Principles of Accounting for better improvement.
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Aug 28, 2024
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About This Presentation
**Principles of Accounting** is a foundational course designed to introduce students to the basic concepts and practices of accounting, which is often referred to as the language of business. This course provides a comprehensive overview of the principles, methodologies, and procedures used in finan...
Slide Content
Chapter
1-1
1-1
Chapter
1-2
Accounting in
Action
Accounting Principles, Ninth Edition
1-2
Accounting in
Action
Accounting Principles, Ninth Edition
Chapter
1-3
1.Explain what accounting is.
2.Identify the users and uses of accounting.
3.Understand why ethics is a fundamental business concept.
4.Explain generally accepted accounting principles and the cost
principle.
5.Explain the monetary unit assumption and the economic entity
assumption.
6.State the accounting equation, and define its components.
7.Analyze the effects of business transactions on the
accounting equation.
8.Understand the four financial statements and how they are
prepared.
Study ObjectivesStudy Objectives
1-3
1.Explain what accounting is.
2.Identify the users and uses of accounting.
3.Understand why ethics is a fundamental business concept.
4.Explain generally accepted accounting principles and the cost
principle.
5.Explain the monetary unit assumption and the economic entity
assumption.
6.State the accounting equation, and define its components.
7.Analyze the effects of business transactions on the
accounting equation.
8.Understand the four financial statements and how they are
prepared.
Study ObjectivesStudy Objectives
Chapter
1-4
Accounting in ActionAccounting in Action
Ethics in Ethics in
financial financial
reportingreporting
Generally Generally
accepted accepted
accounting accounting
principlesprinciples
AssumptionsAssumptions
What is What is
Accounting?Accounting?
The Building The Building
Blocks of Blocks of
AccountingAccounting
The Basic The Basic
Accounting Accounting
EquationEquation
Using the Using the
Basic Basic
Accounting Accounting
EquationEquation
Financial Financial
StatementsStatements
Three Three
activitiesactivities
Who uses Who uses
accounting accounting
datadata
AssetsAssets
LiabilitiesLiabilities
Owner’s Owner’s
equityequity
Transaction Transaction
analysisanalysis
Summary of Summary of
transactionstransactions
Income Income
statementstatement
Owner’s Owner’s
equity equity
statementstatement
Balance Balance
sheetsheet
Statement of Statement of
cash flowscash flows
1-4
Accounting in ActionAccounting in Action
Ethics in Ethics in
financial financial
reportingreporting
Generally Generally
accepted accepted
accounting accounting
principlesprinciples
AssumptionsAssumptions
What is What is
Accounting?Accounting?
The Building The Building
Blocks of Blocks of
AccountingAccounting
The Basic The Basic
Accounting Accounting
EquationEquation
Using the Using the
Basic Basic
Accounting Accounting
EquationEquation
Financial Financial
StatementsStatements
Three Three
activitiesactivities
Who uses Who uses
accounting accounting
datadata
AssetsAssets
LiabilitiesLiabilities
Owner’s Owner’s
equityequity
Transaction Transaction
analysisanalysis
Summary of Summary of
transactionstransactions
Income Income
statementstatement
Owner’s Owner’s
equity equity
statementstatement
Balance Balance
sheetsheet
Statement of Statement of
cash flowscash flows
Chapter
1-5
What is Accounting?What is Accounting?
SO 1 Explain what accounting is.SO 1 Explain what accounting is.
The purpose of accounting is to:
(1)(1)identifyidentify, recordrecord, and communicatecommunicate the
economic events of an
(2)organization to
(3)interested users.
1-5
What is Accounting?What is Accounting?
SO 1 Explain what accounting is.SO 1 Explain what accounting is.
The purpose of accounting is to:
(1)(1)identifyidentify, recordrecord, and communicatecommunicate the
economic events of an
(2)organization to
(3)interested users.
Chapter
1-6
Three Activities
What is Accounting?What is Accounting?
SO 1 Explain what accounting is.SO 1 Explain what accounting is.
Illustration 1-1
Accounting process
The accounting process includes
the bookkeeping function.
