Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.
-
Upload
horace-ferguson -
Category
Documents
-
view
212 -
download
0
Transcript of Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.
![Page 1: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/1.jpg)
Chapter One
An Introduction
to Accounting
© 2015 McGraw-Hill Education.
![Page 2: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/2.jpg)
Role of Accounting in Society
Accounting provides
information that is useful in answering
questions about
resource allocation.
Should I invest
money in IBM or
General Motors?
1-2
![Page 3: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/3.jpg)
1-3
![Page 4: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/4.jpg)
1-4
![Page 5: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/5.jpg)
Elements of Financial Statements
1. Assets—Cash, Equipment, Buildings, Land
2. Liabilities
3. Equity
4. Contributed Capital
5. Revenue
6. Expenses
7. Distributions
8. Net Income
9. Gains
10. Losses
Subclassifications of the
elements are frequently called
accounts.Accounts are
reported in the financial
statements.
1-5
![Page 6: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/6.jpg)
Accounting Equation
Claims on the assets are from two sources:
1. Creditors (liabilities)
2. Investors or owners (equity).
1-6
![Page 7: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/7.jpg)
Event 1: RCS (formed on Jan. 1, 2014) acquired cash through $120,000 common stock issue.
1. Increase assets (cash).
2. Increase equity (common stock).
Asset Source Transaction
= Liab. +
Cash + Land = N. Pay + Common
Stock + Retained Earnings Revenue - Expenses =
Net Income Cash Flow
120,000 + n/a = n/a + 120,000 + n/a n/a - n/a = n/a 120,000 FA
Assets Stockholders' Equity
Event 2: RCS acquired $400,000 cash by borrowing from a creditor.
1. Increase assets (cash).
2. Increase liabilities (notes payable).
Asset SourceTransaction
Cash + Land = N. Pay + Common
Stock + Retained Earnings Revenue - Expenses =
Net Income Cash Flow
400,000 + n/a = 400,000 + n/a + n/a n/a - n/a = n/a 400,000 OA
1-7
![Page 8: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/8.jpg)
Event 3: RCS paid $500,000 cash to purchase land.
1. Decrease assets (cash).
2. Decrease equity (selling expenses).
Asset ExchangeTransaction
= Liab. +
Cash + Land = N. Pay. + Common
Stock + Retained Earnings Revenue - Expenses =
Net Income Cash Flow
(500,000) + 500,000 = n/a + n/a + n/a - n/a = n/a (500,000) IA
Assets Stockholders' Equity
Event 4: RCS obtained $85,000 cash by leasing camp sites to customers.
1. Increase assets (cash)
2. Increase stockholders’ equity (revenue).
Asset Source Transaction
= Liab. +
Cash + Land = N. Pay. + Common
Stock + Retained Earnings Revenue - Expenses =
Net Income
Cash Flow
85,000 + n/a = n/a + n/a + 85,000 85,000 - n/a = n/a 85,000 OA
Assets Stockholders' Equity
1-8
![Page 9: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/9.jpg)
Event 5: RCS paid $50,000 cash for operating expenses.
1. Decrease assets (cash).
2. Decrease equity (operating expenses).
Asset UseTransaction
= Liab. +
Cash + Land = N. Pay. + Common
Stock + Retained Earnings Revenue - Expenses =
Net Income Cash Flow
(50,000) + n/a = n/a + n/a + (50,000) n/a - 50,000 = (50,000) (50,000) OA
Assets Stockholders' Equity
1. Decrease assets (cash).
2. Decrease stockholders’ equity (retained earnings).
Asset UseTransaction
= Liab. +
Cash + Land = N. Pay. + Common
Stock + Retained Earnings Revenue - Expenses =
Net Income
Cash Flow
(4,000) + n/a = n/a + n/a + (4,000) n/a - n/a = n/a (4,000) FA
Assets Stockholders' Equity
Event 6: RCS paid $4,000 in cash dividends to its owners.
1-9
![Page 10: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/10.jpg)
Event 7: The land that RCS purchased for $500,000 cash had an appraised value of $525,000 on Dec. 31, 2014.
1. Not Recognized due to Historical Cost concept Non-Transaction
Historical Cost Concept
1-10
![Page 11: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/11.jpg)
Summary of Accounting Events
1-11
![Page 12: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/12.jpg)
Two Views of the The Right Side of the Accounting Equation
Sources of the company’s assets.
