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1. Introduction to Accounting and Business. Student Version. 1. 1. Describe the nature of a business, the role of accounting, and ethics in business. 1-2. Manufacturing Business Product. General Motors Corp. Cars, trucks, vans. Merchandising Business Product.

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Presentation Transcript
slide1

1

Introduction to

Accounting and Business

Student Version

slide2

1

1

Describe the nature of a business, the role of accounting, and ethics in business.

1-2

slide3

Manufacturing BusinessProduct

General Motors Corp. Cars, trucks, vans

Merchandising BusinessProduct

Wal-Mart General merchandise

1

Types of Businesses

ServiceBusinessService

Delta Air Lines Transportation services

slide4

1

The Role of Accounting in Business

Accountingcan be defined as aninformation system that provides reports to users about the economic activities and condition of a business.

slide5

1

Managerial Accounting

The area of accounting that provides internal users with information is called managerial accounting.

The objective of managerial accounting is to provide relevant and timely information for managers’ and employees’ decision-making needs.

slide6

1

Financial Accounting

The area of accounting that provides external users with information is calledfinancial accounting.

The objective of financial accounting is to provide relevant and timely information for the decision-making needs of users outside of the business.

slide7

1

Role of Ethics in Accounting and Business

Ethics are moral principles that guide the conduct of individuals.

slide8

2

Summarize the development of accounting principles and relate them to practice.

1-8

slide9

2

Business Entity Concept

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

slide10

2

Business Entity Concept

A proprietorship is owned by one individual.

  • 70% of business entities in the United States.
  • Easy and cheap to organize.
  • Resources are limited to those of the owner.
  • Used by small businesses.
slide11

2

Business Entity Concept

Acorporationis organized under state or federal statutes as a separate legal taxable entity.

  • Generates 90% of business revenues.
  • 20% of the business organizations in the United States.
  • Ownership is divided into shares called stock.
  • Can obtain large amounts of resources by issuing stocks.
  • Used by large businesses.
slide12

2

Business Entity Concept

A limited liability company(LLC) combines attributes of a partnership and a corporation.

  • 10% of business organizations in the United States (combined with partnerships).
  • Often used as an alternative to a partnership.
  • Has tax and legal liability advantages for owners.
slide13

2

Cost Concept

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

slide14

2

Objectivity Concept

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

slide15

2

Unit of Measure Concept

The unit of measure concept requires that economic data be recorded in dollars.

slide16

3

State the accounting equation and define each element of the equation.

1-16

slide17

The rights of the owners

The rights of the creditors are the debts of the business.

The resources owned by a business

3

The Accounting Equation

Assets = Liabilities + Owner’s Equity

slide18

4

Describe and illustrate how business transactions can be recorded in terms of the resulting change in the elements of the accounting equation.

1-18

slide19

4

Business Transaction

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

slide20

4

Transaction A

On November 1, 2009, Chris Clark deposits $25,000 in a bank account in the name of NetSolutions in return for shares of stock in the corporation.

slide21

CASH

25,000

a.

4

Transaction A (continued)

Stockholders’ Equity

Assets

=

CAPITAL STOCK

25,000

=

slide22

4

Transaction B

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

slide23

b. –20,000 +20,000

4

Transaction B (continued)

Stockholders’ Equity

Assets

=

CASH + LAND

25,000

CAPITAL STOCK

25,000

=

Bal.