1-6
Three Activities
What is Accounting?What is Accounting?
SO 1 Explain what accounting is.SO 1 Explain what accounting is.
Illustration 1-1
Accounting process
The accounting process includes
the bookkeeping function.
Chapter
1-7
Management
There are two broad
groups of users of
financial information:
internal users and
external users.
Human
Resources
Labor
Unions
BSEC
Marketing
Finance
Investors
Creditors
Who Uses Accounting Data?Who Uses Accounting Data?
SO 2 Identify the users and uses of accounting.SO 2 Identify the users and uses of accounting.
Customers
Internal Users
External
Users
1-7
Management
There are two broad
groups of users of
financial information:
internal users and
external users.
Human
Resources
Labor
Unions
BSEC
Marketing
Finance
Investors
Creditors
Who Uses Accounting Data?Who Uses Accounting Data?
SO 2 Identify the users and uses of accounting.SO 2 Identify the users and uses of accounting.
Customers
Internal Users
External
Users
Chapter
1-8
Common Questions Asked User
1. Can we afford to give our
employees a pay raise?
Human Resources
2. Did the company earn a
satisfactory income?
3. Do we need to borrow in the
near future?
4. Is cash sufficient to pay
dividends to the stockholders?
5. What price for our product
will maximize net income?
Who Uses Accounting Data?Who Uses Accounting Data?
SO 2 Identify the users and uses of accounting.SO 2 Identify the users and uses of accounting.
6. Will the company be able to
pay its short-term debts?
Investors
Management
Finance
Marketing
Creditors
1-8
Common Questions Asked User
1. Can we afford to give our
employees a pay raise?
Human Resources
2. Did the company earn a
satisfactory income?
3. Do we need to borrow in the
near future?
4. Is cash sufficient to pay
dividends to the stockholders?
5. What price for our product
will maximize net income?
Who Uses Accounting Data?Who Uses Accounting Data?
SO 2 Identify the users and uses of accounting.SO 2 Identify the users and uses of accounting.
6. Will the company be able to
pay its short-term debts?
Investors
Management
Finance
Marketing
Creditors
Chapter
1-9
Discussion Question
SO 3 Understand why ethics is a fundamental business conceptSO 3 Understand why ethics is a fundamental business concept.
Q1-1: “Accounting is ingrained in our society and it
is vital to our economic system.” Do you agree?
Explain.
See notes page for discussion
Who Uses Accounting Data?Who Uses Accounting Data?
1-9
Discussion Question
SO 3 Understand why ethics is a fundamental business conceptSO 3 Understand why ethics is a fundamental business concept.
Q1-1: “Accounting is ingrained in our society and it
is vital to our economic system.” Do you agree?
Explain.
See notes page for discussion
Who Uses Accounting Data?Who Uses Accounting Data?
Chapter
1-10
The Building Blocks of AccountingThe Building Blocks of Accounting
Ethics In Financial Reporting
SO 3 Understand why ethics is a fundamental business conceptSO 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,
WorldCom, HealthSouth, AIG, and others.
Congress passed Sarbanes-Oxley Act of 2002.
Effective financial reporting depends on sound
ethical behavior.
1-10
The Building Blocks of AccountingThe Building Blocks of Accounting
Ethics In Financial Reporting
SO 3 Understand why ethics is a fundamental business conceptSO 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,
WorldCom, HealthSouth, AIG, and others.
Congress passed Sarbanes-Oxley Act of 2002.
Effective financial reporting depends on sound
ethical behavior.
Chapter
1-11
Ethics are the standards of conduct by which one's
actions are judged as:
a.right or wrong.
b.honest or dishonest.
c.fair or not fair.
d.all of these options.
Review QuestionReview Question
EthicsEthics
SO 3 Understand why ethics is a fundamental business conceptSO 3 Understand why ethics is a fundamental business concept.
1-11
Ethics are the standards of conduct by which one's
actions are judged as:
a.right or wrong.
b.honest or dishonest.
c.fair or not fair.
d.all of these options.
