements 9.Financial Analysis and Interpretation Power Notes Introduction to Accounting and Business Introduction to Accounting and Business

Communication News Facts Access Commentary Living in the Information Age Data

Timeliness Independence Freedom-of- Expression Living in the Information Age Communication News Facts Access Commentary Data

Business Sells/ provi des Products Profit Services Goal Business and Investment

Labor and Equipment Accounting Information Land and Building Factors of production are the means businesses use to make profit. Accounting Information

Amounts earned from selling products or services Business Profit Costs incurred with sales Amounts earned from sales less expenses incurred

7 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

8 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

9 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

Corporation Law Offices Partnership Proprietorship Sally’s Grocery Business Forms of Organization Exh. 1.4

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

12  Comprises 70% of business organizations in the United States.  Requires low cost of organizing.  Is limited to financial resources of the owner.  Is used by small businesses. A proprietorship is owned by one individual and— 1-1

13  Comprises 10% of business organizations in the United States.  Combines the skills and resources of more than one person. A partnership is similar to a proprietorship except that it is owned by two or more individuals and— 1-1

14  Generates 90% of the total dollars of business receipts received.  Comprises 20% of the businesses. A corporation is organized under state or federal statues as a separate legal taxable entity and— 1-1 Continued

Owners of a corporation are called shareholders (or stockholders). When a corporation issues only one class of stock, we call it common stock (or capital stock). Corporation

16  Includes ownership divided into shares of stock, sold to shareholders (stockholders).  Is able to obtain large amounts of resources by issuing stock.  Is used by large businesses. 1-1

17  Is a popular alternative to a partnership.  Has tax and liability advantages to the owners. A limited liability company (LLC) combines attributes of a partnership and a corporation in that it is organized as a corporation. However, a limited liability corporation can elect to be taxed as a partnership and— 1-1

Private Nonprofit Government Nonbusiness Forms of Organization Exh. 1.4

LibrariesArmy AirportsCities Colleges MuseumsHospitals PrisonsShelters Schools Accounting for these organizations is usually a fund- based system, but the basic principles are similar to accounting for business organizations. Nonbusiness Organization

20 The Role of Accounting in Business Accounting can be defined as an information system that provides reports to users about the economic activities and condition of a business. 1

 Identifying Economic Events  Recording Economic Events  Reporting and Analyzing Economic Events Focus of Accounting

Identifies Records Communicates Relevant Reliable Comparable Influence of Accounting Accounting is a system that information that is to help users make better decisions.

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

Accounting — An Information Process Accounting — An Information Process Identification of Users

EXTERNAL USERS Financial Accounting investors creditors regulators customers competitors Users of Accounting Information

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

1-27 27 The area of accounting that provides external users with information is called financial accounting. Financial Accounting The objective of financial accounting is to provide relevant and timely information for the decision-making needs of users outside of the business. 1

1-28 28 The area of accounting that provides internal users with information is called managerial accounting. Managerial Accounting The objective of managerial accounting is to provide relevant and timely information for managers’ and employees’ decision-making needs. 1

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

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

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

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

33 1 Exhibit 1 Users of Accounting Information

34 Ethics are moral principles that guide the conduct of individuals. Role of Ethics in Accounting and Business 1

Beliefs that separate right from wrong Accepted standards of good and bad behavior Often coincide with laws Ethics Ethics and Social Responsibility

 Identify Ethical Issues  Analyze Options  Make Ethical Decision Use personal ethics to recognize ethical issues. Consider both the good and bad consequences for all affected. Choose the best option after weighing all consequences. Guidelines for Ethical Decision Making

37 Under the the activities of a business are recorded separately from the activities of its owners, creditors, or other businesses. Under the business entity concept, the activities of a business are recorded separately from the activities of its owners, creditors, or other businesses. Business Entity Concept 2

38 Under the cost concept, amounts are initially recorded in the accounting records at their cost or purchase price. 2 Cost Concept

