01 accounting principles

8/12/2019 01 Accounting Principles

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01ACCOUNTING

PRINCIPLES

CHE40: Engineering Economy

Engr. Elisa G. Eleazar


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Outline

Accounting Fundamentals

Accounts

Financial Statements

Financial Ratios

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Accounting

Principles


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Learning Objectives

Identify and classify the different

accounts.

Prepare financial reports.

Calculate financial ratios.

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Accounting

Principles


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Accounting Procedure

recording of financial events related to the

investment determination of financial performance

Objectives of Accounting Procedure

to determine the cost of products or services

to provide a rational basis for pricing goods orservices

to provide means for controlling expenditures

to provide information on which operatingdecisions may be based and the results evaluated

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Accounting

Principles


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Accounts

Asset Accounts Liability Accounts Owners Equity

AccountsCash Short-term debt Capital stock

Receivables Payables Retained earnings

Inventories Long-term debt

Equipment

Buildings

Land

SuppliesPrepaid Expenses

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Accounting

Principles


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Accounts

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Accounting

Principles

Assets - things of monetary value that the

organization possessesCurrent Assets assets that may

reasonably be expected to be realizedwithin a year through normal operations

Cash anymedium of

exchange that abank will accept

at face value

AccountsReceivablesclaims against

debtors

Prepaid Expenses supplies on hand

and advancepayments of

expenses

Plant/FixedAssets of

a permanentor relativelyfixed nature


7/27Accounts

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Accounting

Principles

Liabilities debts owed tooutsiders

Current Liabilitiesdue within a short time

(usually one year)

Long-term / FixedLiabilities not due for acomparatively long time


8/27Accounts

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Accounting

Principles

Capital ownersequity in the

business

Revenue gross

increase in capitaldue to businessactivities

Expenses costsconsumed in the

process


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Accounting

Principles

Cash Flow Statementshows the cash

transactions of anenterprise for a given

period of time

Income Statementshows the profits or

losses of an enterprisefor a given period of

time

Statement of RetainedEarnings identifieschanges in retainedearnings from one

accounting period to thenext

Balance Sheet showsthe financial position or

condition of anenterprise as of a given

date



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Accounting

Principles

Source/Author: David M. Cottrel

Balance Sheet 12/31/X0

Cash $ 80,000

Other 4,550,000Total $4,630,000

Liabilities $2,970,000Cap. Stock 900,000R/E 760,000Total $4,630,000

Revenues $12,443,000Expenses 11,578,400Net Income $ 864,600

Income Statement

Cash $ 110,000Other 4,975,000Total $5,085,000

Liabilities $2,860,400Stock 1,000,000R/E 1,224,600Total $5,085,000

Cash Flow Statement

Cash--Op. Act. $ 973,000Cash--Inv. Act. (1,188,900)

Cash--Fin. Act. 245,000Net Increase $ 30,000

Beg. Cash 80,000End. Cash $ 110,000

Statement of

Retained Earnings

R/E 12/31/X0 $ 760,000

Net Income 864,600Dividends (400,000)R/E 12/31/X1 $1,224,600

Balance Sheet 12/31/X1



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Accounting

Principles

Presented are the amounts of Servpro Corporations assets andliabilities during the end of the current year, and of its revenuesand expenses for the year ended. Servpro had capital stock of$350,000 and retained earnings of $250,000 at the beginning ofthe current year. During the current year, the corporation paid

cash dividends of $150,000.Accounts Payable $145,000Accounts Receivable 224,200Advertising Expense 57,600Cash 112,900

Insurance Expense 7,500Land 520,000Miscellaneous Expense 31,500Notes Payable 75,000Prepaid Insurance 3,750



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Accounting

Principles

Rent Expense $111,000Salaries Payable 10,000Salary Expense 402,000Sales 1,054,950Supplies 24,150

Supplies Expense 18,350Taxes Expense 105,400Utilities Expense 116,600

Prepare the financial statements for Servpro Corporation.



