1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren...
Click here to load reader
-
Upload
eugenia-allison -
Category
Documents
-
view
310 -
download
15
Transcript of 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren...
![Page 1: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/1.jpg)
1
Introduction toAccounting and Business
1
Principles of Financial Accounting, 11eReeve • Warren • Duchac
![Page 2: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/2.jpg)
1-21-22
1-2
After studying this chapter, you should be able to:
Introduction to Accounting and Business
3State the accounting equation and define each element of the equation.
2Summarize the development of accounting principles and relate them to practice.
1Describe the nature of a business, the role of accounting, and ethics in business.
1-2
![Page 3: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/3.jpg)
1-31-33
Introduction to Accounting and Business (continued)
4 Describe and illustrate how business transactions can be recorded in terms of the resulting change in the elements of the accounting equation.
5 Describe the financial statements of a proprietorship and explain how they interrelate.
1-3
![Page 4: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/4.jpg)
1-41-44
1
1
Describe the nature of a business, the role of accounting, and ethics in business.
1-4
![Page 5: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/5.jpg)
1-51-55
Types of Businesses
Delta Air Lines Transportation servicesThe Walt Disney Company Entertainment services
Service Business Service
1
![Page 6: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/6.jpg)
1-61-66
Merchandising Business Product
Wal-Mart General merchandiseAmazon.com Internet books, music, videos
1
Types of Businesses
![Page 7: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/7.jpg)
1-71-77
Manufacturing Business Product
General Motors Corp. Cars, trucks, vansDell Inc. Personal computers
1
Types of Businesses
![Page 8: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/8.jpg)
1-81-88
The Role of Accounting in Business
Accounting can be defined as an information system that provides reports to users about the economic activities and condition of a business.
1
![Page 9: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/9.jpg)
1-91-99
• Identify users.
• Assess users’ informational needs.
• Design the accounting information system to meet users’ needs.
• Record economic data about business activities and events.
• Prepare accounting reports for users.
The process by which accounting provides information to users is as follows:
1
![Page 10: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/10.jpg)
1-101-1010
1
Exhibit 1 Users of Accounting Information
![Page 11: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/11.jpg)
1-111-1111
The area of accounting that provides internal users with information is called managerial accounting.
Managerial Accounting
The objective of managerial accounting is to provide relevant and timely information for managers’ and employees’ decision-making needs.
1
![Page 12: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/12.jpg)
1-121-1212
The area of accounting that provides external users with information is called financial accounting.
Financial Accounting
The objective of financial accounting is to provide relevant and timely information for the decision-making needs of users outside of the business.
1
![Page 13: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/13.jpg)
1-131-1313
Ethics are moral principles that guide the conduct of individuals.
Role of Ethics in Accounting and Business
1
![Page 14: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/14.jpg)
1-141-1414
1
Exhibit 3 Guideline for Ethical Conduct
1. Identify an ethical decision by using your personal ethical standards of honesty and fairness.
2. Identify the consequences of the decision and its effect on others.
3. Consider your obligations and responsibilities to those that will be affected by your decision.
4. Make a decision that is ethical and fair to those affected by it.
![Page 15: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/15.jpg)
1-151-1515
Summarize the development of accounting principles and relate them to practice.
2
1-17
![Page 16: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/16.jpg)
1-161-1616
• Financial accountants follow generally accepted accounting principles (GAAP) in preparing reports.
Generally Accepted Accounting Principles
• Within the United States, the Financial Accounting Standards Board (FASB) has the primary responsibility for developing accounting principles.
(continued)
2
![Page 17: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/17.jpg)
1-171-1717
• The Securities and Exchange Commission (SEC), an agency of the U.S. government, has authority over the accounting and financial disclosures for companies whose shares of ownership are traded and sold to the public.
• Many countries outside the United States use generally accepted accounting principles adopted by the International Accounting Standards Board (IASB).
2
![Page 18: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/18.jpg)
1-181-1818
Under the Under the business entity concept, the activities of a the activities of a business are recorded business are recorded separately from the activities separately from the activities of its owners, creditors, or of its owners, creditors, or other businesses.other businesses.