Review QuestionReview Question
EthicsEthics
SO 3 Understand why ethics is a fundamental business conceptSO 3 Understand why ethics is a fundamental business concept.
Chapter
1-12
Various users
need financial
information
The accounting profession
has attempted to develop
a set of standards that
are generally accepted
and universally practiced.
Financial Statements
Balance Sheet
Income Statement
Statement of Owner’s Equity
Statement of Cash Flows
Note Disclosure
Generally Accepted Generally Accepted
Accounting Accounting
Principles (GAAP)Principles (GAAP)
The Building Blocks of AccountingThe Building Blocks of Accounting
SO 4 Explain generally accepted accounting principles and the cost principle.SO 4 Explain generally accepted accounting principles and the cost principle.
1-12
Various users
need financial
information
The accounting profession
has attempted to develop
a set of standards that
are generally accepted
and universally practiced.
Financial Statements
Balance Sheet
Income Statement
Statement of Owner’s Equity
Statement of Cash Flows
Note Disclosure
Generally Accepted Generally Accepted
Accounting Accounting
Principles (GAAP)Principles (GAAP)
The Building Blocks of AccountingThe Building Blocks of Accounting
SO 4 Explain generally accepted accounting principles and the cost principle.SO 4 Explain generally accepted accounting principles and the cost principle.
Chapter
1-13
Organizations Involved in Standard Setting:
Bangladesh Securities and Exchange
Commission (BSEC)
Financial Accounting Standards Board (FASB)
International Accounting Standards Board
(IASB)
SO 4 Explain generally accepted accounting principles and the cost principle.SO 4 Explain generally accepted accounting principles and the cost principle.
The Building Blocks of AccountingThe Building Blocks of Accounting
http://www.fasb.org/
http://www.sec.gov/
http://www.iasb.org/
1-13
Organizations Involved in Standard Setting:
Bangladesh Securities and Exchange
Commission (BSEC)
Financial Accounting Standards Board (FASB)
International Accounting Standards Board
(IASB)
SO 4 Explain generally accepted accounting principles and the cost principle.SO 4 Explain generally accepted accounting principles and the cost principle.
The Building Blocks of AccountingThe Building Blocks of Accounting
http://www.fasb.org/
http://www.sec.gov/
http://www.iasb.org/
Chapter
1-14
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, whereas market value is often
subjective.
Fair value information may be more useful.
The Building Blocks of AccountingThe Building Blocks of Accounting
SO 4 Explain generally accepted accounting principles and the cost principle.SO 4 Explain generally accepted accounting principles and the cost principle.
1-14
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, whereas market value is often
subjective.
Fair value information may be more useful.
The Building Blocks of AccountingThe Building Blocks of Accounting
SO 4 Explain generally accepted accounting principles and the cost principle.SO 4 Explain generally accepted accounting principles and the cost principle.
Chapter
1-15
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.
AssumptionsAssumptions
SO 5 Explain the monetary unit assumption SO 5 Explain the monetary unit assumption
and the economic entity assumption.and the economic entity assumption.
Forms of
Business Ownership
1-15
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.
AssumptionsAssumptions
SO 5 Explain the monetary unit assumption SO 5 Explain the monetary unit assumption
and the economic entity assumption.and the economic entity assumption.
Forms of
Business Ownership
Chapter
1-16
Proprietorship Partnership Corporation
Owned by Owned by two or two or
more personsmore persons..
Often Often retail and retail and
service-type service-type
businessesbusinesses
Generally Generally
unlimited unlimited
personal liabilitypersonal liability
Partnership Partnership
agreementagreement
Ownership Ownership
divided into divided into
shares of stockshares of stock
Separate legal Separate legal
entity entity organized organized
under state under state
corporation lawcorporation law
Limited liabilityLimited liability
Forms of Business OwnershipForms of Business Ownership
Generally Generally owned owned
by one personby one person..
Often Often smallsmall
service-type service-type
businessesbusinesses
Owner receives Owner receives
any any profitsprofits, ,
suffers any suffers any
losseslosses, and is , and is
personally personally liable liable
for all debtsfor all debts..
