1. Slide 1-1 Chapter 1 Accounting in Action Financial Accounting, IFRS Edition Weygandt Kimmel Kieso

2. Slide 1-2 1. 1.Explain what accounting is. 2. 2.Identify the users and uses of accounting. 3. 3.Understand why ethics is a fundamental business concept. 4. 4.Explain accounting standards and the measurement principles. 5. 5.Explain the monetary unit assumption and the economic entity assumption. 6. 6.State the accounting equation, and define its components. 7. 7.Analyze the effects of business transactions on the accounting equation. 8. 8.Understand the four financial statements and how they are prepared. Study Objectives

3. Slide 1-3 Ethics in financial reporting Accounting standards Assumptions What is Accounting? The Building Blocks of Accounting The Basic Accounting Equation Using the Accounting Equation Financial Statements Three activities Who uses accounting data? AssetsLiabilitiesEquity Transaction analysis Summary of transactions Income statement Retained earnings statement Statement of financial position Statement of cash flows Accounting in Action

4. Slide 1-4 What is Accounting? SO 1 Explain what accounting is. The purpose of accounting: (1) identifyrecordcommunicate (1) to identify, record, and communicate the economic events of an (2) (2) organization to (3) (3) interested users.

5. Slide 1-5 Three Activities What is Accounting? The accounting process includes the bookkeeping function. Illustration 1-1 The activities of the accounting process SO 1 Explain what accounting is.

6. Slide 1-6 Management Human Resources Taxing Authorities Labor Unions Regulatory Agencies Marketing Finance Investors Creditors SO 2 Identify the users and uses of accounting. Customers Internal Users External Users Who Uses Accounting Data

7. Slide 1-7 Common Questions AskedUser 1. Can we afford to give our employees a pay raise? Human Resources 2. Did the company earn a satisfactory income? 3. 3.Should any product lines be eliminated? 4. Is cash sufficient to pay dividends to shareholders? 5. What price for our product will maximize net income? What is Accounting? SO 2 Identify the users and uses of accounting. 6. Will the company be able to pay its debts? Investors Management Finance Marketing Creditors

8. Slide 1-8 The Building Blocks of Accounting Ethics In Financial Reporting SO 3 Understand why ethics is a fundamental business concept. Standards of conduct by which one’s actions are judged as right or wrong, honest or dishonest, fair or not fair, are Ethics. Recent financial scandals include: Enron (USA), Parmalat (ITA), Satyam Computer Services (IND), AIG (USA), and others. Effective financial reporting depends on sound ethical behavior.

9. Slide 1-9 The Building Blocks of Accounting Ethics In Financial Reporting SO 3 Understand why ethics is a fundamental business concept.

10. Slide 1-10 International Financial Reporting Standards (IFRS) SO 4 Explain accounting standards and the measurement principles. Financial Accounting Standards Board (FASB) http://www.fasb.org/ International Accounting Standards Board (IASB) http://www.iasb.org/ Generally Accepted Accounting Principles (GAAP) The Building Blocks of Accounting Accounting Standards

11. Slide 1-11 Cost Principle (Historical) – dictates that companies record assets at their cost. Issues: Reported at cost when purchased and also over the time the asset is held. Cost easily verified, market value is often subjective. Fair value information may be more useful. The Building Blocks of Accounting Measurement Principles SO 4 Explain accounting standards and the measurement principles.

12. Slide 1-12 Fair Value Principle – indicates that assets and liabilities should be reported at fair value. In determining which measurement principle to use, companies weigh the factual nature of cost figures versus the relevance of fair value. Only in situations where assets are actively traded, such as investment securities, is the fair value principle applied. The Building Blocks of Accounting Measurement Principles SO 4 Explain accounting standards and the measurement principles.

13. Slide 1-13 Monetary Unit Assumption – include in the accounting records only transaction data that can be expressed in terms of money. Economic Entity Assumption – requires that activities of the entity be kept separate and distinct from the activities of its owner and all other economic entities. Proprietorship. Partnership. Corporation. Forms of Business Ownership Assumptions The Building Blocks of Accounting SO 5 Explain the monetary unit assumption and the economic entity assumption.

14. Slide 1-14 ProprietorshipPartnership Corporation Owned by two or more persons. Often retail and service-type businesses Generally unlimited personal liability Partnership agreement Ownership divided into shares Separate legal entity organized under state corporation law Limited liability Generally owned by one person. Often small service-type businesses Owner receives any profits, suffers any losses, and is personally liable for all debts. SO 5 Explain the monetary unit assumption and the economic entity assumption. The Building Blocks of Accounting

15. Slide 1-15 AssetsAssetsLiabilitiesLiabilitiesEquityEquity = + Provides the underlying framework for recording and summarizing economic events. Applies to all economic entities regardless of size. The Basic Accounting Equation SO 6 State the accounting equation, and define its components.

