Financial Statements and Accounting Transactions More of C H A P T E R 1 2-1.
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Transcript of Financial Statements and Accounting Transactions More of C H A P T E R 1 2-1.
Financial Statements and Accounting Transactions
More of
C H A P T E R 1
2-1
Quick Review
“Bookkeeping” is another term for “accounting.”A)TrueB)False
2-2
Quick Review
A partnership is a business owned by two or more people.A)TrueB)False
2-3
Quick Review
In the partnership form of business, the owners of a business are called shareholders. A)TrueB)False
2-4
• Provide useful information to help users make decisions.
• The major statements are the:• Income statement• Statement of owner’s equity• Balance sheet• Cash flow statement
2-5
Communicating Through Financial Statements
LO 6
Financial Statements
(LO6)
Balance Sheet(at the
beginning of the period)
Income Statement
Statement of Changes in
Equity
Balance Sheet(at the end of
the period)
Statement of Cash Flows
Point in time Point in time
6
Period of time
• The income statement reports:– Revenues of the organization.– Expenses (costs incurred in earning the revenues).– Net income or loss. (Revenues minus Expenses)
• The income statement covers a period of time.
2-7
Income Statement
LO 6
EARNINGS
Revenues:
Teaching revenue 3,800$
Equipment rental revenue 300
Total revenues 4,100$
Operating Expenses:
Rent expense 1,000$
Salaries expense 700
Total operating expenses 1,700
Net income 2,400$
Vertically Inclined Rock Gym
Income Statement
For Month Ended March 31, 2014Inflows of assetsin exchange forproducts and
servicesprovided tocustomers.
Income Statement
2-8 LO 6
LO 6
Revenues:
Teaching revenue 3,800$
Equipment rental revenue 300
Total revenues 4,100$
Operating Expenses:
Rent expense 1,000$
Salaries expense 700
Total operating expenses 1,700
Net income 2,400$
Vertically Inclined Rock Gym
Income Statement
For Month Ended March 31, 2014
Income Statement
2-9
Costs incurred or the usingup of assets
from generating revenue
Statement of Owner’s Equity
• Reports on changes in equity over a period of time.
• Equity is affected by:– Owner investments and withdrawals– Net income or net losses
• Linked to the income statement
2-10 LO 6
Virgil Klimb, capital, March 1 -$
Add:
Investment by owner $10,000
Net income 2,400 12,400
Total $12,400
Less: Withdrawal by owner 600
Virgil Klimb, capital, March 31 $11,800
Vertically Inclined Rock Gym
Statement of Owner's Equity
For Month Ended March 31, 2014
Statement Of Owner’s Equity
2-11
Covers a period
of time.
From the Income
statement.
LO 6
Balance Sheet
• The balance sheet reports the:• Assets (things we own)• Liabilities (things we borrowed - owe)• Owner’s equity (how much has been contributed)of an organization at a point in time.
• Linked to the Statement of Owner’s Equity.
2-12 LO 6
Cash 8,400$ Accounts payable 200$ Supplies 3,600 Notes payable 6,000 Equipment 6,000 Total liabilities 6,200$
11,800
Total assets 18,000$
Total liabilities and owner's equity 18,000$
Vertically Inclined Rock GymBalance Sheet
March 31, 2014
Virgil Klimb,capital
Assets
Owner's Equity
Liabilities
Balance Sheet
2-13
Properties or economic resources owned by abusiness
LO 6
Cash 8,400$ Accounts payable 200$ Supplies 3,600 Notes payable 6,000 Equipment 6,000 Total liabilities 6,200$
11,800
Total assets 18,000$
Total liabilities and owner's equity 18,000$
Vertically Inclined Rock GymBalance Sheet
March 31, 2014
Virgil Klimb,capital
Assets
Owner's Equity
Liabilities
Balance Sheet
2-14
Debts or Obligations
of the business
LO 6
Cash 8,400$ Accounts payable 200$ Supplies 3,600 Notes payable 6,000 Equipment 6,000 Total liabilities 6,200$
11,800
Total assets 18,000$
Total liabilities and owner's equity 18,000$
Vertically Inclined Rock GymBalance Sheet
March 31, 2014
Virgil Klimb,capital
Assets
Owner's Equity
Liabilities
Balance Sheet
2-15
Owner’s claim on theassets of abusiness
From the Statement Of Owner’s
Equity
LO 6
Quick Check
The balance sheet shows whether or not the firm achieved its primary objective of earning a profit.A)TrueB)False
2-16
Cash Flow Statement
• Reports the sources and uses of cash for a period of time.
