1. Introduction to Accounting and Business. After studying this chapter, you should be able to:. Describe the nature of a business and the role of ethics and accounting in business. Summarize the development of accounting principles and relate them to practice.
Introduction to Accounting and Business
Describe the nature of a business and the role of ethics and accounting in business.
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
Types of Businesses
Wal-Mart General merchandise
GameStop Corporation Video games and accessories
Best Buy Consumer electronics
Gap Inc. Apparel
Amazon.com Internet books, music, video
Types of Businesses
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
Types of Businesses
Common Forms of Business Organizations
A proprietorshipis owned by one individual and—
A partnershipis similar to a proprietorship except that it is owned by two or more individuals and—
A corporationis organized under state or federal statues as a _________________ ___________ _____________ entity and—
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—
A business stakeholderis a person orentity having an interest in the economic performance and well-being of a business.
The moral principles that guide the conduct of individuals are called ethics.
Accountingcan be defined as aninformation system that provides reports to stakeholders about the economic activities and condition of a business.
Accountants employed by a business firm or a not-for-profit organization are said to be employed in private accounting.
Accountants and their staff who provide services on a fee basis are said to be employed in public accounting.
Summarize the development of accounting principles and relate them to practice.
The ______________ ____________ ________________limits the economic data in the accounting system to data related directly to the activities of the business.
The ___________ ________________ is the basis for entering the exchange price, or cost of an acquisition in the accounting records.
The _________________ __________________ requires that the accounting records and reports be based upon objective evidence.
The ____________ ____ _________________requires that economic data be recorded in dollars.
State the accounting equation and define each element of the equation.
The Accounting Equation
Assets = Liabilities + Owner’s Equity
Describe and illustrate how business transactions can be recorded in terms of the resulting change in the basic elements of the accounting equation.
A business transaction is an economic event or condition that directly changes an entity’s financial condition or directly affects its results of operations.
On November 1, 2007, Chris Clark organizes a corporation that will be known as NetSolutions.
* See NetSolution notes from WEBCT for NetSolutions transactions and illustration of the basic accounting equation.
The amounts used in earning revenue are called expenses. Expenses are assets that have been used up, consumed, or expired. Adding expenses to the stockholders’ equity section results in a space problem. To adjust for these added headings, the word “Bal.” has been omitted from Slides 50, 52, 54, and 56. The bottom row in these four slides provides the balances after each transaction.
Dividends are distributions of earnings to stockholders. You should be careful not to confuse dividends with expenses. Dividends do not represent assets or services used in the process of earning revenues.
Dividends paid to stockholders
Investments by stockholders
Retained earnings represent stockholders’ equity created from business operations through revenue, expense, and dividend transactions.
Describe the financial statements of a corporation and explain how they interrelate.
Accounting reports, called financial statements, provide summarized information to the owner.
The incomestatement is a summary of the revenue and expenses for a specific period of time, such as a month or a year.
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.
The excess of revenue over the expenses is called netincomeor net profit. If the expenses exceed the revenue, the excess is anet loss.
A retained earnings statementis a summary of the changes in the earnings retained in the corporation for a specific period of time.
Retained Earnings Statement
The retained earningsstatement analyzes the changes in the stockholders’ equity of corporation for a period of time. The retained earnings statement is the second statement prepared because it needs the net income or net loss determined on the income statement.
A balance sheet is a list of the assets, liabilities, and owner’s equity as of a specific date.
Thebalance sheetreports the amounts of a firm’s assets, liabilities, and stockholders’ equity at the end of a specific period.
A statement of cash flows is a summary of the cash receipts and payments for a specific period of time.