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ACC100 Introductory Financial Accounting. WELCOME!. Are you in the right course?. Take ACC 110 and ACC 410 when you are an Accounting or Finance Major Take ACC 100 and ACC 406 When you Major in : Global Management Studies, Marketing, Law and Business,

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are you in the right course
Are you in the right course?

Take ACC 110 and ACC 410

when you are an Accounting or

Finance Major

Take ACC 100 and ACC 406

When you Major in: Global Management Studies, Marketing, Law and Business,

Entrepreneurship, Human Resources Management, and Economics majors

Other Departments: Hospitality and Tourism, ITM, Retail, etc . . .

course outline schedule 10 minutes
Course Outline/Schedule (10 minutes)
  • Outline Quiz!
  • Get into groups of NO MORE than 3 or 4 students
  • Once you have a group send up ONE of your members to get a Outline Quiz.
  • You have 10 minutes to complete the quiz!
  • Random students will be asked for their answers.
acc100 introductory financial accounting1
ACC100Introductory Financial Accounting

Chapter 1 - Accounting Communication – An Introduction

slide6

Learning Objectives - Coverage

LO 1, 2: Scan

LO 3, 5: Understand

LO 4: MASTER!

NOTE the colour coding – SCAN is green, UNDERSTAND is grey/blue, MASTER is purple. This will be used throughout the course.

slide7

Learning Objectives

LO1: Forms of business

L02: Types of business activities

LO3: Users of accounting and their needs

LO4: Purpose of each financial statement, relationship among them and prepare a set of simple financial statements

LO5: Assumptions made in preparing financial statements

forms of organizations
Forms of Organizations

Business

  • Sole proprietorship
  • Partnership
  • Corporation

Sole Proprietorship: 1 owner, unlimited liability

Partnership: 2 or more owners, unlimited liability

Corporation: many owners, ownership based on shares, organized under province or federal government, limited liability

LO1

slide9

When a business has unlimited liability:

The owners can NOT lose more than the amount invested.

The investors are NOT personally responsible for the debts and obligations of the company.

The owner’s personal assets can NOT be taken if the company’s assets don’t cover all the debts.

The amount the owners can lose is NOT limited in any way.

LO1

types of business activities
Types of Business Activities

Financing – raising funds

Investing – buying land, building,

equipment, etc.

Operating – selling goods/services

LO2

slide11

When a company sells their old equipment, it would be considered a(n):

Operating activity

Investing activity

Financing activity

Delivering activity

LO2

internal and external users of accounting information

Bank /

Creditors

Customers

Current

and

Potential

Owners

Financial

Analysts

Suppliers

Regulatory

Agencies

Competitors

Internal and ExternalUsers of Accounting Information

Rev. Canada

Internal

Users -

Management

LO3

slide13

Which of the following primarily uses accounting information to determine whether the company can pay its obligations?

Shareholders

Competitors

Creditors

Revenue Canada

LO3

what is accounting
What is Accounting?

A system & process for ...

decisions ?

decisions ?

Identifying

Economic

Information

about an

Entity

various

users

Measuring,

Analyzing

communicating

Summarizing,

Reporting

How? Through financial statements!

LO3

slide15

Financial Statements

Are reports from management to the external users which summarize how the company performed during the period.

They attempt to capture financial information about a company so users can make informed decisions.

LO4

slide16

Financial Statements

  • Income Statement
    • Reports the results of operations for a specific period of time
      • revenues, expenses, net income
  • Statement of Retained Earnings
    • Reports the changes in retained earnings for a specific period of time
      • Net income, dividends

LO4

slide17

Financial Statements

  • Balance Sheet
    • Reports the financial position at a specific date.
      • assets, liabilities, and shareholders’ equity
  • Cash Flow Statement
    • Reports the cash consequences of transactions by type of activity for a period of time
      • cash receipts and payments

LO4

income statement
Income Statement

to Statement of Retained Earnings

LO4

key elements of income net income
Key Elements of Income / ‘Net Income’

REVENUES

EXPENSES

Def’n: outflows representing resources consumed in providing goods / services

Principle: Matching – expenses s/b matched to the revenues they help to generate

Examples:

Cost-of goods sold

Salaries & wages

Amortization (depreciation)

  • Def’n: inflows in exchange for providing goods or services
  • Principle: Revenue Recognition – revenue should be recognized when earned (goods delivered, services performed)
  • Examples:
    • Sales
    • Fees, Commissions
    • Rent, Interest

LO4

statement of retained earnings
Statement of Retained Earnings

from

Income

Statement

to Balance Sheet

(Equity section)

LO4

statement of retained earnings1
Statement of Retained Earnings

All the net income from prior years

LESS

All the dividends paid out in prior years

It is the profit that is “retained” or kept within the business for future growth.

