Introduction to Accounting and Business

1. 0 1 Introduction to Accounting and Business

2. ServiceBusinessService The Walt Disney Company Entertainment Delta Air Lines Transportation Marriott International Hotels Hospitality and lodging Bank of America Corporation Financial services XM Satellite Radio Satellite radio 0 1-1 Types of Businesses

3. Merchandising BusinessProduct Wal-Mart General merchandise GameStop Corporation Video games and accessories Best Buy Consumer electronics Gap Inc. Apparel Amazon.com Internet books, music, video 0 1-1 Types of Businesses

4. Manufacturing BusinessProduct General Motors Corp. Cars, trucks, vans Samsung Cell phones Dell Inc. Personal computers Nike Athletic shoes and apparel The Coca-Cola Company Beverages Sony Corporation Stereos and televisions 0 1-1 Types of Businesses

5. 0 1-1 Common Forms of Business Organizations • Proprietorship • Partnership • Corporation • Limited liability company

6. 0 1-1 A business stakeholderis a person orentity having an interest in the economic performance and well-being of a business.

7. 0 1-1 Accountingcan be defined as aninformation system that provides reports to stakeholders about the economic activities and condition of a business.

8. 0 1-1 The process by which accounting provides information to business stakeholders is as follows: • Identify stakeholders. • Assess stakeholders’ information needs. • Design the accounting information system to meet stakeholders’ needs. • Record economic data about business activities and events. • Prepare accounting reports for stakeholders.

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10. 0 1-1 Financial accounting is primarily concerned with the recording and reporting of economic data and activities for a business. Managerial accounting uses both financial accounting and estimated data to aid management in running day-to-day operations and in planning future operations.

11. 0 1-2 The business entity conceptlimits the economic data in the accounting system to data related directly to the activities of the business.

12. 0 1-2 The cost concept is the basis for entering the exchange price, or cost of an acquisition in the accounting records.

13. 0 1-2 The objectivity concept requires that the accounting records and reports be based upon objective evidence.

14. 0 1-2 The unit of measureconceptrequires that economic data be recorded in dollars.

15. 0 1-3 The Accounting Equation Assets = Liabilities + Owner’s Equity The resources owned by a business

16. 0 1-3 The Accounting Equation Assets = Liabilities + Owner’s Equity The rights of the creditors, which represent debts of the business

17. 0 1-3 The Accounting Equation Assets = Liabilities + Owner’s Equity The rights of the owners

18. 0 1-4 A business transaction is an economic event or condition that directly changes an entity’s financial condition or directly affects its results of operations.

19. 0 1-4 On November 1, 2007, Chris Clark begins a business that will be known as NetSolutions.

20. Assets Owner’s Equity = Cash 25,000 = a. 0 1-4 Chris Clark, Capital 25,000 Investment by Chris Clark a. Chris Clark deposits $25,000 in a bank account in the name of NetSolutions. 40

21. Bal. 5,000 20,000 25,000 0 1-4 Assets Owner’s Equity = Chris Clark, Capital 25,000 Cash + Land 25,000 Bal. = b. –20,000 +20,000 b. NetSolutions exchanged $20,000 for land. 41

22. +1,350 +1,350 c. Bal. 5,000 1,350 20,000 1,350 25,000 0 1-4 Owner’s Liabilities + Equity Assets = Accounts Chris Clark, Cash + Supplies + Land Payable Capital = Bal. 5,000 20,000 25,000 c. During the month, NetSolutions purchased supplies for $1,350 and agreed to pay the supplier in the near future (on account). 42

23. 0 1-4 Beginning with entry (d) the asset section will be shown first, then the liabilities and owner’s equity will be shown in the following slide.

24. d. +7,500 Bal. 12,500 1,350 20,000 0 1-4 Assets Cash + Supplies + Land Bal. 5,000 1,350 20,000 d. NetSolutions provided services to customers, earning fees of $7,500 and received the amount in cash. 44

25. +7,500 d. 1,350 Bal. 25,000 7,500 0 1-4 Liabilities + Owner’s Equity Accounts Chris Clark, Fees Payable Capital + Earned + Bal. 1,350 25,000 d. NetSolutions provided services to customers, earning fees of $7,500 and received the amount in cash. 45

26. 0 1-4 Expenses The amounts used in earning revenue are called expenses. Adding expenses to the owner’s equity section results in a space problem. To adjust for these added headings, the word “Bal.” has been omitted from Slides 48, 50, 52, and 54. The bottom row in these four slides provides the balances after each transaction.