• Organized by the company’s major activities:• Operating• Investing• Financing
2-17 LO 6Cash can flow In AND Out!
From the
balance sheet
Cash Flow Statement
2-18 LO 6
Cash flows from operating activities:Cash received from clients $4,100Cash paid for supplies (3,400) Cash paid for rent (1,000) Cash paid to employee (700) Net cash used by operating acitivities ($1,000)
Cash flows from investing activities: 0Cash flows from financing activities:
Investment by owner $10,000Withdrawal by owner (600) Net cash provided by financing activities 9,400
Net increase in cash $8,400Cash balance, January 1 - Cash balance, January 31 $8,400
Vertically Inclined Rock GymCash Flow Statement
For Month Ended March 31, 2014
Financial Statement Differences Based on Type of Organization
2-19
Difference Sole Proprietorship
Partnership Corporation
Equity on the balance sheet belongs to:
Sole owner Partners Shareholders
LO 1
Financial Statement Differences Based on Type of Organization
2-20
Difference Sole Proprietorship
Partnership Corporation
Equity on the balance sheet belongs to:
Sole owner Partners Shareholders
Distributions to owners are called:
Withdrawals Withdrawals Dividends
LO 1
Financial Statement Differences Based on Type of Organization
2-21
Difference Sole Proprietorship
Partnership Corporation
Equity on the balance sheet belongs to:
Sole owner Partners Shareholders
Distributions to owners are called:
Withdrawals Withdrawals Dividends
When managers are also owners, their salaries are:
Not an expense Not an expense An expense
LO 1
Generally Accepted Accounting Principles (GAAP)
• GAAP are rules that make up acceptable accounting practices.
• The primary purpose of GAAP is to make information in financial statements:• Understandable• Relevant• Reliable• Comparable
2-22 LO 5
Generally Accepted Accounting Principles (GAAP)
• Canadian GAAP are being replaced by International Financial Reporting Standards (IFRS).
• The long-term goal is to have all countries using the same set of standards-IFRS.
• Adoption of IFRS will improve comparability of accounting information so users can make more informed decisions.
2-23 LO 5
• Private enterprises are privately owned so they have some different reporting needs than public enterprises.
• ASPE have significant parallels to IFRS but there are some differences.
ASPE
LO 524
GAAP for Public vs. Private Enterprises
LO 5
Publicly Accountable Enterprises (PAEs)
Private Enterprises (PEs)
GAAP to be used
IFRS ASPE or IFRS
25
Business Entity Principle
• Every business is to be accounted for separately from its owner(s) or any other economic entity of the owner.
2-26 LO 5
Cost Principle
• All transactions are recorded based on the actual cash amount received or paid.
• In absence of cash, the cash equivalent amount of the exchange is recorded.
2-27 LO 5
Is it acceptable for managers to use their own estimate of an asset's value when recording the purchase?
Going Concern Principle
• Financial statements reflect the assumption that the business will continue operating instead of being closed or sold.
2-28 LO 5
Monetary Unit Principle
• Transactions are expressed using units of money as the common denominator.
• It is assumed that the monetary unit is stable.
• Adjustments are not made for changes in exchange rates or inflation.
2-29 LO 2
Revenue Recognition Principle
• Revenue is recorded at the time it is earned regardless of whether cash or another asset has been exchanged.
• The amount of revenue to be recorded is measured by the cash plus the cash equivalent of any other assets received or that will be received.
2-30 LO 5
Quick Check!
On May 15, Exe Company received $1,000 cash in advance from a customer for a job to be completed in June. Exe should not record the receipt of the cash until the work is done in June.A) TrueB) False
2-31