hho8e ch01 stud

8/3/2019 Hho8e Ch01 Stud

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Chapter 1


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Define accounting vocabulary


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1. Measures business activity

2. Processes data into reports

3. Communicates results to decisionmakers

3Copyright (c) 2009 Prentice Hall. All rights reserved.


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End product of accounting process

Report on business in monetary terms



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Define the users of financial information


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Individuals Businesses Investors

Creditors

Taxing

Authorities



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Financial Accounting

Provides informationfor external decision

makers

Managerial Accounting

Provides informationfor internal decision

makers



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Describe the accounting profession and theorganizations that govern it


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Lucrative career with many opportunities

Certified Public Accountants (CPAs) Pass qualifying exam

Meet education and/or experience requirements



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FASB

SECAICPA

IMA



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Investors & creditors want reliable financialinformation

Companies want to attract investors


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SEC requires companies to have financialstatements examined by CPAs

Recent accounting scandals hurt investorconfidence



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Code of

ProfessionalConduct

Guides CPASin their work

AICPAStandards of

EthicalConduct

Sets

standards forprivateaccountants

IMA



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Identify the different types of businessorganizations


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Proprietorships Partnerships

Corporations

Limited

LiabilityCompanies



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Proprietorship Partnership Corporation LLC

Owners One Two or more Stockholdersusually many

Members

Life ofOrganization

Limited byowners choice

or death

Limited byowners choice

or death

Indefinite Indefinite

Liability ofowners forbusinessdebts

Owner ispersonallyliable

Partners arepersonallyliable

Stockholdersnot personallyliable

Membersare notpersonallyliable



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Delineate the distinguishing characteristics andorganization of a proprietorship


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Separate Legal Entity

No Continuous Life

Unlimited Liability ofOwner



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Unification of Ownershipand Management

Business Taxation

Government Regulation



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Incorporators obtain charter from the state Charter authorizes corporation to:

Issue stock

Conduct business in accordance with state law and thecorporations bylaws

Corporations begins to exist when stock is issued



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Stockholders elect

Board of Directors who hire

Officers of the corporation



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Apply accounting concepts and principles


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Generally Accepted Accounting Principles Goal:

To provide useful information to those making investmentand lending decisions



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Entity

Concept

Reliability Cost

Going

Concern

Monetary

Unit



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Entity Concept

Reliability

Cost



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Going concern

Monetary Unit



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Define and use the accounting equation


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EconomicResources

Claims toEconomicResources

Assets = Liabilities + Owners equity

Copyright (c) 2009 Prentice Hall. All rights reserved.


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Economic resources that have a future benefit



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Liabilities Debts payable to

outsiders

Owners equity Owners claims to the

assets of the business

In a proprietorship

owners equity



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Assets = Liabilities + Owners equity



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Capital

+ Net income

- Withdrawals

Revenues

- Expenses



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Amounts earned by delivering goods or servicesto customers



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Outflows of assets or increasing liabilities in thecourse of delivering goods or services tocustomers



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Assets Liabilities Ownersequity

Nice Cuts $ ? $25,000 $43,000

Love DryCleaners

85,000 ? 54,000

Hudson Giftand Cards

102,000 49,000 ?

35

?

?

?


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Assets Liabilities Owners

equity

Nice Cuts $ ? $25,000 $43,000

Love DryCleaners

85,000 ? 54,000

Hudson Giftand Cards

102,000 49,000 ?

36

$68,000

31,000

53,000


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Depict accounting for business transactions


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An event that affects the financial position of aparticular entity

Can be recorded reliably

Every transaction impacts at least two items

The accounting equation balances before andafter each transaction



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Assets Liabilities Owners Equity

Date Cash

Accounts

receivable Supplies Land

Accounts

payable

Marilyn Mansion,

Capital

Bal 2,500 1,500 0 13,000 4,000 13,000

Assets = $ ?Liabilities & Equity =

$ ?



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Date Cash

Accounts


Accounts

payable

Marilyn Mansion,

Capital

Bal 2,500 1,500 - 13,000 4,000 13,000

(a) 10,000 10,000

Bal 12,500 1,500 - 13,000 4,000 23,000

Assets = $ ? Liabilities & Equity = $?