LO4

balance sheet a snapshot of financial position

Share

Certificate

Balance Sheet: A Snapshot of ‘Financial Position’

point in time

ASSETS

LIABILITIES

+

=

OWNERS’ EQUITY

(or Shareholders' Equity)

“Basic Accounting Equation”

LO4

balance sheet

LO 4

Balance Sheet

Divided between short term and long term liabilities.

Divided between short term and long term assests.

from Statement of Retained

Earnings

LO4

important
 Important:

The two sides of the Accounting Equation, represented by the Balance Sheet, MUST balance !

A = L + E

“Basic Accounting Equation”

LO4

key elements of balance sheet
Key Elements of Balance Sheet:

ASSETS

  • Key characteristic: has future economic benefit
  • Attributes:
    • controlled (usually owned, but not necessarily) by the entity
    • may be tangible (e.g. physical item) or intangible (e.g. legal rights)
  • Examples:
    • Cash
    • Accounts Receivable
    • Inventories
    • Prepaid Expenses
  • Equipment
  • Buildings, property
  • Licenses, franchise rights, patents
  • Investment in other businesses

LO4

key elements of balance sheet1
Key Elements of Balance Sheet:

LIABILITIES

  • Key Characteristic: owed to third parties (external)
  • Attributes:
    • Due at a future date
    • may be settled in cash, goods or services
  • Examples:
    • Accounts Payable
    • Accrued Liabilities
    • Salaries & Wages Payable
    • Taxes Payable
  • Loan Payable
  • Mortgage Payable

LO4

key elements of balance sheet2
Key Elements of Balance Sheet:

EQUITIES (Owners’ Equity; Shareholders’ Equity)

  • Key Characteristic: belongs to owners (shareholders in case of corporation.
  • Attributes:
    • NOT equal to value / worth of an enterprise
    • paid out to shareholders most commonly as dividends OR retained in company for future economic growth
  • Made up of:
    • Share Capital (e.g. Common Shares)
    • Retained Earnings

LO4

cash flow statement
Cash Flow Statement
  • Indicates cash receipts and cash disbursements by the entity for the period;
  • organized (‘classified’) into 3 activities

to Balance Sheet, Current Assets

LO4

slide30

An entity’s Income Statement reports ...

  • the cash consequences of the entity’s transactions for a specific period of time
  • the results of operations for a specific period of time
  • the entity’s financial position at a specific date
  • revenues, expenses and the resulting profit (loss) for a point in time

LO4

how are the financial statements interconnected
How are the financial statements interconnected ?
  • Income Statement to Balance Sheet to Cash Flow Statement to Statement of Retained Earnings
  • Income statement to Statement of Retained Earnings to Balance Sheets to Cash Flow Statement
  • Income Statement to Statement of Retained Earnings to Cash Flow Statement to Balance Sheet
  • Balance Sheet to Statement of Retained Earnings to Income Statement to Cash Flow Statement
  • I am still not sure about the connection between the statements.

LO4

slide32

Exercise 1-12, page 31

Work with a partner and match the financial statements to the questions users want to have answered.

You have 5 minutes.

Then answer the M/C

question on the next slide.

Students will be asked for

the remainder of the answers.

LO4

slide33

Suppliers: How much does the company currently owe to its suppliers?

  • The user is most likely to find the answer by looking at the:
  • Income statement
  • Statement of Retained Earnings
  • Balance Sheet
  • Cash Flow Statement

LO4

slide34

Preparing financial statements:

Now that you have an understanding of why external users require financial statements (i.e., to make resource allocation decisions) you need to know how to produce the statements.

A deep understanding of the format of financial statements will aid you in future chapters and in both the midterm and final exam.

LO4

slide35

How to approach a F/S preparation question:

Regardless of how the information is provided to you always start by reading the list of accounts and categorizing them into the different categories. Ask yourself: is this account an asset, liability, shareholders’ equity, revenue or expense accounts?

Once you have that figured out preparing the F/S is simpler since each category only goes into one F/S.

Let’s first see if you know which accounts go into which category. Answer the following three M/C questions.

LO4

slide36

Inventory belongs in which category?

  • Revenue
  • Expenses
  • Assets
  • Liabilities
  • Shareholders’ equity

LO4

slide37

Income tax payable belongs in which category?

  • Revenue
  • Expenses
  • Assets
  • Liabilities
  • Shareholders’ equity

LO4

slide38

Cost of good sold belongs in which category?