39 Cost Concept On August 25, Gallatin Repair Service extended an offer of $125,000 for land that had been priced for sale at $150,000. On September 3, Gallatin Repair Service accepted the seller’s counteroffer of $137,000. On October 20, the land was assessed at a value of $98,000 for property tax purposes. On December 4, Gallatin Repair Service was offered $160,000 for the land by a national retail chain. At what value should the land be recorded in Gallatin Repair Service’s records? Example Exercise 1-1 2 1-28

40 $137,000. Under the cost concept, the land should be recorded at the cost to Gallatin Repair Service. For Practice: PE 1-1A, PE 1-1B 1-29 2 Follow My Example 1-1 Example Exercise 1-1 (continued)

41 The objectivity concept requires that the amounts recorded in the accounting records be based on objective evidence. 2 Objectivity Concept

42 The unit of measure concept requires that economic data be recorded in dollars. 2 Unit of Measure Concept

Fundamental Principles of Accounting Business Entity Principle Objectivity Principle Cost Principle Going-Concern Principle Monetary Unit Principle A business is accounted for separately from its owner or owners. Financial statement information is supported by independent, unbiased evidence. Financial statements are based on actual costs incurred in business transactions. A business continues operating instead of being closed or sold. Express transactions and events in monetary units.

Resources The Accounting Equation What are an organization’s resources called?

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

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

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

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

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

50 Accounting Equation John Joos is the owner and operator of You’re A Star, a motivational consulting business. At the end of its accounting period, December 31, 2009, You’re A Star has assets of $800,000 and liabilities of $350,000. Using the accounting equation, determine the following amounts: a.Owner’s equity, as of December 31, 2009. b.Owner’s equity, as of December 31, 2010, assuming that assets increased by $130,000 and liabilities decreased by $25,000 during 2010. Example Exercise 1-2 3 1-34

51 3 Example Exercise1-2 continued For Practice: PE 1-2A, PE 1-2B 1-35 a. Assets = Liabilities + Owner’s Equity $800,000 = $350,000 + Owner’s Equity Owner’s Equity =$450,000 Follow My Example 1-2 Example Exercise 1-2 (continued) b. First, determine the change in Owner’s Equity during 2010 as follows: Assets = Liabilities + Owner’s Equity $130,000 = –$25,000 + Owner’s Equity Owner’s Equity =$155,000 Next, add the change in Owner’s Equity on December 31, 2009 to arrive at Owner’s Equity on December 31, 2010, as shown below: $605,000 = $450,000 + $155,000

52 A business transaction is an economic event or condition that directly changes an entity’s financial condition or its results of operations. 4 Business Transaction

53 On November 1, 2009, Chris Clark deposits $25,000 in a bank account in the name of NetSolutions. Transaction A 4

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

a.Chris Clark deposits $25,000 in a bank account for NetSolutions. ASSETS = Business Transactions OWNER’S EQUITY Cash25,000 LIABILITIES Chris Clark, Capital 25,000

Chris Clark deposits $25,000 in a bank account for NetSolutions. The accounts involved are: (1) Cash (asset) (2) Chris Clark, Capital (equity) Transaction Analysis

58 Transaction B On November 5, 2009, NetSolutions paid $20,000 for the purchase of land as a future building site. 4

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

Business Transactions b.NetSolutions buys land for $20,000. ASSETS = OWNER’S EQUITY LIABILITIES Cash(20,000) Land20,000

The accounts involved are: (1) Cash (asset) (2) Land (asset) Transaction Analysis NetSolutions buys land for $20,000.

Transaction Analysis

63 On November 10, 2009, NetSolutions purchased supplies for $1,350 and agreed to pay the supplier in the near future. 4 Transaction C

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

Business Transactions ASSETS = OWNER’S EQUITY LIABILITIES c.NetSolutions buys supplies for $1,350, agreeing to pay the supplier in the near future. Accounts Payable 1,350 Supplies1,350

The accounts involved are: (1) Supplies (asset) (2) Accounts Payable (liability) Transaction Analysis NetSolutions buys supplies for $1,350, agreeing to pay the supplier in the near future.