Business Entity Concept
2
![Page 19: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/19.jpg)
1-191-1919
• Easy and cheap to organize.• Resources are limited to those of the
owner.• Used by small businesses.
A proprietorship is owned by one individual.
Business Entity Concept
2
![Page 20: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/20.jpg)
1-201-2020
• Combines the skills and resources of more than one person.
A partnership is similar to a proprietorship except that it is owned by two or more individuals.
Business Entity Concept
2
![Page 21: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/21.jpg)
1-211-2121
• Ownership is divided into shares called stock.• Can obtain large amounts of resources by issuing
stocks.• Used by large businesses.
A corporation is organized under state or federal statutes as a separate legal taxable entity.
Business Entity Concept
2
![Page 22: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/22.jpg)
1-221-2222
Under the cost concept, amounts are initially recorded in the accounting records at their cost or purchase price.
2
Cost Concept
![Page 23: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/23.jpg)
1-231-2323
The objectivity concept requires that the amounts recorded in the accounting records be based on objective evidence.
2
Objectivity Concept
![Page 24: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/24.jpg)
1-241-2424
The unit of measure concept requires that economic data be recorded in dollars.
2
Unit of Measure Concept
![Page 25: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/25.jpg)
1-251-2525
Cost Concept
On August 25, Gallatin Repair Service extended an offer of $125,000 for land that had been priced for sale at $150,000. On September 3, Gallatin Repair Service accepted the seller’s counteroffer of $137,000. On October 20, the land was assessed at a value of $98,000 for property tax purposes. On December 4, Gallatin Repair Service was offered $160,000 for the land by a national retail chain. At what value should the land be recorded in Gallatin Repair Service’s records?
Example Exercise 1-12
1-28
![Page 26: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/26.jpg)
1-261-2626
$137,000. Under the cost concept, the land should be recorded at the cost to Gallatin Repair Service.
For Practice: PE 1-1A, PE 1-1B
1-29
2
Follow My Example 1-1
Example Exercise 1-1 (continued)
![Page 27: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/27.jpg)
1-271-2727
State the accounting equation and define each element of the equation.
3
1-30
![Page 28: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/28.jpg)
1-281-2828
The resources owned by a
business
Assets = Liabilities + Owner’s Equity
The Accounting Equation
3
![Page 29: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/29.jpg)
1-291-2929
The rights of the creditors are
the debts of the business.
Assets = Liabilities + Owner’s Equity
The Accounting Equation
3
![Page 30: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/30.jpg)
1-301-3030
The rights of the owners
Assets = Liabilities + Owner’s Equity
The Accounting Equation
3
![Page 31: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/31.jpg)
31
Accounting Equation
John Joos is the owner and operator of You’re A Star, a motivational consulting business. At the end of its accounting period, December 31, 2009, You’re A Star has assets of $800,000 and liabilities of $350,000. Using the accounting equation, determine the following amounts:
a. Owner’s equity, as of December 31, 2009.
b. Owner’s equity, as of December 31, 2010, assuming that assets increased by $130,000 and liabilities decreased by $25,000 during 2010.
Example Exercise 1-23
1-34
![Page 32: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/32.jpg)
32
3
Example Exercise1-2 continued For Practice: PE 1-2A, PE 1-2B1-35
a. Assets = Liabilities + Owner’s Equity $800,000 = $350,000 + Owner’s Equity
Owner’s Equity = $450,000
Follow My Example 1-2
Example Exercise 1-2 (continued)
b. First, determine the change in Owner’s Equity during 2010 as follows:
Assets = Liabilities + Owner’s Equity $130,000 = –$25,000 + Owner’s Equity
Owner’s Equity = $155,000
Next, add the change in Owner’s Equity on December 31, 2009 to arrive at Owner’s Equity on December 31, 2010, as shown below:
$605,000 = $450,000 + $155,000
![Page 33: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/33.jpg)
1-331-3333
4
Describe and illustrate how business transactions can be recorded in terms of the resulting change in the elements of the accounting equation.