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Accounting

Principles

Elizabeth Jarme established a sole proprietorship to be known asJarme Decorators, on August 16 of the current year. During theremainder of the month she completed the following businesstransactions.

a) Transferred cash from a personal bank account to anaccount to be used for the business, $30,000

b) Paid rent, $2,250c) Purchased supplies for cash, $1,250d) Purchased office equipment on account, $4,000e) Purchased a used truck for $25,000, paying $10,000 cash

and giving a note payable for the remainderf) Received cash for job completed, $3,375g) Paid wages, $2,000h) Paid premiums on property and casualty insurance, $1,875i) Paid creditor, $4,000



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Accounting

Principles

j) Purchased supplies on account, $475k) Recorded sales on account and sent invoices to

customers, $22,750l) Received an invoice for truck expenses, $675m) Received cash for job completed; this sale had not

been recorded previously, $3,600n) Paid utilities expense, $1,290o) Paid miscellaneous expense, $310p) Received cash from customers on account, $12,500

q) Paid wages, $2,375r) Withdrew cash fro personal use, $5,000

Prepare the financial statements for Jarme Decorators.



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Accounting

Principles

Young Dry Cleaners is owned and operated by R.C. Young.The actual work of dry cleaning is done by anothercompany at wholesale rates. The assets and liabilities ofthe business on April 1 of the current year are as follows:

Cash $28,000

Accounts receivable $9,000Supplies $2,200Land $75,000

Accounts payable $10,400

Business transactions during April are summarized on thenext slide. Prepare the financial statements for Young DryCleaners.



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Accounting

Principles

a) Paid rent for the month - $7,000b) Received cash from customers for sales - $37,500c) Paid creditors on account - $9,600d) Purchased supplies on account - $1,750e) Charged customers for dry cleaning sales on

account - $18,250f) Received monthly invoice for dry cleaning expense

on account - $19,150g) Received cash from customers on account -

$15,950h) Determined the cost of supplies used - $950i) Paid wages - $9,900; truck expense - $3,350;

utilities - $1,750; miscellaneous expense - $1,900



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Accounting

Principles

Presented below are the amounts (in $) of LaneCorporations assets and liabilities on January 31, 2009.

Lane Corporation had a retained earnings of $150,000 atthe beginning of the cycle.

Accounts Payable 12,050Accounts Receivable 194,850Cash 104,200Supplies 12,250

Land 375,000Prepaid Insurance 14,500Notes Payable 50,000



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Accounting

Principles

Business transactions from February 1, 2009 to January 31,2010 are summarized below:a. Paid advertising expenses on account 36,250b. Received cash from customers 972,250c. Paid creditors (operational) 6,050

d. Charged customers for service on account 98,500e. Paid cash for miscellaneous expenses 24,800f. Received cash from customers account 94,850g. Paid the following expenses

i. Salary 401,000

ii. Rent 14,500iii. Taxes 12,300iv. Utilities 56,200



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Accounting

Principles

h. Determined cost of supplies used 8,400i. Paid notes (investment) 50,000

j. Insurance that Expired 6,500k. Paid dividends 200,000


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Financial Ratios

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Accounting

Principles

Ratio Interpretation Calculation

LiquidityRatios

ability to meetcurrentobligations

ability to meetcurrentobligations usingreadilyconvertibleassets

sliabilitiecurrentassetscurrentRatioCurrent

sliabilitiecurrent

assetsquick

RatioTestAcid

sinventorieassetscurrentassetsquick *


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Financial Ratios

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Accounting

Principles


Solvency /LeverageRatios

ability to meetlong runobligations; howthe organizationis financed and

the associatedrisk

EquitiesTotal

sLiabilitieTotalRatioEquitytoDebt

AssetsTotal

sLiabilitieTotalRatioAssetstoDebt


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Financial Ratios

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Accounting

Principles


AssetManagement /

ActivityRatio

efficiency inusing assets togeneraterevenues

AssetsTotal

SalesRatioTurnoverAssets

AssetsTotal

EquityTotalRatioEquity


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Financial Ratios

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Accounting

Principles


ProfitabilityRatios

rate of profitsalesincomenetSalesonturn Re

equitytotal

incomenet

Equityonturn Re


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Outline


Accounts


Financial Ratios

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Accounting

Principles


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References

Sullivan, W., Wicks, E. and Luxhoj, J.,Engineering Economy, 12th ed, USA:

Pearson Education, Inc., 2003

Blank, L. and Tarquin, A., Engineering

Economy, 4th ed, Singapore: McGraw-Hill Book Co, 1998

Eschenbach, T., Engineering EconomyApplying Theory to Practice, USA: 1995

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CostCo

nceptsandDesignE

conomics


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Outline


Accounts


Financial Ratios

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Accounting

Principles


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ACCOUNTING

PRINCIPLES

CHE40: Engineering Economy

Engr. Elisa G. Eleazar

01 accounting principles

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