68 On November 18, 2009, NetSolutions received cash of $7,500 for providing services to customers. A business earns money by selling goods or services to its customers. This amount is called Revenue. Transaction D 4

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

Business Transactions ASSETS = OWNER’S EQUITY LIABILITIES Cash7,500 Fees Earned 7,500 d.NetSolutions earns fees of $7,500, receiving cash.

The accounts involved are: (1) Cash (asset) (2) Revenues (equity) Transaction Analysis NetSolutions earns fees of $7,500, receiving cash.

73 During the month, NetSolutions spent cash or used up other assets in earning revenue. Assets used in this process of earning revenue are called expenses. 4 Expenses

74 On November 30, 2009, NetSolutions paid the following expenses during the month: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. Transaction E 4

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

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

The accounts involved are: (1) Cash (asset) (2) Expenses (equity) Transaction Analysis NetSolutions paid: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275.

79 On November 30, 2009, NetSolutions paid creditors on account, $950. Transaction F 4

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

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

The accounts involved are: (1) Cash (asset) (2) Accounts payable (liability) Transaction Analysis NetSolutions pays $950 to creditors on account

84 On November 30, 2009, Chris Clark determined that the cost of supplies on hand at the end of the period was $550. Transaction G 4

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

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

The accounts involved are: (1) Supplies (asset) (2) Supplies expense (equity) Transaction Analysis At the end of the month, the cost of supplies on hand is $550.

89 On November 30, 2009, Chris Clark withdrew $2,000 from NetSolutions for personal use. Transaction H 4

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

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

The accounts involved are: (1) Cash (asset) (2) Chris Clark, Drawing (equity) Transaction Analysis Chris Clark withdraws $2,000 in cash

Transaction Summary ASSETS = OWNER’S EQUITY LIABILITIES Cash5,900 Supplies550 Land20,000

Transaction Summary ASSETS = OWNER’S EQUITY LIABILITIES Cash5,900 Supplies550 Land20,000 Accts. Payable400

Transaction Summary ASSETS = OWNER’S EQUITY LIABILITIES Cash5,900 Supplies550 Land20,000 Accts. Payable400 C. Clark, Capital25,000 C. Clark, Drawing(2,000) Fees Earned7,500 Wages Expense(2,125) Rent Expense(800) Supplies Expense(800) Utilities Expense(450) Misc. Expense(275)

OWNER’S EQUITY Effects of Transactions on Owner’s Equity Owner’s withdrawals Expenses decreased by

OWNER’S EQUITY Effects of Transactions on Owner’s Equity Owner’s investments Revenues increased by

OWNER’S EQUITY Effects of Transactions on Owner’s Equity Owner’s withdrawals Expenses Owner’s investments Revenues decreased by increased by

OWNER’S EQUITY Effects of Transactions on Owner’s Equity Owner’s withdrawals Expenses Owner’s investments Revenues decreased by increased by NET INCOME

101 4 Exhibit 5Effects of Transactions on Owner’s Equity

102 Transactions Salvo Delivery Service is owned and operated by Joel Salvo. The following selected transactions were completed by Salvo Delivery Service during February: 1.Received cash from owner as additional investment, $35,000. 2.Paid creditors on account, $1,800. 3.Billed customers for delivery services on account, $11,250. 4.Received cash from customers on account, $6,740. 5.Paid cash to owner for personal use, $1,000. (Continued) Example Exercise 1-3 4 1-63

103 Indicate the effect of each transaction on the accounting equation elements (Assets, Liabilities, Owner’s Equity, Drawing, Revenue, and Expense) by listing the numbers identifying the transactions, (1) through (5). Also, indicate the specific item within the accounting equation element that is affected. To illustrate, the answer to (1) is shown below. (1) Asset (Cash) increases by $35,000; Owner’s Equity (Joel Salvo, Capital) increases by $35,000. Example Exercise 1-3 (continued) 4 1-64