1-36
![Page 34: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/34.jpg)
1-341-3434
A business transaction is an economic event or condition that directly changes an entity’s financial condition or its results of operations.
4
Business Transaction
![Page 35: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/35.jpg)
1-351-3535
On November 1, 2009, Chris Clark deposits $25,000 in a bank account in the name of NetSolutions.
Transaction A
4
![Page 36: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/36.jpg)
1-361-3636
CHRIS CLARK, CAPITAL
25,000 Investment by Chris Clark
CASH
25,000 a. =
Assets Owner’s Equity=
Transaction A (continued)
4
![Page 37: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/37.jpg)
1-371-3737
Transaction B
On November 5, 2009, NetSolutions paid $20,000 for the purchase of land as a future building site.
4
![Page 38: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/38.jpg)
1-381-3838
CASH + LAND
25,000 Bal.
Assets =
=
Bal. 5,000 20,000 25,000
b. –20,000 +20,000
CHRIS CLARK, CAPITAL
25,000
Owner’s Equity
Transaction B (continued)
4
![Page 39: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/39.jpg)
1-391-3939
On November 10, 2009, NetSolutions purchased supplies for $1,350 and agreed to pay the supplier in the near future.
4
Transaction C
![Page 40: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/40.jpg)
1-401-4040
CASH + SUPPLIES + LAND 5,000 20,000 25,000Bal.
Assets =
=
ACCOUNTS CHRIS CLARK, PAYABLE + CAPITAL
Liabilities + Owner’s Equity
Transaction C (continued)
c. +1,350 +1,350
Bal. 5,000 1,350 20,000 1,350 25,000
4
![Page 41: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/41.jpg)
1-411-4141
Beginning with Transaction D the asset section will be shown
first, then the liabilities and owner’s equity will be shown in
the following slide.
4
![Page 42: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/42.jpg)
1-421-4242
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.
Transaction D
4
![Page 43: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/43.jpg)
1-431-4343
CASH + SUPPLIES + LAND 5,000 1,350 20,000 Bal.
Assets
Transaction D (continued)
d. +7,500
Bal. 12,500 1.350 20,000
4
![Page 44: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/44.jpg)
1-441-4444
Transaction D (continued)
ACCOUNTS CHRIS CLARK, FEES PAYABLE + CAPITAL + EARNED 1,350 25,000 Bal.
Liabilities + Owner’s Equity
d. +7,500
Bal. 1,350 25,000 7,500
4
![Page 45: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/45.jpg)
1-451-4545
During the month, NetSolutions spent cash or used up other assets in earning revenue. Assets used in this process of earning revenue are called expenses.
4
Expenses
![Page 46: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/46.jpg)
1-461-4646
On November 30, 2009, NetSolutions paid the following expenses during the month: wages, $2,125; rent, $800; utilities, $450; and miscellaneous, $275.
Transaction E
4
![Page 47: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/47.jpg)
1-471-4747
CASH + SUPPLIES + LAND 12,500 1,350 20,000 Bal.
Assets
Transaction E (continued)
e. –3,650
Bal. 8,850 1.350 20,000
4
![Page 48: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/48.jpg)
1-481-4848
Transaction E (continued)
ACCOUNTS CHRIS CLARK, FEES WAGES RENT UTIL. MISC. PAYABLE + CAPITAL + EARNED – EXP. – EXP. – EXP. – EXP. 1,350 25,000 7,500 Bal.
Liabilities + Owner’s Equity
e. –2,125 –800 –450 –275
Bal. 1,350 25,000 7,500 –2,125 –800 –450 –275
4
![Page 49: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/49.jpg)
1-491-4949
On November 30, 2009, NetSolutions paid creditors on account, $950.
Transaction F
4
![Page 50: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/50.jpg)
1-501-5050
CASH + SUPPLIES + LAND 8,850 1,350 20,000 Bal.