SO 5 Explain the monetary unit assumption SO 5 Explain the monetary unit assumption
and the economic entity assumption.and the economic entity assumption.
1-16
Proprietorship Partnership Corporation
Owned by Owned by two or two or
more personsmore persons..
Often Often retail and retail and
service-type service-type
businessesbusinesses
Generally Generally
unlimited unlimited
personal liabilitypersonal liability
Partnership Partnership
agreementagreement
Ownership Ownership
divided into divided into
shares of stockshares of stock
Separate legal Separate legal
entity entity organized organized
under state under state
corporation lawcorporation law
Limited liabilityLimited liability
Forms of Business OwnershipForms of Business Ownership
Generally Generally owned owned
by one personby one person..
Often Often smallsmall
service-type service-type
businessesbusinesses
Owner receives Owner receives
any any profitsprofits, ,
suffers any suffers any
losseslosses, and is , and is
personally personally liable liable
for all debtsfor all debts..
SO 5 Explain the monetary unit assumption SO 5 Explain the monetary unit assumption
and the economic entity assumption.and the economic entity assumption.
Chapter
1-17
Combining the activities of Kellogg and General
Mills would violate the
a.cost principle.
b.economic entity assumption.
c.monetary unit assumption.
d.ethics principle.
AssumptionsAssumptions
SO 5 Explain the monetary unit assumption SO 5 Explain the monetary unit assumption
and the economic entity assumption.and the economic entity assumption.
Review QuestionReview Question
1-17
Combining the activities of Kellogg and General
Mills would violate the
a.cost principle.
b.economic entity assumption.
c.monetary unit assumption.
d.ethics principle.
AssumptionsAssumptions
SO 5 Explain the monetary unit assumption SO 5 Explain the monetary unit assumption
and the economic entity assumption.and the economic entity assumption.
Review QuestionReview Question
Chapter
1-18
A business organized as a separate legal entity
under state law having ownership divided into
shares of stock is a
a.proprietorship.
b.partnership.
c.corporation.
d.sole proprietorship.
SO 5 Explain the monetary unit assumption SO 5 Explain the monetary unit assumption
and the economic entity assumption.and the economic entity assumption.
Forms of Business OwnershipForms of Business Ownership
Review QuestionReview Question
1-18
A business organized as a separate legal entity
under state law having ownership divided into
shares of stock is a
a.proprietorship.
b.partnership.
c.corporation.
d.sole proprietorship.
SO 5 Explain the monetary unit assumption SO 5 Explain the monetary unit assumption
and the economic entity assumption.and the economic entity assumption.
Forms of Business OwnershipForms of Business Ownership
Review QuestionReview Question
Chapter
1-19
AssetsAssets LiabilitiesLiabilities
Owner’s Owner’s
EquityEquity
= +
Provides the underlying framework for recording and
summarizing economic events.
Assets are claimed by either creditors or owners.
Claims of creditors must be paid before ownership
claims.
The Basic Accounting EquationThe Basic Accounting Equation
SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define
its components.its components.
1-19
AssetsAssets LiabilitiesLiabilities
Owner’s Owner’s
EquityEquity
= +
Provides the underlying framework for recording and
summarizing economic events.
Assets are claimed by either creditors or owners.
Claims of creditors must be paid before ownership
claims.
The Basic Accounting EquationThe Basic Accounting Equation
SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define
its components.its components.
Chapter
1-20
AssetsAssets LiabilitiesLiabilities
Owner’s Owner’s
EquityEquity
= +
Provides the underlying framework for recording and
summarizing economic events.
The Basic Accounting EquationThe Basic Accounting Equation
Resources a business owns.
Provide future services or benefits.
Cash, Supplies, Equipment, etc.
AssetsAssets
SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define
its components.its components.
1-20
AssetsAssets LiabilitiesLiabilities
Owner’s Owner’s
EquityEquity
= +
Provides the underlying framework for recording and
summarizing economic events.
The Basic Accounting EquationThe Basic Accounting Equation
Resources a business owns.
Provide future services or benefits.