Stewardshipmeans to protect and use assets for the benefit of the owners.
Obligations of the company to return
creditor assets.Commitments of the company to investor-
provided assets.
View Two
View One
1-12
![Page 13: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/13.jpg)
Distributions in Business Liquidations
Creditors have Priority.
If there are any assets left over, they are distributed to investors
Going ConcernAssumes that a business is able to continue operations into the
foreseeable future. 1-13
![Page 14: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/14.jpg)
Recap: Types of Transactions
The described transactions have been classified into one of three
categories:Asset Source
Asset Exchange
AssetUse
Increase total assets,
increase total claims
Increase one asset, decrease another
asset
Decrease total assets,
decrease total claims
1-14
![Page 15: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/15.jpg)
Preparing Financial Statements
Net Loss
Accounting Period
Rental revenue (asset increases) 85,000$ Operating expenses (asset decreases) (50,000) Net income 35,000$
Beginning common stock -$ Plus: Common stock issued 120,000 Ending common stock 120,000$ Beginning retained earnings -$ Plus: Net income 35,000 Less: Dividends (4,000) Ending retained earnings 31,000 Total stockholders' equity 151,000$
RUSTIC CAMP SITESIncome Statement
For the Year Ended December 31, 2014
Matching Concept
results when expenses exceed revenues.
Revenues exceeded expenses.Income is
measured for a span of time
called the
{
Revenues are matched to expenses.
1-15
![Page 16: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/16.jpg)
Revenue (asset increases) 85,000$ Operating Expenses (asset decreases) (50,000) Net Income 35,000$
Beginning Common Stock -$ Plus: Common Stock Issued 120,000 Ending Common Stock 120,000$ Beginning Retained Earnings -$ Plus: Net Income 35,000 Less: Dividends (4,000) Ending Retained Earnings 31,000 Total Stockholders' Equity 151,000$
RUSTIC CAMP SITESStatement of Changes in Stockholders' Equity
For the Year Ended December 31, 2014
RUSTIC CAMP SITESIncome Statement
For the Year Ended December 31, 2014
Preparing Financial Statements
1-16
![Page 17: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/17.jpg)
AssetsCash 51,000$ Land 500,000 Total Assets 551,000$
LiabilitiesNotes Payable 400,000$
Stockholders' EquityCommon Stock 120,000$ Retained Earnings 31,000 Total Stockholders' Equity 151,000 Total Liabilities and Stockholders' Equity 551,000$
Balance SheetAs of December 31, 2014
RUSTIC CAMP SITES
Preparing Financial Statements
equal
Assets are
displayed in
order of liquidity.
1-17
![Page 18: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/18.jpg)
Cash Flows from Operating ActivitiesCash Receipts from Revenue 85,000$ Cash Payments for Expenses (50,000)
Net Cash Flow from Operating Activities 35,000$ Cash Flows for Investing ActivitiesCash Payments to Purchase Land (500,000) Cash Flows from Financing ActivitiesCash Receipts from Borrowing Funds 400,000 Cash Receipts from Issuing Common Stock 120,000 Cash Payments for Dividends (4,000) Net Cash Flow from Financing Activities 516,000 Net Increase in Cash 51,000 Plus Beginning Cash Balance - Ending Cash Balance 51,000$
Statement of Cash FlowsFor the Year Ended December 31, 2014
RUSTIC CAMP SITES
Operating
Investing
Financing
Preparing Financial Statements
1-18
![Page 19: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/19.jpg)
The Closing Process
Transfers net income (or loss) and dividends to Retained Earnings.
Establishes zero balances in all
revenue, expense, and dividend accounts.
1-19
![Page 20: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/20.jpg)
Horizontal Financial Statements Model
1-20
![Page 21: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/21.jpg)
Annual Reports
(1)Financial Statements
(2)Notes
(3)Auditor’s Report –Chapter 6
(4)Management’s Discussion and Analysis (MD&A)
Traditionally, large companies have distributed expensive
annual reports with many color photographs.
Increasingly, however, companies are issuing more modest annual reports or are simply distributing their 10-K
reports.
1-21
![Page 22: Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education.](https://reader038.fdocuments.us/reader038/viewer/2022110405/56649ecd5503460f94bda35a/html5/thumbnails/22.jpg)
End of Chapter One
1-22