Chapter 1 Accounting
Chapter 1 Accounting
Chapter 1 Accounting
MGT-1o3
Course Teacher
Md. Rubel
Assistant Professor
Department of management Studies
1-1
Introduction Episode/Session
3
1-3
Discussion about the course outline
4
1-4
1 Accounting in Action
Learning Objectives
1 Identify the activities and users associated with accounting.
records, and
communicates
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Three Activities
Illustration 1-1
The activities of the accounting process
1-7 LO 1
Who Uses Accounting Data
INTERNAL
USERS
Illustration 1-2
Questions that internal
users ask
1-8 LO 1
Who Uses Accounting Data
EXTERNAL
USERS
Illustration 1-3
Questions that external
users ask
1-9 LO 1
DO IT! 1 Basic Concepts
4. The two most common types of external users are investors and
company officers.
1-10 LO 1
LEARNING Explain the building blocks of accounting:
2
OBJECTIVE ethics, principles, and assumptions.
1-11 LO 2
Ethics in Financial Reporting
Question
Ethics are the standards of conduct by which one's actions
are judged as:
a. right or wrong.
b. honest or dishonest.
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Generally Accepted Accounting Principles
Financial Statements
Various users Balance Sheet
need financial Income Statement
Statement of Owner's Equity
information Statement of Cash Flows
Note Disclosure
1-13 LO 2
Generally Accepted Accounting Principles
Standard-setting bodies:
► Financial Accounting Standards
Board (FASB)
► Securities and Exchange
Commission (SEC)
► International Accounting
Standards Board (IASB)
1-14 LO 2
Measurement Principles
1-15 LO 2
Assumptions
1-16 LO 2
Forms of Business Ownership
1-17 LO 2
Assumptions
Question
Combining the activities of Kellogg and General Mills
would violate the
a. cost principle.
d. ethics principle.
1-18 LO 2
Assumptions
Question
A business organized as a separate legal entity under state
law having ownership divided into shares of stock is a
a. proprietorship.
b. partnership.
c. corporation.
d. sole proprietorship.
1-19 LO 2
LEARNING State the accounting equation, and define
3
OBJECTIVE its components.
Owner's
Assets = Liabilities +
Equity
1-20 LO 3
Basic Accounting Equation
Owner's
Assets = Liabilities +
Equity
Assets
Resources a business owns.
Provide future services or benefits.
Cash, Supplies, Equipment, etc.
1-21 LO 3
Basic Accounting Equation
Owner's
Assets = Liabilities +
Equity
Liabilities
Claims against assets (debts and obligations).
Creditors (party to whom money is owed).
Accounts Payable, Notes Payable, Salaries and Wages
Payable, etc.
1-22 LO 3
Basic Accounting Equation
Owner's
Assets = Liabilities +
Equity
Owner's Equity
Ownership claim on total assets.
Referred to as residual equity.
Investment by owners and revenues (+)
Drawings and expenses (-).
1-23 LO 3
Owner’s Equity Illustration 1-6
Expanded accounting
equation
1-24 LO 3
Owner’s Equity Illustration 1-6
Expanded accounting
equation
1-25 LO 3
DO IT! 3 Owner's Equity Effects
1-27 LO 4
Transaction Analysis
Record/
Don’t Record
1-28 LO 4
Transaction Analysis
1. +15,000 +15,000
Illustration 1-8
Tabular summary of
Softbyte transactions
1-29 LO 4
TRANSACTION 2. PURCHASE OF EQUIPMENT FOR CASH Softbyte
Inc. purchases computer equipment for $7,000 cash.
Illustration 1-8
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300
1-30 LO 4
TRANSACTION 3. PURCHASE OF SUPPLIES ON CREDIT Softbyte Inc.
purchases for $1,600 headsets and other accessories expected to last
several months. The supplier allows Softbyte to pay this bill in October.