104 Example Exercise 1-3 (continued) (2)Asset (Cash) decreases by $1,800; Liability (Accounts Payable) decreases by $1,800. (3)Asset (Accounts Receivable) increases by $11,250; Revenue (Delivery Service Fees) increases by $11,250. (4)Asset (Cash) increases by $6,740; Asset (Accounts Receivable) decreases by $6,740. (5)Asset (Cash) decreases by $1,000; Drawing (Joel Salvo, Drawing) increases by $1,000. Follow My Example 1-3 4 For Practice: PE 1-3A, PE 1-3B 1-65 Follow My Example 1-3

105 After transactions have been recorded and summarized, reports are prepared for users. The accounting reports providing this information are called financial statements. 5 Financial Statements

106 The income statement reports the revenues and expenses for a period of time, based on the matching concept. 5 Income Statement

107 The matching concept is applied by matching the expenses with the revenue generated during a period by those expenses. 5 Matching Concept

108 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. 5

109 Net income is carried to the statement of owner’s equity. 5 Exhibit 6Financial Statements for NetSolutions

Financial Statements NetSolutions Income Statement For the Month Ended November 30, 2009 Fees earned$7,500 Operating expenses: Wages expense$2,125 Rent expense800 Supplies expense800 Utilities expense450 Miscellaneous expense275 Total operating expenses4,450 Net income$3,050

113 Income Statement The assets and liabilities of Chickadee Travel Service at April 30, 2010, the end of the current year, and its revenue and expenses for the year are listed below. The capital of the owner, Adam Cellini, was $80,000 at May 1, 2009, the beginning of the current year. Accounts payable$ 12,200Miscellaneous expense $ 12,950 Accounts receivable31,350Office expense 63,000 Cash53,050Supplies3,350 Fees earned 263,200Wages expense131,700 Land80,000 Prepare an income statement for the current year ended April 30, 2010. Example Exercise 1-4 5 1-72

114 CHICKADEE TRAVEL SERVICE INCOME STATEMENT For the Year Ended April 30, 2010 Fees earned$263,200 Expenses: Wages expense$131,700 Office expense63,000 Miscellaneous expense 12,950 Total expenses 207,650 Net income$ 55,550 Example Exercise 1-4 (continued) 5 For Practice: PE 1-4A, PE 1-4B 1-73 Follow My Example 1-3 Follow My Example 1-4

1- 115 115 The statement of owner’s equity reports the changes in the owner’s equity for a period of time. 5 Statement of Owner’s Equity

1- 116 116 From the income statement To the balance sheet 5 Exhibit 6 Financial Statements for NetSolutions (continued)

NetSolutions Statement of Owner’s Equity For the Month Ended November 30, 2009 Financial Statements Chris Clark, capital, November 1, 2009$ 0 Investment on November 1, 2009$25,000 Net income for November 3,050 $28,050 Less withdrawals2,000 Increase in owner’s equity26,050 Chris Clark, capital, November 30, 2009$26,050

NetSolutions Statement of Owner’s Equity For the Month Ended November 30, 2009 Financial Statements Chris Clark, capital, November 1, 2009$ 0 Investment on November 1, 2002$25,000 Net income for November3,050 $28,050 Less withdrawals2,000 Increase in owner’s equity26,050 Chris Clark, capital, November 30, 2009$26,050

NetSolutions Statement of Owner’s Equity For the Month Ended November 30, 2009 Financial Statements Chris Clark, capital, November 1, 2009$ 0 Investment on November 1, 2009$25,000 Net income for November3,050 $28,050 Less withdrawals2,000 Increase in owner’s equity26,050 Chris Clark, capital, November 30, 2009$26,050