Cash, Supplies, Equipment, etc.
AssetsAssets
SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define
its components.its components.
Chapter
1-21
AssetsAssets LiabilitiesLiabilities
Owner’s Owner’s
EquityEquity
= +
Provides the underlying framework for recording and
summarizing economic events.
The Basic Accounting EquationThe Basic Accounting Equation
Claims against assets (debts and obligations).
Creditors - party to whom money is owed.
Accounts payable, Notes payable, etc.
LiabilitiesLiabilities
SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define
its components.its components.
1-21
AssetsAssets LiabilitiesLiabilities
Owner’s Owner’s
EquityEquity
= +
Provides the underlying framework for recording and
summarizing economic events.
The Basic Accounting EquationThe Basic Accounting Equation
Claims against assets (debts and obligations).
Creditors - party to whom money is owed.
Accounts payable, Notes payable, etc.
LiabilitiesLiabilities
SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define
its components.its components.
Chapter
1-22
AssetsAssets LiabilitiesLiabilities
Owner’s Owner’s
EquityEquity
= +
Provides the underlying framework for recording and
summarizing economic events.
The Basic Accounting EquationThe Basic Accounting Equation
Ownership claim on total assets.
Referred to as residual equity.
Capital, Drawings, etc. (Proprietorship or
Partnership).
Owner’s EquityOwner’s Equity
SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define
its components.its components.
1-22
AssetsAssets LiabilitiesLiabilities
Owner’s Owner’s
EquityEquity
= +
Provides the underlying framework for recording and
summarizing economic events.
The Basic Accounting EquationThe Basic Accounting Equation
Ownership claim on total assets.
Referred to as residual equity.
Capital, Drawings, etc. (Proprietorship or
Partnership).
Owner’s EquityOwner’s Equity
SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define
its components.its components.
Chapter
1-23
Owners’ EquityOwners’ Equity
Revenues result from business activities entered into for
the purpose of earning income.
Common sources of revenue are: sales, fees, services,
commissions, interest, dividends, royalties, and rent.
Illustration 1-6
SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define
its components.its components.
1-23
Owners’ EquityOwners’ Equity
Revenues result from business activities entered into for
the purpose of earning income.
Common sources of revenue are: sales, fees, services,
commissions, interest, dividends, royalties, and rent.
Illustration 1-6
SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define
its components.its components.
Chapter
1-24
Owners’ EquityOwners’ Equity
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 1-6
SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define
its components.its components.
1-24
Owners’ EquityOwners’ Equity
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 1-6
SO 6 SO 6 State the accounting equation, and define State the accounting equation, and define
its components.its components.
Chapter
1-25
Using The Basic Accounting EquationUsing The Basic 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 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
1-25
Using The Basic Accounting EquationUsing The Basic 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 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
Chapter
1-26
Q1-15:Q1-15: Are the following events recorded in the
accounting records?
Event
Supplies are
purchased
on account.
Criterion
Is the financial position (assets, liabilities, or
owner’s equity) of the company changed?
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
An employee
is hired.
Owner
withdraws
cash for
personal use.
Record/
Don’t Record
Transactions (Question?)Transactions (Question?)
1-26
Q1-15:Q1-15: Are the following events recorded in the
accounting records?
Event
Supplies are
purchased
on account.
Criterion
Is the financial position (assets, liabilities, or
owner’s equity) of the company changed?
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
An employee
is hired.
Owner
withdraws
cash for
personal use.
Record/
Don’t Record
Transactions (Question?)Transactions (Question?)
Chapter
1-27
Discussion Question
Q1-18: In February 2010, Paula King invested
an additional $10,000 in her business, King’s
Pharmacy, which is organized as a proprietorship.
King’s accountant, Lance Jones, recorded this
receipt as an increase in cash and revenues. Is
this treatment appropriate? Why or why not?
See notes page for discussion
TransactionsTransactions
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
1-27
Discussion Question
Q1-18: In February 2010, Paula King invested
an additional $10,000 in her business, King’s
Pharmacy, which is organized as a proprietorship.