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Date Cash

Accounts


Accounts

payable

Marilyn Mansion,

Capital

Bal 12,500 1,500 - 13,000 4,000 23,000(b) 1,100 1,100

Bal 13,600 1,500 - 13,000 4,000 24,100


$ ?



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Date Cash

Accounts


Accounts

payable

Marilyn Mansion,

Capital

Bal 13,600 1,500 - 13,000 4,000 24,100

(c) (4,000) (4,000)

Bal 9,600 1,500 - 13,000 0 24,100


$ ?



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Date Cash

Accounts


Accounts

payable

Marilyn Mansion,

Capital

Bal 9,600 1,500 - 13,000 24,100

(d) 700 700

Bal 9,600 1,500 700 13,000 700 24,100


$ ?



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Date Cash

Accounts


Accounts

payable

Marilyn Mansion,

Capital

Bal 9,600 1,500 700 13,000 700 24,100

(e) 600 (600)

Bal 10,200 900 700 13,000 700 24,100


$ ?



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Date Cash

Accounts


Accounts

payable

Marilyn Mansion,

Capital

Bal 10,200 900 700 13,000 700 24,100

(f) 1,700 1,700

Bal 11,900 900 700 13,000 700 25,800


$ ?



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Date Cash

Accounts


Accounts

payable

Marilyn Mansion,

Capital

Bal 11,900 900 700 13,000 700 25,800

(g) 4,300 4,300

Bal 11,900 5,200 700 13,000 700 30,100


$ ?



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Date CashAccounts

receivable Supplies LandAccountspayable

Marilyn Mansion,Capital

Bal 11,900 5,200 700 13,000 700 30,100

(h) (1,000) (1,000)

(300) (300)

Bal 10,600 5,200 700 13,000 700 28,800


$ ?



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Date Cash

Accounts


Accounts

payable

Marilyn Mansion,

Capital

Bal 10,600 5,200 700 13,000 700 28,800

(i) 100 (100)

Bal 10,700 5,200 600 13,000 700 28,800

Assets = $ ?Liabilities & Equity = $

?



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Date Cash

Accounts


Accounts

payable

Marilyn Mansion,

Capital

Bal 10,700 5,200 600 13,000 700 28,800

(j) (2,200) (2,200)

Bal 8,500 5,200 600 13,000 700 26,600


$ ?



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Explain and prepare financial statements


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IncomeStatement

BalanceSheet

Statement

of OwnersEquity

Statement

of CashFlows



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Reports on profitability of business

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Revenues minus Expenses

Net income

equals



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Summary of changes in owners capital during aspecific period

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Beginning Capital

Plus: Net income (or minus net loss)

Less: Withdrawals

Equals: Ending Capital



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Reports the entitys assets, liabilities, and ownersequity as of a specific date

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Balance Sheet

Equity

LiabilitiesAssets



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Reports cash receipts and cash payments duringa period



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Goth Inc.

Income Statement

Month ended September 30, 2011

Revenue:

Service revenue $5,400

Expenses:

Rent expense $1,000

Advertising expense 300

Total expenses 1,300

Net income $4,100



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Copyright (c) 2009 Prentice Hall. All rights reserved. 57

Marilyn Mansion, Capital, September 1, 2011 13,000$

Add: Investments by owner 11,700Net income 4,100

28,800$

Less: Withdrawals (2,200)

Marilyn Mansion, Capital, September 30, 2011 26,600$

Month ended September 30, 2011

Goth Inc.Statement of Owner's Equity


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Goth Inc.Balance Sheet

September 30, 2011

Assets Liabilities

Cash $8,500 Accounts payable $ 700

Accounts receivable 5,200

Supplies 600 Owners Equity

Land 13,000 Marilyn Mansion, Capital 26,600

Total assets 27,300 Total liabilities & owners equity 27,300



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Use financial statements to evaluate businessperformance


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Balance Sheet

Assets = Liabilities + Equity

Statement of Owners Equity

Increased by Net Income Decreased by Withdrawals

Income Statement

Revenues - Expenses = Net Income



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IncomeStatement

Demonstratesprofitability

Statement ofOwners Equity

Showschanges in

Capital

Balance Sheet

Displaysfinancialposition



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