Assets
Transaction F (continued)
f. –950
Bal. 7,900 1.350 20,000
4
![Page 51: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/51.jpg)
1-511-5151
ACCOUNTS CHRIS CLARK, FEES WAGES RENT UTIL. MISC. PAYABLE + CAPITAL + EARNED – EXP. – EXP. – EXP. – EXP. 1,350 25,000 7,500 –2,125 –800 –450 –275 Bal.
Liabilities + Owner’s Equity
f. –950
Bal. 400 25,000 7,500 –2,125 –800 –450 –275
Transaction F (continued)
4
![Page 52: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/52.jpg)
1-521-5252
On November 30, 2009, Chris Clark determined that the cost of supplies on hand at the end of the period was $550.
Transaction G
4
![Page 53: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/53.jpg)
1-531-5353
CASH + SUPPLIES + LAND 7,900 1,350 20,000 Bal.
Assets
Transaction G (continued)
g. –800
Bal. 7,900 550 20,000
4
![Page 54: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/54.jpg)
1-541-5454
ACCOUNTS CHRIS CLARK, FEES WAGES RENT SUP. UTIL. MISC. PAYABLE + CAPITAL + EARNED – EXP. – EXP. – EXP. – EXP. – EXP. 400 25,000 7,500 –2,125 –800 –450 –275
Bal.
Liabilities + Owner’s Equity
g. –800
Bal. 400 25,000 7,500 –2,125 –800 –800 –450 –275
Transaction G (continued)
4
![Page 55: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/55.jpg)
1-551-5555
On November 30, 2009, Chris Clark withdrew $2,000 from NetSolutions for personal use.
Transaction H
4
![Page 56: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/56.jpg)
1-561-5656
CASH + SUPPLIES + LAND 7,900 550 20,000 Bal.
Assets
Transaction H (continued)
h. –2,000
Bal. 5,900 550 20,000
4
![Page 57: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/57.jpg)
1-571-5757
Transaction H (continued)
ACCTS. CLARK, CLARK, FEES WAGES RENT SUP. UTIL. MISC. PAY. + CAPITAL – DRAW. + EARNED – EXP. – EXP. – EXP. – EXP. – EXP. 400 25,000 7,500 –2,125 –800 –800 –450 –275 Bal.
Liabilities + Owner’s Equity
h. –2,000
Bal.400 25,000 –2,000 7,500 –2,125 –800 –800 –450 –275
4
![Page 58: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/58.jpg)
1-581-5858
4
Summary
![Page 59: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/59.jpg)
1-591-5959
4
Exhibit 5 Effects of Transactions on Owner’s Equity
![Page 60: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/60.jpg)
1-601-6060
Transactions
Salvo Delivery Service is owned and operated by Joel Salvo. The following selected transactions were completed by Salvo Delivery Service during February:
1. Received cash from owner as additional investment, $35,000.
2. Paid creditors on account, $1,800.
3. Billed customers for delivery services on account, $11,250.
4. Received cash from customers on account, $6,740.
5. Paid cash to owner for personal use, $1,000.(Continued)
Example Exercise 1-34
1-63
![Page 61: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/61.jpg)
1-611-6161
Indicate the effect of each transaction on the accounting equation elements (Assets, Liabilities, Owner’s Equity, Drawing, Revenue, and Expense) by listing the numbers identifying the transactions, (1) through (5). Also, indicate the specific item within the accounting equation element that is affected. To illustrate, the answer to (1) is shown below.
(1) Asset (Cash) increases by $35,000; Owner’s Equity (Joel Salvo, Capital) increases by $35,000.
Example Exercise 1-3 (continued) 4
1-64
![Page 62: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/62.jpg)
1-621-6262
Example Exercise 1-3 (continued)
(2) Asset (Cash) decreases by $1,800; Liability (Accounts Payable) decreases by $1,800.
(3) Asset (Accounts Receivable) increases by $11,250; Revenue (Delivery Service Fees) increases by $11,250.
(4) Asset (Cash) increases by $6,740; Asset (Accounts Receivable) decreases by $6,740.
(5) Asset (Cash) decreases by $1,000; Drawing (Joel Salvo, Drawing) increases by $1,000.