  • Revenue
  • Expenses
  • Assets
  • Liabilities
  • Shareholders’ equity

LO4

slide39

Problem 1-5, page 36

Categorize all the accounts into the correct categories. Use short forms such as A, L, SHE, R, X. (5 minutes)

Preparean income statement, statement of retained earnings and balance sheet. (10 minutes)

One M/C question on the amount of net income follows.

LO4

slide40

What is the net income for Neptune Theatres Corp?

  • ($30,050)
  • $17,500
  • $40,950
  • $42,800
  • Did not have time to finish/I’m lost!

LO4

let s go back to the accounting equation
 Let’s go back to the accounting equation:

The two sides of the Accounting Equation, represented by the Balance Sheet, MUST balance !

A = L + E

“Basic Accounting Equation”

LO4

accounting equation basic
Accounting Equation (Basic)

A = L + E

This equality is reflected in the Balance Sheet.

Can also be viewed as:

LO4

slide43

Which of the following is the correct way to re-arrange the Basic Accounting Equation?

  • Assets = Liabilities + Shareholders’ Equity
  • Shareholders’ Equity = Assets - Liabilities
  • Liabilities = Assets - Shareholders’ Equity
  • All of the above
  • None of the above

LO4

applying the basic accounting equation beginning of year
Applying the Basic Accounting Equation – beginning of year:

A = L + E

We can use this equation for solve for unknowns; for e.g....

What is the ending amount of Shareholders’ Equity ?

(Discuss with an elbow partner if necessary)

LO4

applying the basic accounting equation during the year
Applying the Basic Accounting Equation - during the year:

A = L + E

If the equation works on balances at the beginning/end of the year then it has to work during the year too.

Say we start the year as follows:

What would be the ENDING of the year balance if, during the year, assets increased $250 by and liabilities decreased by $100?

(Discuss with an elbow partner for 2 minutes. On the next slide is a M/C question to see if you can figure it out.)

LO4

repeating the information provided
Repeating the information provided:

At the beginning of the year, Assets = $1,000, Liabilities = $600 and Shareholders’ Equity = $400. During the year, Assets increased by $250 and Liabilities decreased by $100. The new balance of Shareholders’ Equity at the end of the year is ...

  • $150
  • $350
  • $750
  • $1250
  • Did not have time to finish / I’m lost.

LO4

applying the basic accounting equation missing information
Applying the Basic Accounting Equation – missing information:

A = L + E

If we are only given some information it is important that we know into which category (A, L, E) the information goes:

Say we start the year as follows:

What would be the ENDING balance in shareholders’ equity if net income was $225 and dividend of $50 were paid?

(Discuss with an elbow partner for 2 minutes. On the next slide is a M/C question to see if you can figure it out.)

LO4

repeating the information provided1
Repeating the information provided:

At the beginning of the year, Assets = $1,000, Liabilities = $600 and Shareholders’ Equity = $400. What would be the ENDING balance in shareholders’ equity if net income was $225 and dividend of $50 were paid?

  • $175
  • $675
  • $275
  • $575
  • Did not have time to finish / I’m lost.

LO4

slide49

Exercise 1-4, page 32

Work with a partner to answer each of the independent questions.

Consider using the format we used on the previous examples.

You have 7minutes.

Three M/C questions follow.

LO4

slide50

Exercise 1-4, Part (1): How much is Owner’s Equity at the end of the year?

  • $2,500
  • $10,000
  • $12,500
  • $22,500
  • Did not have time to finish/I’m lost!

LO4

slide51

Exercise 1-4, Part (2): What is the amount of assets at the beginning of the year?

  • $30,000
  • $15,000
  • $10,000
  • Not determinable.
  • Did not have time to finish/I’m lost!

LO4

slide52

Exercise 1-4, Part (3): What is the amount of liabilities at the end of the year?

  • $30,000
  • $15,000
  • $10,000
  • Not determinable.
  • Did not have time to finish/I’m lost!

LO4

slide53

Additional questions (time permitting):

Whole class questions:

E1-6 – a more complex question about the accounting equation.

P1-7 – Corrected Financial Statement – remember to start by categorizing the accounts. Ignore the format, just focus on the account names.

LO4

slide54

For NEXT CLASS:

If you have not already, purchase the textbook, i-Clicker2 and calculator!

Register for APLIA and do both the Chapter 1 Homework Assignments and the Chapter 2 PreLecture Quiz (Option 1 students ONLY.)

Print off the Chapter 2 student copy of the PowerPoints.

Read Chaper 2.