27. Bal. 8,850 1,350 20,000 0 1-4 Assets Cash + Supplies + Land Bal. 12,500 1,350 20,000 e. –3,650 e. NetSolutions paid the following expenses: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. 47

28. e. –2,125 –800 –450 –275 1,350 25,000 7,500 –2,125 –800 –450 –275 0 1-4 Liabilities +Owner’s Equity Accounts Chris Clark, Fees Wages Rent Utilities Misc. Payable + Capital + Earned Expense Expense Expense Expense 1,350 25,000 7,500 e. NetSolutions paid the following expenses: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275. 48

29. Bal. 7,900 1,350 20,000 0 1-4 Assets Cash + Supplies + Land Bal. 8,850 1,350 20,000 f. –950 f. NetSolutions paid $950 to creditors during the month. 49

30. f. –950 400 25,000 7,500 –2,125 –800 –450 –275 0 1-4 Liabilities +Owner’s Equity Accounts Chris Clark, Fees Wages Rent Utilities Misc. Payable + Capital + Earned Expense Expense Expense Expense –2,125 –800 –450 –275 1,350 25,000 7,500 f. NetSolutions paid $950 to creditors during the month. 50

31. Bal. 7,900 550 20,000 0 1-4 Assets Cash + Supplies + Land Bal. 7,900 1,350 20,000 g. –800 g. At the end of the month, the cost of supplies on hand is $550, so $800 of supplies were used. 51

32. g. –800 400 25,000 7,500 –2,125 –800 –800 –450 –275 0 1-4 Liabilities +Owner’s Equity Accounts Chris Clark, Fees Wages Rent Supplies Util. Misc. Payable + Capital + Earned Exp. Exp. Exp. Exp. Exp. 400 25,000 7,500 –2,125 –800 –450 –275 g. At the end of the month, the cost of supplies on hand is $550, so $800 of supplies were used. 52

33. Bal. 5,900 550 20,000 0 1-4 Assets Cash + Supplies + Land Bal. 7,900 550 20,000 h. –2,000 h. At the end of the month, Chris withdrew $2,000 in cash from the business for personal use. 53

34. h. –2,000 400 25,000 –2,000 7,500 –2,125 –800 –800 –450 –275 0 1-4 Liabilities +Owner’s Equity Accounts Chris Clark, Chris Clark Fees Wages Rent Supplies Util. Misc. Payable + Capital + Drawing Earned Exp. Exp. Exp. Exp. Exp. 400 25,000 7,500 –2,125 –800 –800 –450 –275 h. At the end of the month, Chris withdrew $2,000 in cash from the business for personal use. 54

35. Decreased by Increased by Owner’s withdrawals Expenses Owner’s investments Revenues 0 1-4 Owner’s Equity 55

36. 0 1-5 Accounting reports, called financial statements, provide summarized information to the owner.

37. 0 1-5 The incomestatement is a summary of the revenue and expenses for a specific period of time, such as a month or a year.

38. 0 1-5 Income Statement Net income is carried to the statement of owner’s equity 62

39. 0 1-5 A statement of owner’s equityis a summary of the changes in the owner’s equity that have occurred during a specific period of time.

40. 0 1-5 Statement of Owner’s Equity From the income statement To the balance sheet 64

41. 0 1-5 A balance sheet is a list of the assets, liabilities, and owner’s equity as of a specific date.

42. 0 1-5 Balance Sheet This amount is compared to the net cash flow on the statement of cash flows From the statement of owner’s equity 66

43. 0 1-5 A statement of cash flows is a summary of the cash receipts and payments for a specific period of time.

44. 0 1-5 Statement of Cash Flows This amount should match Cash on the balance sheet. 68

45. 0 1-5 Income Statement The income statement reports the revenues and expenses for a period of time based on the matching concept. This concept is applied by matching the expenses with the revenue generated during a period by those expenses.

46. 0 1-5 The excess of revenue over the expenses is called netincomeor net profit. If the expenses exceed the revenue, the excess is anet loss.

47. 0 1-5 Statement of Owner’s Equity The statement of owner’sequity reports the changes in the owner’s equity for a period of time. It is prepared after the income statement.

48. 0 1-5 Balance Sheet Thebalance sheetreports the amounts of a firm’s assets, liabilities, and owner’s equity at the end of a specific period.

49. 0 1-5 The account form of balance sheet lists the assets on the left and the liabilities and owner’s equity on the right—similar to design of an account.

50. 0 1-5 The report form of balance sheet presents the liabilities and owner’s equity sections below the assets section.