Follow My Example 1-3
4
For Practice: PE 1-3A, PE 1-3B
1-65
Follow My Example 1-3
![Page 63: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/63.jpg)
1-631-6363
5
Describe the financial statements of a proprietorship and explain how they interrelate.
1-66
![Page 64: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/64.jpg)
1-641-6464
After transactions have been recorded and summarized, reports are prepared for users. The accounting reports providing this information are called financial statements.
5
Financial Statements
![Page 65: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/65.jpg)
1-651-6565
The income statement reports the revenues and expenses for a period of time, based on the matching concept.
5
Income Statement
![Page 66: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/66.jpg)
1-661-6666
The matching concept is applied by matching the expenses with the revenue generated during a period by those expenses.
5
Matching Concept
![Page 67: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/67.jpg)
1-671-6767
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.
5
![Page 68: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/68.jpg)
1-681-6868
Net income is carried to the statement of
owner’s equity.
5
Exhibit 6 Financial Statements for NetSolutions
![Page 69: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/69.jpg)
69
Income Statement
The assets and liabilities of Chick Travel Service at April 30, 2010, the end of the current year, and its revenue and expenses for the year are listed below. The capital of the owner, Adam Cellini, was $80,000 at May 1, 2009, the beginning of the current year.
Accounts payable $ 12,200 Miscellaneous expense $ 12,950Accounts receivable 31,350 Office expense 63,000Cash 53,050 Supplies 3,350Fees earned 263,200 Wages expense 131,700Land 80,000
Prepare an income statement for the current year ended April 30, 2010.
Example Exercise 1-45
1-72
![Page 70: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/70.jpg)
70
CHICK TRAVEL SERVICEINCOME STATEMENT
For the Year Ended April 30, 2010
Fees earned $263,200Expenses:
Wages expense $131,700Office expense 63,000Miscellaneous expense 12,950 Total expenses 207,650
Net income $ 55,550
Example Exercise 1-4 (continued) 5
For Practice: PE 1-4A, PE 1-4B
1-73
Follow My Example 1-3 Follow My Example 1-4
![Page 71: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/71.jpg)
1-711-7171
The statement of owner’s equity reports the changes in the owner’s equity for a period of time.
5
Statement of Owner’s Equity
![Page 72: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/72.jpg)
1-721-7272
From the income statement
To the balance sheet
5
Exhibit 6 Financial Statements for NetSolutions (continued)
![Page 73: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/73.jpg)
73
Statement of Owner’s Equity
Using the data for Chick Travel Service shown in Example Exercise 1-4, prepare a statement of owner’s equity for the current year ended April 30, 2010. Adam Cellini invested an additional $50,000 in the business during the year and withdrew cash of $30,000 for personal use.
Example Exercise 1-55
1-76
![Page 74: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/74.jpg)
74
CHICK TRAVEL SERVICESTATEMENT OF OWNER’S EQUITYFor the Year Ended April 30, 2010
Example Exercise 1-5 continued
Follow My Example 1-5
5
For Practice: PE 1-5A, PE 1-5B
1-77
Adam Cellini, capital, May 1, 2009 $ 80,000 Additional investment by owner during year$ 50,000Net income for the year 55,550
$105,550Less withdrawals 30,000 Increase in owner’s equity 75,550Adam Cellini, capital, April 30, 2010 $155,550
![Page 75: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/75.jpg)
1-751-7575
A balance sheet is a list of the assets, liabilities, and owner’s equity as of a specific date.
5
Balance Sheet
![Page 76: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/76.jpg)
1-761-7676
The account form of a balance sheet lists the assets on the left and the liabilities and owner’s equity on the right—similar to the design of an account.
5
Account Form
![Page 77: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/77.jpg)
1-771-7777
This amount is compared to the net cash flow on the statement of cash flows.
From the statement of owner’s equity
5
Exhibit 6 Financial Statements for NetSolutions (continued)
![Page 78: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/78.jpg)
78
Balance Sheet
Using the data for Chick Travel Service shown in Example Exercises 1-4 and 1-5, prepare the balance sheet as of April 30, 2010.