121 Statement of Owner’s Equity Using the data for Chickadee Travel Service shown in Example Exercise 1-4, prepare a statement of owner’s equity for the current year ended April 30, 2010. Adam Cellini invested an additional $50,000 in the business during the year and withdrew cash of $30,000 for personal use. Example Exercise 1-5 5 1-76

122 CHICKADEE TRAVEL SERVICE STATEMENT OF OWNER’S EQUITY For the Year Ended April 30, 2010 Example Exercise 1-5 continued Follow My Example 1-5 5 For Practice: PE 1-5A, PE 1-5B 1-77 Adam Cellini, capital, May 1, 2009$ 80,000 Additional investment by owner during year$ 50,000 Net income for the year 55,550 $105,550 Less withdrawals 30,000 Increase in owner’s equity 75,550 Adam Cellini, capital, April 30, 2010$155,550

123 A balance sheet is a list of the assets, liabilities, and owner’s equity as of a specific date. 5 Balance Sheet

124 The account form of a balance sheet lists the assets on the left and the liabilities and owner’s equity on the right—similar to the design of an account. 5 Account Form

125 This amount is compared to the net cash flow on the statement of cash flows. From the statement of owner’s equity 5 Exhibit 6 Financial Statements for NetSolutions (continued)

126 Balance Sheet Using the data for Chickadee Travel Service shown in Example Exercises 1-4 and 1-5, prepare the balance sheet as of April 30, 2010. Example Exercise 1-6 5 1-81

127 Example Exercise 1-6 (continued) 5 For Practice: PE 1-6A, PE 1-6B CHICKADEE TRAVEL SERVICE BALANCE SHEET April 30, 2010 Assets Liabilities Cash$ 53,050Accounts payable $ 12,200 Accounts receivable31,350 Supplies3,350 Owner’s Equity Land 80,000Adam Cellini, capital 155,550 Total assets$167,750Total liab. & owner’s eq.$167,750 1-82 Follow My Example 1-3 Follow My Example 1-6

NetSolutions Balance Sheet November 30, 2009 Assets Cash$5,900 Supplies550 Land20,000 Total assets$26,450 Liabilities Accounts payable$ 400 Owner’s Equity Chris Clark, capital26,050 Total liabilities and owner’s equity$26,450 Financial Statements

NetSolutions Balance Sheet November 30, 2009 Financial Statements Assets Cash$5,900 Supplies550 Land20,000 Total assets$26,450 Liabilities Accounts payable$ 400 Owner’s Equity Chris Clark, capital26,050 Total liabilities and owner’s equity$26,450

NetSolutions Balance Sheet November 30, 2009 Financial Statements Assets Cash$5,900 Supplies550 Land20,000 Total assets $26,450 Liabilities Accounts payable$ 400 Owner’s Equity Chris Clark, capital26,050 Total liabilities and owner’s equity$26,450

132 A statement of cash flows is a summary of the cash receipts and payments for a specific period of time. It consists of three sections: (1) operating activities, (2) investing activities, and (3) financing activities. 5 Statement of Cash Flows

133 The cash flows from operating activities section reports a summary of cash receipts and cash payments from operations. 5 Operating Activities

134 The cash flows from investing activities section reports the cash transactions for the acquisition and sale of relatively permanent assets. 5 Investing Activities

135 The cash flows from financing activities section reports the cash transactions related to cash investments by the owner, borrowings, and withdrawals by the owner. 5 Financing Activities

NetSolutions Statement of Cash Flows For the Month Ended November 30, 2009 Cash flows from operating activities: Cash received from customers$ 7,500 Deduct cash payments for expenses and payments to creditors4,600 Net cash flow from operating activities$ 2,900 Cash flows from investing activities: Cash payments for acquisition of land(20,000) Cash flows from financing activities: Cash received as owner’s investment$25,000 Deduct cash withdrawal by owner2,000 Net cash flow from financing activities23,000 Net cash flow and Nov. 30, 2002 cash balance$5,900 Financial Statements