Illustration 1-8 Assets = Liabilities + Owner's Equity
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300
1-31 LO 4
TRANSACTION 4. SERVICES PERFORMED FOR CASH Softbyte Inc.
receives $1,200 cash from customers for app development services it has
performed. Illustration 1-8
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300
1-32 LO 4
TRANSACTION 5. PURCHASE OF ADVERTISING ON CREDIT Softbyte
Inc. receives a bill for $250 from the Daily News for advertising on its
online website but postpones payment until a later date. Illustration 1-8
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300
1-33 LO 4
TRANSACTION 6. SERVICES PERFORMED FOR CASH AND CREDIT.
Softbyte performs $3,500 of services. The company receives cash of
$1,500 from customers, and it bills the balance of $2,000 on account.
Illustration 1-8 Assets = Liabilities + Owner's Equity
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300
1-34 LO 4
TRANSACTION 7. PAYMENT OF EXPENSES Softbyte Inc. pays the
following expenses in cash for September: office rent $600, salaries and
wages of employees $900, and utilities $200. Illustration 1-8
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300
1-35 LO 4
TRANSACTION 8. PAYMENT OF ACCOUNTS PAYABLE Softbyte Inc.
pays its $250 Daily News bill in cash. The company previously (in
Transaction 5) recorded the bill as an increase in Accounts Payable.
Illustration 1-8 Assets = Liabilities + Owner's Equity
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300
1-36 LO 4
TRANSACTION 9. RECEIPT OF CASH ON ACCOUNT Softbyte Inc.
receives $600 in cash from customers who had been billed for services
(in Transaction 6). Illustration 1-8
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $4,700 - $1,950 - $1,300
1-37 LO 4
TRANSACTION 10. WITHDRAWAL OF CASH BY OWNER Ray Neal
withdraws $1,300 in cash in cash from the business for his personal use.
Illustration 1-8 Assets = Liabilities + Owner's Equity
1. +15,000 +15,000
2. -7,000 +7,000
3. +1,600 +1,600
4. +1,200 +1,200
5. +250 -250
6. +1,500 +2,000 +3,500
7. -1,700 -600
-900
-200
8. -250 -250
9. +600 -600
10. -1,300 -1,300
$8,050 + $1,400 + $1,600 + $7,000 = $1,600 + $15,000 + $1,300 - $4,700 - $1,950
1-39 LO 4
DO IT! 4 Tabular Analysis
1-40 LO 4
DO IT! 4 Tabular Analysis
1. +25,000 +25,000
2. +7,000 +7,000
3. +8,000 +8,000
4. -850 -850
5. -1,000 -1,000
$18,050 $18,050
1-41 LO 4
DO IT! 4 Tabular Analysis
1. +25,000 +25,000
2. +7,000 +7,000
3. +8,000 +8,000
4. -850 -850
5. -1,000 -1,000
$18,050 $18,050
1-42 LO 4
DO IT! 4 Tabular Analysis
1. +25,000 +25,000
2. +7,000 +7,000
3. +8,000 +8,000
4. -850 -850
5. -1,000 -1,000
$18,050 $18,050
1-43 LO 4
DO IT! 4 Tabular Analysis
1. +25,000 +25,000
2. +7,000 +7,000
3. +8,000 +8,000
4. -850 -850
5. -1,000 -1,000
$18,050 $18,050
1-44 LO 4
DO IT! 4 Tabular Analysis
1. +25,000 +25,000
2. +7,000 +7,000
3. +8,000 +8,000
4. -850 -850
5. -1,000 -1,000
$38,150 $38,150
1-45 LO 4
LEARNING Describe the four financial statements
5
OBJECTIVE and how they are prepared.
Owner’s Statement
Income Balance
Equity of Cash
Statement Sheet
Statement Flows
1-46 LO 5
Net income is needed to determine the
Financial Statements ending balance in owner’s equity.