Example Exercise 1-65
1-81
![Page 79: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/79.jpg)
79
Example Exercise 1-6 (continued) 5
For Practice: PE 1-6A, PE 1-6B
CHICK TRAVEL SERVICEBALANCE SHEET
April 30, 2010 Assets Liabilities
Cash $ 53,050 Accounts payable $ 12,200Accounts receivable 31,350Supplies 3,350 Owner’s EquityLand 80,000 Adam Cellini, capital 155,550Total assets $167,750 Total liab. & owner’s eq. $167,750
1-82
Follow My Example 1-3 Follow My Example 1-6
![Page 80: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/80.jpg)
1-801-8080
A statement of cash flows is a summary of the cash receipts and payments for a specific period of time. It consists of three sections: (1) operating activities, (2) investing activities, and (3) financing activities.
5
Statement of Cash Flows
![Page 81: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/81.jpg)
1-811-8181
This amount should match Cash on the balance sheet.
5
Financial Statements for NetSolutions (continued)Exhibit 6
![Page 82: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/82.jpg)
1-821-8282
The cash flows from operating activities section reports a summary of cash receipts and cash payments from operations.
5
Operating Activities
![Page 83: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/83.jpg)
1-831-8383
The cash flows from investing activities section reports the cash transactions for the acquisition and sale of relatively permanent assets.
5
Investing Activities
![Page 84: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/84.jpg)
1-841-8484
The cash flows from financing activities section reports the cash transactions related to cash investments by the owner, borrowings, and withdrawals by the owner.
5
Financing Activities
![Page 85: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/85.jpg)
85
Statement of Cash Flows
A summary of cash flows for Chick Travel Service for the year ended April 30, 2010, is shown below.
Cash receipts:Cash received from customers $251,000Cash received from additional investment of owner 50,000
Cash payments:Cash paid for expenses 210,000Cash paid for land 80,000Cash paid to owner for personal use 30,000
The cash balance as of May 1, 2009, was $72,050.
Prepare a statement of cash flows for Chick Travel Service for the year ended April 30, 2010.
Example Exercise 1-75
1-88
![Page 86: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/86.jpg)
86
Cash flows from operating activities:Cash received from customers $251,000Deduct cash payments for expenses 210,000Net cash flows from operating activities $ 41,000
Cash flows from investing activities:Cash payments for purchase of land (80,000)
Cash flows from financing activities:Cash received from owner as investment $ 50,000Deduct cash withdrawals by owner 30,000Net cash flows from financing activities 20,000
Net decrease in cash during year $(19,000)Cash as of May 1, 2009 72,050Cash as of April 30, 2010 $ 53,050
Example Exercise 1-7 (continued) 5
1-89
For Practice: PE 1-7A, PE 1-7B
Follow My Example 1-3 Follow My Example 1-7
![Page 87: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/87.jpg)
1-871-8787
• The income statement and the statement of owner’s equity are interrelated.
Net income or net loss appears on both statements.
Interrelationships Among Financial Statements
5
![Page 88: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/88.jpg)
1-881-8888
• The statement of owner’s equity and the balance sheet are interrelated.
The owner’s capital at the end of the period on the statement of owner’s equity also appears on the balance sheet as owner’s capital.
Interrelationships Among Financial Statements
5
![Page 89: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/89.jpg)
1-891-8989
• The balance sheet and the statement of cash flows are interrelated.
The cash reported on the balance sheet is also reported as the end-of-period cash on the statement of cash flows.
Interrelationships Among Financial Statements
5
![Page 90: 1 Introduction to Accounting and Business 1 Principles of Financial Accounting, 11e Reeve Warren Duchac.](https://reader038.fdocuments.net/reader038/viewer/2022102418/56649e425503460f94b345cf/html5/thumbnails/90.jpg)
1-901-9090
Financial Analysis and Interpretation
Ratio of Liabilities to Owner’s Equity =
Total Liabilities
Total Owner’s Equity (or Total
Stockholders’ Equity)For NetSolutions:
Ratio of Liabilities to Owner’s Equity =
$400
$26,050 = 0.015
5