NetSolutions Statement of Cash Flows For the Month Ended November 30, 2002 ) Financial Statements Cash flows from operating activities: Cash received from customers$ 7,500 Deduct cash payments for expenses and payments to creditors4,600 Net cash flow from operating activities$ 2,900 Cash flows from investing activities: Cash payments for acquisition of land(20,000 Cash flows from financing activities: Cash received as owner’s investment$25,000 Deduct cash withdrawal by owner2,000 Net cash flow from financing activities23,000 Net cash flow and Nov. 30, 2002 cash balance$5,900

NetSolutions Statement of Cash Flows For the Month Ended November 30, 2002 ) Financial Statements Cash flows from operating activities: Cash received from customers$ 7,500 Deduct cash payments for expenses and payments to creditors4,600 Net cash flow from operating activities$ 2,900 Cash flows from investing activities: Cash payments for acquisition of land(20,000) Cash flows from financing activities: Cash received as owner’s investment$25,000 Deduct cash withdrawal by owner2,000 Net cash flow from financing activities23,000 Net cash flow and Nov. 30, 2002 cash balance$5,900

NetSolutions Statement of Cash Flows For the Month Ended November 30, 2002 Financial Statements Cash flows from operating activities: Cash received from customers$ 7,500 Deduct cash payments for expenses and payments to creditors4,600 Net cash flow from operating activities$ 2,900 Cash flows from investing activities: Cash payments for acquisition of land(20,000 Cash flows from financing activities: Cash received as owner’s investment$25,000 Deduct cash withdrawal by owner2,000 Net cash flow from financing activities23,000 Net cash flow and Nov. 30, 2002 cash balance$5,900 )

141 Statement of Cash Flows A summary of cash flows for Chickadee Travel Service for the year ended April 30, 2010, is shown below. Cash receipts: Cash received from customers$251,000 Cash received from additional investment of owner50,000 Cash payments: Cash paid for expenses210,000 Cash paid for land80,000 Cash paid to owner for personal use30,000 The cash balance as of May 1, 2009, was $72,050. Prepare a statement of cash flows for Chickadee Travel Service for the year ended April 30, 2010. Example Exercise 1-7 5 1-88

142 Cash flows from operating activities: Cash received from customers $251,000 Deduct cash payments for expenses 210,000 Net cash flows from operating activities$ 41,000 Cash flows from investing activities: Cash payments for purchase of land(80,000) Cash flows from financing activities: Cash received from owner as investment $ 50,000 Deduct cash withdrawals by owner 30,000 Net cash flows from financing activities 20,000 Net decrease in cash during year$(19,000) Cash as of May 1, 2009 72,050 Cash as of April 30, 2010 $ 53,050 Example Exercise 1-7 (continued) 5 1-89 For Practice: PE 1-7A, PE 1-7B Follow My Example 1-3 Follow My Example 1-7

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

144 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. Interrelationships Among Financial Statements 5

145 The balance sheet and the statement of cash flows are interrelated. The cash reported on the balance sheet is also reported as the end- of-period cash on the statement of cash flows. Interrelationships Among Financial Statements 5

146 Financial Analysis and Interpretation Ratio of Liabilities to Owner’s Equity = Total Liabilities Total Owner’s Equity (or Total Stockholders’ Equity) For NetSolutions: Ratio of Liabilities to Owner’s Equity = $400 $26,050 = 0.015 5

Learning Objectives 1.Nature of a Business 2.The Role of Accounting in Business 3.Business Ethics 4.Profession of Accounting 5.Generally Accepted Accounting.

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Learning Objectives 1.Nature of a Business 2.The Role of Accounting in Business 3.Business Ethics 4.Profession of Accounting 5.Generally Accepted Accounting.

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Presentation on theme: "Learning Objectives 1.Nature of a Business 2.The Role of Accounting in Business 3.Business Ethics 4.Profession of Accounting 5.Generally Accepted Accounting."— Presentation transcript:

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