hft 2401 chapter 1 introduction to accounting. accounting a means to an end provides answers to...
TRANSCRIPT
![Page 1: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/1.jpg)
HFT 2401
Chapter 1
Introduction to Accounting
![Page 2: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/2.jpg)
AccountingA Means to an End
Provides answers to questions How much cash do we have What was our payroll cost When did we buy a piece of equipment & at what
cost What is our food cost What is our revenue What are our expenses What did we keep (net income)
![Page 3: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/3.jpg)
American Accounting Association defines accounting as “The process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by users of that information”
![Page 4: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/4.jpg)
The Accounting Process
1) Observe events in order to identify the events that are of a financial nature – monetary terms
2) Requires the recording, classifying, and summarizing these events.
3) Produces various financial statements for internal & external users.
4) Communication
![Page 5: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/5.jpg)
Bookkeeping vs. Accounting
Bookkeeping – records & classifies transactions
Accounting – summarizes and interprets
0
50
100
1st Qtr 2nd Qtr 3rd Qtr 4th Qtr
EastWestNorth
![Page 6: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/6.jpg)
Branches of Accounting
Financial Accounting – Revenues, expenses, assets & liabilities
Cost Accounting – Record, classify, allocate & report current & prospective costs. Used mainly in manufacturing
Managerial Accounting – Analyzes & provides information to management to enhance controls
![Page 7: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/7.jpg)
Branches of Accounting
Tax Accounting – Prepare & file tax returns
Auditing – Reviews and evaluates documents, records and control systems
Accounting Systems – Information systems
![Page 8: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/8.jpg)
Organizations that Influence Accounting
AICPA
FASB
SEC
IRS
HFTP
![Page 9: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/9.jpg)
Forms of Business Organizations
Sole Proprietorship
Partnerships
Limited Partnerships
Limited Liability Companies (LLC)
Corporations
![Page 10: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/10.jpg)
Sole Proprietorship
Easiest to organize / dissolve
Legally not a separate business – liability issues
It is separate for accounting purposes, however
Owner not paid a salary or wage - withdrawals
![Page 11: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/11.jpg)
Partnerships
Two or more people joined together in a non-corporate manner for conducting business. Can use a written or oral agreement
![Page 12: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/12.jpg)
Partnerships
Advantages Greater financial
strength Does not pay taxes Shares liability Greater
management strength
Disadvantages Partners are taxed on
profits regardless of cash distribution
Limits decision making process
Unlimited legal liability
![Page 13: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/13.jpg)
Limited Partnerships
Offers liability protection to limited partners General Partner(s) – responsible for debts of the
partnership Limited Partner(s) – may not actively participate
in the day to day operations of the business Agreement must be written Limited partners liability is limited to the amount of
their investment
![Page 14: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/14.jpg)
Corporations
A legal entity created by a state or other political authority
Characteristics An exclusive name Continued existence independent of
stockholders Paid in capital represented by shares of stock Overall control vested in its directors
![Page 15: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/15.jpg)
Corporations
Advantages Shareholders liability limited
to amount of investment Owners are taxed on
distributed profits (dividends) Employee equity participation
(ESOP) Lower tax rates Corporation continues on in
perpetuity
Disadvantages Double taxation Ownership control
![Page 16: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/16.jpg)
Other Forms Of Business Organization
S-Corp Eliminates
double taxation Limited to 75
shareholders Only one class
of stock Shareholders
pay taxes
Limited Liability Company (LLC) May have unlimited
number of owners May have a single
owner Not restricted to one
class of stock
![Page 17: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/17.jpg)
Principles of Accounting
Cost Business Entity Continuity of the Business Unit Unit of Measurement Objective Evidence Full Disclosure Consistency Matching Conservatism Materiality
![Page 18: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/18.jpg)
States that when a transaction is recorded, the transaction price (cost) establishes the accounting value.
Cost Principle
![Page 19: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/19.jpg)
Statements are based on the concept that each business maintains its own accounts, & that these accounts are separate from other interests of the owners.
Business Entity
![Page 20: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/20.jpg)
The assumption that the business will continue indefinitely
Continuity of the Business Unit
![Page 21: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/21.jpg)
Unit of Measurement
All transactions are expressed in monetary terms
![Page 22: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/22.jpg)
Accounting records are based on objective evidence ( invoices, checks, cash register receipts)
Objective Evidence
![Page 23: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/23.jpg)
Financial statements must provide all information pertinent to interpretation of the financial statements.
Full Disclosure
![Page 24: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/24.jpg)
The same accounting method from time period to time period.
Consistency
![Page 25: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/25.jpg)
Match revenues with expensesCash versus accrual.
Matching
![Page 26: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/26.jpg)
Recognize expenses as soon as possible, but delay recognition of revenues until they are sure.
Also, Value Inventory, Investments, PPE at the lower of Original Cost or Current Market Value.
Conservatism
![Page 27: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/27.jpg)
Events or information must be accounted for if they make a difference to the readers of the financial statements.
Materiality
![Page 28: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/28.jpg)
Overview of Financial Statements
Balance Sheet
Income Statement
Statement of Cash Flows
![Page 29: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/29.jpg)
Fundamentals of Accounting
Balance Sheet Assets (Things Owned)
= Liabilities ( Obligations )+ Equity ( Residual Claims on Assets )
![Page 30: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/30.jpg)
Fundamentals of Accounting
Income StatementRevenues
- Expenses= Net Income (Loss)
Temporary Accounts are Netted and Closed to Equity (retained earnings)
![Page 31: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/31.jpg)
Fundamental Equation
Assets = Liabilities + Owners Equity
Assets = Liabilities + Permanent OE + Temporary OE
Assets = Liabilities + Permanent OE
+ Revenue - Expenses
![Page 32: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/32.jpg)
Cash vs Accrual
Cash Basis Accounting Recognize revenue or expense when cash
received or disbursed
Accrual Basis Accounting Recognize revenue when earned Recognize expense when incurred
![Page 33: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/33.jpg)
Assets
Resources owned by a business Common characteristic – the capacity to
provide future benefit or service
Use for the purpose production, consumption and exchange of goods or services
Future economic benefits results in cash inflows
![Page 34: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/34.jpg)
Liabilities
Claims against assets Creditors Existing debts and obligations
Accounts payable Notes payable Wages payable Sales, Real Estate and Income Taxes payable
![Page 35: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/35.jpg)
Equity
Claims of the owners on the assets Corporations
Paid in capital Retained earnings Revenues Expenses Dividends
Revenues > Expenses = Net IncomeRevenues < Expenses = (Net Loss)
![Page 36: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/36.jpg)
Transactions
Transactions defined: economic events of the enterprise recorded
Each transaction may be internal or external Each transaction must identify the specific items
affected and the net change on each item Each transaction has a dual effect on the
accounting equation The two sides of the accounting equation must
always equal
![Page 37: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/37.jpg)
Effects of Transactions on the Accounting Equation
Increase in an asset Decrease in another asset Increase in a liability Increase in owners equity
Increase in a liability Increase in an asset Decrease in another liability Decrease in owners equity
Increase in owners equity Increase in an asset Decrease in liability
![Page 38: HFT 2401 Chapter 1 Introduction to Accounting. Accounting A Means to an End Provides answers to questions How much cash do we have What was our](https://reader035.vdocument.in/reader035/viewer/2022062517/56649e7f5503460f94b83bce/html5/thumbnails/38.jpg)
Homework Assignment
Problem 1 Problem 4 Problem 5 Problem 9 Problem 12