16. Slide 1-16 AssetsAssets Provides the underlying framework for recording and summarizing economic events. The Basic Accounting Equation Resources a business owns. Provide future services or benefits. Cash, Inventory, Equipment, etc. Assets LiabilitiesLiabilitiesEquityEquity = + SO 6 State the accounting equation, and define its components.

17. Slide 1-17 Provides the underlying framework for recording and summarizing economic events. The Basic Accounting Equation Claims against assets (debts and obligations). Creditors - party to whom money is owed. Accounts payable, Notes payable, etc. SO 6 State the accounting equation, and define its components. Liabilities AssetsAssetsLiabilitiesLiabilities = + EquityEquity

18. Slide 1-18 Provides the underlying framework for recording and summarizing economic events. The Basic Accounting Equation Ownership claim on total assets. Referred to as residual equity. Share capital and retained earnings. SO 6 State the accounting equation, and define its components. Equity AssetsAssetsLiabilitiesLiabilitiesEquityEquity = +

19. Slide 1-19 Revenues result from business activities entered into for the purpose of earning income. Generally results from selling merchandise, performing services, renting property, and lending money. Illustration 1-7 SO 6 State the accounting equation, and define its components. The Basic Accounting Equation

20. Slide 1-20 Expenses are the cost of assets consumed or services used in the process of earning revenue. Common expenses are salaries expense, rent expense, utilities expense, tax expense, etc. Illustration 1-7 SO 6 State the accounting equation, and define its components. The Basic Accounting Equation

21. Slide 1-21 Dividends are the distribution of cash or other assets to shareholders.   Reduce retained earnings   Not an expense SO 6 State the accounting equation, and define its components. The Basic Accounting Equation Illustration 1-7

22. Slide 1-22 Using The Accounting Equation Transactions are a business’s economic events recorded by accountants. May be external or internal. Not all activities represent transactions. Each transaction has a dual effect on the accounting equation. SO 7 Analyze the effects of business transactions on the accounting equation.

23. Slide 1-23 Illustration: Are the following events recorded in the accounting records? Event Purchase computer. Criterion Is the financial position (assets, liabilities, or equity) of the company changed? Discuss product design with customer. Pay rent. Record/ Don’t Record Using The Accounting Equation Illustration 1-8 SO 7 Analyze the effects of business transactions on the accounting equation.

24. Slide 1-24 SO 7 Analyze the effects of business transactions on the accounting equation. Using The Accounting Equation Transaction Analysis

25. Slide 1-25 Transaction (1). Investment by Shareholders. Transaction (1). Investment by Shareholders. Ray and Barbara Neal decides to open a computer programming service which he names Softbyte. On September 1, 2011, they invest $15,000 cash in exchange for capital shares. The effect of this transaction on the basic equation is: Transactions Analysis Solution on notes page SO 7 Analyze the effects of business transactions on the accounting equation.

26. Slide 1-26 Transaction (2). Purchase of Equipment for Cash. Transaction (2). Purchase of Equipment for Cash. Softbyte purchases computer equipment for $7,000 cash. Transactions Analysis Solution on notes page SO 7 Analyze the effects of business transactions on the accounting equation.

27. Slide 1-27 Transactions Analysis Transaction (3). Purchase of Supplies on Credit. Transaction (3). Purchase of Supplies on Credit. Softbyte purchases for $1,600 from Acme Supply Company computer paper and other supplies expected to last several months. Solution on notes page SO 7 Analyze the effects of business transactions on the accounting equation.

28. Slide 1-28 Transactions Analysis Transaction (4). Services Provided for Cash. Transaction (4). Services Provided for Cash. Softbyte receives $1,200 cash from customers for programming services it has provided. Solution on notes page SO 7 Analyze the effects of business transactions on the accounting equation.

29. Slide 1-29 Transactions Analysis Transaction (5). Purchase of Advertising on Credit. Transaction (5). Purchase of Advertising on Credit. Softbyte receives a bill for $250 from the Daily News for advertising but postpones payment until a later date. Solution on notes page SO 7 Analyze the effects of business transactions on the accounting equation.