SOFTBYTE
Income Statement
For the Month Ended September 30, 2017
Illustration 1-9
Financial statements and
their interrelationships
SOFTBYTE
Owner’s Equity Statement
For the Month Ended September 30, 2017
1-47 LO 5
SOFTBYTE
Owner’s Equity Statement
For the Month Ended September 30, 2017
Illustration 1-9
The ending
balance in SOFTBYTE
owner’s equity Balance Sheet
is needed in September 30, 2017
preparing the
balance sheet.
Illustration 1-9
Financial statements
and their
interrelationships
1-48
SOFTBYTE
Financial Balance Sheet
September 30, 2017
Statements
Illustration 1-9
Financial statements
and their
interrelationships
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Income Statement
1-50 LO 5
Owner’s Equity Statement
1-51 LO 5
Balance Sheet
1-52 LO 5
Statement of Cash Flows
1-53 LO 5
Financial Statements
Question
Which of the following financial statements is prepared as of
a specific date?
a. Balance sheet.
b. Income statement.
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DO IT! 5 Financial Statement Items
1-55 LO 5
DO IT! 5 Financial Statement Items
1-56 LO 5
DO IT! 5 Financial Statement Items
1-57 LO 5
DO IT! 5 Financial Statement Items
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LEARNING APPENDIX 1A: Explain the career
6
OBJECTIVE opportunities in accounting.
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Problem-1
E1-6 Selected transactions for Green Valley Lawn Care Company are
listed below.
1. Made cash investment to start business.
2. Paid monthly rent.
3. Purchased equipment on account.
4. Billed customers for services performed.
5. Withdrew cash for owner’s personal use.
6. Received cash from customers billed in (4).
7. Incurred advertising expense on account.
8. Purchased additional equipment for cash.
9. Received cash from customers when service was performed.
Instructions: List the numbers of the above transactions and describe
the effect of each transaction on
assets, liabilities, and owner’s equity. For example, the first answer is:
(1) Increase in assets
1-60 and increase in owner’s equity.
Problem 2
Gordon Beckham started his own delivery service, Beckham
Deliveries, on June 1, 2012.
The following transactions occurred during the month of June.
June 1. Gordon invested $10,000 cash in the business.
2. Purchased a used van for deliveries for $12,000. Gordon
paid $2,000 cash and signed a note payable for the remaining
balance.
3. Paid $500 for office rent for the month.
5. Performed $4,400 of services on account.
9. Withdrew $200 cash for personal use.
12. Purchased supplies for $150 on account.
15. Received a cash payment of $1,250 for services provided
on June 5.
17. Purchased gasoline for $200 on account.
1-61 20. Received a cash payment of $1,300 for services provided.
Problem-2 Continue
23. Made a cash payment of $600 on the note payable.
26. Paid $250 for utilities.
29. Paid for the gasoline purchased on account on June
17.
30. Paid $1,000 for employee salaries.
Instructions
(a) Show the effects of the previous transactions on the
accounting equation
(b) Prepare an income statement and an owner’s equity
statement for the month of June.
(c) Prepare a balance sheet at June 30, 2012.
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Problem-3
Juanita Pierre opened a law office, on July 1, 2012. On July 31,
the balance sheet showed Cash $5,000, Accounts Receivable
$1,500, Supplies $500, Equipment $6,000, Accounts Payable
$4,200, and Owner’s Capital $8,800. During August, the
following transactions occurred.
1. Collected $1,200 of accounts receivable.
2. Paid $2,800 cash on accounts payable.
3. Earned revenue of $7,500 of which $3,000 is collected in cash
and the balance is due in September.
4. Purchased additional office equipment for $2,000, paying
$400 in cash and the balance on account.
5. Paid salaries $2,500, rent for August $900, and advertising
expenses $400.
6. Withdrew $700 in cash for personal use.
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Problem-3 Continue
7. Received $2,000 from Standard Federal Bank—money
borrowed on a note payable.
8. Incurred utility expenses for month on account $270.
Instructions
(a)Prepare a tabular analysis of the August transactions beginning
with July 31 balances.
(b) Prepare an income statement for August, an owner’s equity
statement for August, and a balance sheet at August 31.
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