Bal. 5,000 20,000 25,000

slide24

4

Transaction C

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

slide25

4

Transaction C (continued)

Stockholders’ Liabilities + Equity

Assets

=

ACCOUNTS CAPITAL

PAYABLE + STOCK

CASH + SUPPLIES + LAND

5,000 20,000 25,000

=

Bal.

c. +1,350 +1,350

Bal. 5,000 1,350 20,000 1,350 25,000

slide26

4

Transaction D

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.

slide27

4

Transaction D (continued)

Assets

CASH + SUPPLIES + LAND

5,000 1,350 20,000

Bal.

d. +7,500

Bal. 12,500 1.350 20,000

slide28

4

Transaction D (continued)

Liabilities + Stockholders’ Equity

ACCOUNTS CAPITAL FEES

PAYABLE + STOCK + EARNED

1,350 25,000

Bal.

d. +7,500

Bal. 1,350 25,000 7,500

slide29

4

Transaction E

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

slide30

4

Transaction E (continued)

Assets

CASH + SUPPLIES + LAND

12,500 1,350 20,000

Bal.

e. –3,650

Bal. 8,850 1.350 20,000

slide31

4

Transaction E (continued)

Liabilities + Stockholders’ Equity

ACCOUNTS CAPITAL FEES WAGES RENT UTIL. MISC.

PAYABLE + STOCK + EARNED – EXP. – EXP. – EXP. – EXP.

1,350 25,000 7,500

Bal.

e. –2,125 –800 –450 –275

Bal. 1,350 25,000 7,500 –2,125 –800 –450 –275

slide32

4

Transaction F

On November 30, 2009, NetSolutions paid creditors on account, $950.

slide33

4

Transaction F (continued)

Assets

CASH + SUPPLIES + LAND

8,850 1,350 20,000

Bal.

f. –950

Bal. 7,900 1.350 20,000

slide34

4

Transaction F (continued)

Liabilities + Stockholders’ Equity

ACCOUNTS CAPITAL FEES WAGES RENT UTIL. MISC.

PAYABLE + STOCK + EARNED – EXP. – EXP. – EXP. – EXP.

1,350 25,000 7,500

Bal.

f. –950

Bal. 400 25,000 7,500 –2,125 –800 –450 –275

slide35

4

Transaction G

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

slide36

4

Transaction G (continued)

Assets

CASH + SUPPLIES + LAND

7,900 1,350 20,000

Bal.

g. –800

Bal. 7,900 550 20,000

slide37

4

Transaction G (continued)

Liabilities + Stockholders’ Equity

ACCOUNTS CAPITAL FEES WAGES RENT SUP. UTIL. MISC.

PAYABLE + STOCK + EARNED – EXP. – EXP. – EXP. – EXP. – EXP.

400 25,000 7,500 –2,125 –800 –450 –275

Bal.

g. –800

Bal. 400 25,000 7,500 –2,125 –800 –800 –450 –275

slide38

4

Transaction H

On November 30, 2009, NetSolutions pays $2,000 to stockholders (Chris Clark) as dividends.

slide39

4

Transaction H (continued)

Assets

CASH + SUPPLIES + LAND

7,900 550 20,000

Bal.

h. –2,000

Bal. 5,900 550 20,000

slide40

4

Transaction H (continued)

Liabilities + Stockholders’ Equity

ACCTS. CAPITAL, DIVI- FEES WAGES RENT SUP. UTIL. MISC.

PAY. + STOCK – DENDS + EARNED – EXP. – EXP. – EXP. – EXP. – EXP.

400 25,000 7,500 –2,125 –800 –800 –450 –275

Bal.

h. –2,000

Bal.400 25,000 –2,000 7,500 –2,125 –800 –800 –450 –275

slide41

5

Describe the financial statements of a corporation and explain how they interrelate.

1-41

slide42

5

Income Statement

The incomestatement reports the revenues and expenses for a period of time, based on the matching concept.

slide43

5

Matching Concept

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

slide44

5

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.

slide45

5

Exhibit 6

Financial Statements for NetSolutions

Net income is carried to the retained earnings statement.

slide46

5

Exhibit 6

Financial Statements for NetSolutions (continued)

From the income statement

To the balance sheet

slide47

5

Exhibit 6

Financial Statements for NetSolutions (continued)

This amount is compared to the net cash flow on the statement of cash flows.

From the retained earnings statement

slide48

5

Exhibit 6

Financial Statements for NetSolutions (continued)

This amount should match Cash on the balance sheet.

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