30. Slide 1-30 Transactions Analysis Transaction (6). Services Provided for Cash and Credit. Transaction (6). Services Provided for Cash and Credit. Softbyte provides $3,500 of programming services for customers. The company receives cash of $1,500 from customers, and it bills the balance of $2,000 on account. Solution on notes page SO 7 Analyze the effects of business transactions on the accounting equation.

31. Slide 1-31 Transactions Analysis Transaction (7). Payment of Expenses. Transaction (7). Payment of Expenses. Softbyte pays the following Expenses in cash for September: store rent $600, salaries of employees $900, and utilities $200. Solution on notes page SO 7 Analyze the effects of business transactions on the accounting equation.

32. Slide 1-32 Transactions Analysis Transaction (8). Payment of Accounts Payable. Transaction (8). Payment of Accounts Payable. Softbyte pays its $250 Daily News bill in cash. Solution on notes page SO 7 Analyze the effects of business transactions on the accounting equation.

33. Slide 1-33 Transactions Analysis Transaction (9). Receipt of Cash on Account. Transaction (9). Receipt of Cash on Account. Softbyte receives $600 in cash from customers who had been billed for services [in Transaction (6)]. Solution on notes page SO 7 Analyze the effects of business transactions on the accounting equation.

34. Slide 1-34 Transactions Analysis Transaction (10). Dividends. Transaction (10). Dividends. The corporation pays a dividend of $1,300 in cash. Solution on notes page SO 7 Analyze the effects of business transactions on the accounting equation.

35. Slide 1-35 Transactions Analysis Summary of Transactions Illustration 1-10 Tabular summary of Softbyte transactions SO 7 Analyze the effects of business transactions on the accounting equation.

36. Slide 1-36 Companies prepare four financial statements from the summarized accounting data: Statement of Financial Position Income Statement Statement of Cash Flows Retained Earnings Statement Financial Statements SO 8 Understand the four financial statements and how they are prepared.

37. Slide 1-37 Financial Statements Income Statement Reports the revenues and expenses for a specific period of time. Net income – revenues exceed expenses. Net loss – expenses exceed revenues. Illustration 1-11 Financial statements and their interrelationships SO 8 Understand the four financial statements and how they are prepared.

38. Slide 1-38 Financial Statements Net income is needed to determine the ending balance in retained earnings. Illustration 1-11 Financial statements and their interrelationships SO 8

39. Slide 1-39 Financial Statements Statement indicates the reasons why retained earnings has increased or decreased during the period. Retained Earnings Statement Illustration 1-11 Financial statements and their interrelationships SO 8 Understand the four financial statements and how they are prepared.

40. Slide 1-40 Financial Statements The ending balance in retained earnings is needed in preparing the statement of financial position Illustration 1-11 Financial statements and their interrelationships SO 8 Understand the four financial statements and how they are prepared.

41. Slide 1-41 Financial Statements Balance Sheet SO 8 Understand the four financial statements and how they are prepared. Illustration 1-11 Financial statements and their interrelationships

42. Slide 1-42 Financial Statements Illustration 1-11 Financial statements and their interrelationships

43. Slide 1-43 Financial Statements Information for a specific period of time. Answers the following: 1. 1.Where did cash come from? 2. 2.What was cash used for? 3. 3.What was the change in the cash balance? Statement of Cash Flows SO 8 Understand the four financial statements and how they are prepared.

44. Slide 1-44 Financial Statements Statement of Cash Flows Illustration 1-11 Financial statements and their interrelationships SO 8 Understand the four financial statements and how they are prepared.

45. Slide 1-45

46. Slide 1-46 POINT WEEK 1 Rule: 1. 1.Angkat Tangan, Setelah dipersilahkan sebutkan Nama dan NIM baru menjawab 2. 2.Tidak diijinkan menjawab langsung (tidak masuk Poin)

47. Slide 1-47 Which of the following financial statements is prepared as of a specific date? a. a.Balance sheet. b. b.Income statement. c. c.Retained earnings statement. d. d.Statement of cash flows. Which of the following financial statements is prepared as of a specific date? a. a.Statement of financial position. b. b.Income statement. c. c.Retained earnings statement. d. d.Statement of cash flows. Financial Statements Review Question Solution on notes page. SO 8 Understand the four financial statements and how they are prepared.