King’s accountant, Lance Jones, recorded this
receipt as an increase in cash and revenues. Is
this treatment appropriate? Why or why not?
See notes page for discussion
TransactionsTransactions
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
Chapter
1-28
Transaction (1). Investment By Owner.Transaction (1). Investment By Owner. Ray Neal decides
to open a computer programming service which he names
Softbyte. On September 1, 2010, he invests $15,000 cash in
the business. The effect of this transaction on the basic
equation is:
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
1-28
Transaction (1). Investment By Owner.Transaction (1). Investment By Owner. Ray Neal decides
to open a computer programming service which he names
Softbyte. On September 1, 2010, he invests $15,000 cash in
the business. The effect of this transaction on the basic
equation is:
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
Chapter
1-29
Transaction (2). Purchase of Equipment for Cash.Transaction (2). Purchase of Equipment for Cash. Softbyte
purchases computer equipment for $7,000 cash.
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
1-29
Transaction (2). Purchase of Equipment for Cash.Transaction (2). Purchase of Equipment for Cash. Softbyte
purchases computer equipment for $7,000 cash.
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
Chapter
1-30
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
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.
1-30
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
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.
Chapter
1-31
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
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.
1-31
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
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.
Chapter
1-32
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
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.
1-32
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
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.
Chapter
1-33
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
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.
1-33
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
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.
Chapter
1-34
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
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.
1-34
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
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.
Chapter
1-35
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
Transaction (8). Payment of Accounts Payable.Transaction (8). Payment of Accounts Payable. Softbyte
pays its $250 Daily News bill in cash.
1-35
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
Transaction (8). Payment of Accounts Payable.Transaction (8). Payment of Accounts Payable. Softbyte
pays its $250 Daily News bill in cash.
Chapter
1-36
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
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)].
1-36
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
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)].
Chapter
1-37
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
Transaction (10). Withdrawal of Cash by Owner.Transaction (10). Withdrawal of Cash by Owner. Ray Neal
withdraws $1,300 in cash from the business for his personal
use.
1-37
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
Transaction (10). Withdrawal of Cash by Owner.Transaction (10). Withdrawal of Cash by Owner. Ray Neal
withdraws $1,300 in cash from the business for his personal
use.
Chapter
1-38
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
Summary of TransactionsSummary of Transactions
Illustration 1-8
Tabular summary of
Softbyte transactions
1-38
Transactions AnalysisTransactions Analysis
SO 7 SO 7 Analyze the effects of business transactions Analyze the effects of business transactions
on the accounting equation.on the accounting equation.
Summary of TransactionsSummary of Transactions
Illustration 1-8
Tabular summary of
Softbyte transactions
Chapter
1-39
Companies prepare four financial statements from
the summarized accounting data:
Balance
Sheet
Income
Statement
Statement
of Cash
Flows
Owner’s
Equity
Statement
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
1-39
Companies prepare four financial statements from
the summarized accounting data:
Balance
Sheet
Income
Statement
Statement
of Cash
Flows
Owner’s
Equity
Statement
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
Chapter
1-40
Net income will result during a time period when:
a.assets exceed liabilities.
b.assets exceed revenues.
c.expenses exceed revenues.
d.revenues exceed expenses.
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
Review QuestionReview Question
1-40
Net income will result during a time period when:
a.assets exceed liabilities.
b.assets exceed revenues.
c.expenses exceed revenues.
d.revenues exceed expenses.
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
Review QuestionReview Question
Chapter
1-41
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
Income Statement
Reports the revenues and expenses for a specific period of time.
Net income – revenues exceed expenses.
Net loss – expenses exceed revenues.
Illustration 1-9
Financial statements and
their interrelationships
1-41
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
Income Statement
Reports the revenues and expenses for a specific period of time.
Net income – revenues exceed expenses.
Net loss – expenses exceed revenues.
Illustration 1-9
Financial statements and
their interrelationships
Chapter
1-42
Financial StatementsFinancial Statements
Net income is needed to determine the
ending balance in owner’s equity.