48. Slide 1-48 Ethics are the standards of conduct by which one's actions are judged as: a. a.right or wrong. b. b.honest or dishonest. c. c.fair or not fair. d. d.all of these options. Ethics are the standards of conduct by which one's actions are judged as: a. a.right or wrong. b. b.honest or dishonest. c. c.fair or not fair. d. d.all of these options. Review Question SO 3 Understand why ethics is a fundamental business concept. Solution on notes page The Building Blocks of Accounting

49. Slide 1-49 A business organized as a separate legal entity under state law having ownership divided into shares is a a. a.proprietorship. b. b.partnership. c. c.corporation. d. d.sole proprietorship. SO 5 Explain the monetary unit assumption and the economic entity assumption. Review Question The Building Blocks of Accounting Solution on notes page A business organized as a separate legal entity under state law having ownership divided into shares is a a. a.proprietorship. b. b.partnership. c. c.corporation. d. d.sole proprietorship.

50. Slide 1-50 Classification Classify the following items as issuance of shares, dividends, revenues, or expenses. Solution on notes page 1. 1.Rent expense 2. 2.Service revenue 3. 3.Dividends 4. 4.Salaries expense SO 6 State the accounting equation, and define its components. The Basic Accounting Equation Then indicate whether each item increases or decreases equity. Effect on Equity ExpenseDecrease RevenueIncrease DividendsDecrease ExpenseDecrease

51. Slide 1-51 True False True Indicate whether each of the following statements presented below is true or false. Solution on notes page SO 5 Explain the monetary unit assumption and the economic entity assumption. The Building Blocks of Accounting 1. 1.The three steps in the accounting process are identification, recording, and communication. 2. 2.The two most common types of external users are investors and company officers. 3. 3.Shareholders in a corporation enjoy limited legal liability as compared to partners in a partnership.

52. Slide 1-52 False True Indicate whether each of the following statements presented below is true or false. Solution on notes page SO 5 Explain the monetary unit assumption and the economic entity assumption. The Building Blocks of Accounting 4. 4.The primary accounting standard-setting body outside the United States is the International Accounting Standards Board (IASB). 5. 5.The cost principle dictates that companies record assets at their cost. In later periods, however, the fair value of the asset must be used if fair value is higher than its cost.

53. Slide 1-53 Net income will result during a time period when: a. a.assets exceed liabilities. b. b.assets exceed revenues. c. c.expenses exceed revenues. d. d.revenues exceed expenses. Net income will result during a time period when: a. a.assets exceed liabilities. b. b.assets exceed revenues. c. c.expenses exceed revenues. d. d.revenues exceed expenses. Financial Statements Review Question Solution on notes page SO 8 Understand the four financial statements and how they are prepared.

54. Slide 1-54 In 2002, the U.S. Congress issued the Sarbanes-Oxley Act (SOX), which mandated certain internal controls for large public companies listed on U.S. exchanges. Debate about international companies (non-U.S.) adopting SOX-type standards centers on whether the benefits exceed the costs. The concern is that the higher costs of SOX compliance are making the U.S. securities markets less competitive. Financial frauds have occurred at companies such as Satyam Computer Services (IND), Parmalat (ITA), and Royal Ahold (NLD). They have also occurred at large U.S. companies such as Enron, WorldCom, and AIG. Accounting in Action Understanding U.S. GAAP Key Differences

55. Slide 1-55 IFRS tends to be less detailed in its accounting and disclosure requirements than GAAP. This difference in approach has resulted in a debate about the merits of “principles-based” (IFRS) versus “rules-based” (GAAP) standards. U.S. regulators have recently eliminated the need for foreign companies that trade shares in U.S. markets to reconcile their accounting with GAAP. GAAP is based on a conceptual framework that is similar to that used to develop IFRS. Accounting in Action Understanding U.S. GAAP Key Differences

56. Slide 1-56 The three common forms of business organization that are presented in the chapter, proprietorships, partnerships, and corporations, are also found in the United States. Because the choice of business organization is influenced by factors such as legal environment, tax rates and regulations, and degree of entrepreneurism, the relative use of each form will vary across countries. Transaction analysis is basically the same under IFRS and GAAP but, as you will see in later chapters, the different standards may impact how transactions are recorded. Accounting in Action Understanding U.S. GAAP Key Differences

57. Slide 1-57 Looking to the Future Understanding U.S. GAAP Accounting in Action Both the IASB and the FASB are hard at work developing standards that will lead to the elimination of major differences in the way certain transactions are accounted for and reported. Consider, for example, that as a result of a joint project on the conceptual framework, the definitions of the most fundamental elements (assets, liabilities, equity, revenues, and expenses) may actually change. However, whether the IASB adopts internal control provisions similar to those in SOX remains to be seen.

58. Slide 1-58 Public accounting Private accounting SO 9 Explain the career opportunities in accounting. Career Opportunities APPENDIX Government Forensic accounting “Show me the Money”

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