Illustration 1-9
Financial statements and
their interrelationships
1-42
Financial StatementsFinancial Statements
Net income is needed to determine the
ending balance in owner’s equity.
Illustration 1-9
Financial statements and
their interrelationships
Chapter
1-43
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
Statement indicates the reasons
why owner’s equity has increased or
decreased during the period.
Owner’s Equity Statement
Illustration 1-9
Financial statements and
their interrelationships
1-43
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
Statement indicates the reasons
why owner’s equity has increased or
decreased during the period.
Owner’s Equity Statement
Illustration 1-9
Financial statements and
their interrelationships
Chapter
1-44
Financial Financial
StatementsStatements
The ending
balance in
owner’s equity
is needed in
preparing the
balance sheet
Illustration 1-9
Financial statements and
their interrelationships
1-44
Financial Financial
StatementsStatements
The ending
balance in
owner’s equity
is needed in
preparing the
balance sheet
Illustration 1-9
Financial statements and
their interrelationships
Chapter
1-45
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
Balance Sheet
Illustration 1-9
Financial statements and
their interrelationships
1-45
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
Balance Sheet
Illustration 1-9
Financial statements and
their interrelationships
Chapter
1-46
Financial Financial
StatementsStatements
Illustration 1-9
Financial statements and
their interrelationships
1-46
Financial Financial
StatementsStatements
Illustration 1-9
Financial statements and
their interrelationships
Chapter
1-47
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
Information for a specific period of time.
Answers the following:
1.Where did cash come from?
2.What was cash used for?
3.What was the change in the cash balance?
Statement of Cash Flows
1-47
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
Information for a specific period of time.
Answers the following:
1.Where did cash come from?
2.What was cash used for?
3.What was the change in the cash balance?
Statement of Cash Flows
Chapter
1-48
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
Statement of Cash Flows
Illustration 1-9
Financial statements and
their interrelationships
1-48
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
Statement of Cash Flows
Illustration 1-9
Financial statements and
their interrelationships
Chapter
1-49
Which of the following financial statements is
prepared as of a specific date?
a.Balance sheet.
b.Income statement.
c.Owner's equity statement.
d.Statement of cash flows.
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
Review QuestionReview Question
1-49
Which of the following financial statements is
prepared as of a specific date?
a.Balance sheet.
b.Income statement.
c.Owner's equity statement.
d.Statement of cash flows.
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
Review QuestionReview Question
Chapter
1-50
Discussion QuestionDiscussion Question
Q1-19: “A company’s net income appears directly on
the income statement and the owner’s equity
statement, and it is included indirectly in the
company’s balance sheet.” Do you agree? Explain.
See notes page for discussion
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
1-50
Discussion QuestionDiscussion Question
Q1-19: “A company’s net income appears directly on
the income statement and the owner’s equity
statement, and it is included indirectly in the
company’s balance sheet.” Do you agree? Explain.
See notes page for discussion
Financial StatementsFinancial Statements
SO 8 Understand the four financial statements and how they are prepared.SO 8 Understand the four financial statements and how they are prepared.
Chapter
1-51
Forensic Accounting
Careers with insurance companies and law offices to conduct
investigations into theft and fraud.
Opportunities in Government
Careers with the IRS, the FBI, the SEC, and in public
colleges and universities.
Private Accounting
Careers in industry working in cost accounting, budgeting,
accounting information systems, and taxation.
SO 9 Explain the career opportunities in accounting.SO 9 Explain the career opportunities in accounting.
Accounting Career OpportunitiesAccounting Career Opportunities
Public Accounting
Careers in auditing and taxation serving the general public.
1-51
Forensic Accounting
Careers with insurance companies and law offices to conduct
investigations into theft and fraud.
Opportunities in Government
Careers with the IRS, the FBI, the SEC, and in public
colleges and universities.
Private Accounting
Careers in industry working in cost accounting, budgeting,
accounting information systems, and taxation.
SO 9 Explain the career opportunities in accounting.SO 9 Explain the career opportunities in accounting.
Accounting Career OpportunitiesAccounting Career Opportunities
Public Accounting
Careers in auditing and taxation serving the general public.
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