Survey 5e ch1_lecture
description
Transcript of Survey 5e ch1_lecture
![Page 1: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/1.jpg)
Chapter 1Chapter 1Chapter 1Chapter 1
The Role of Accounting in The Role of Accounting in BusinessBusiness
The Role of Accounting in The Role of Accounting in BusinessBusiness
![Page 2: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/2.jpg)
Learning ObjectivesLearning Objectives
After studying this chapter, you should be able to…
Describe the types and forms of businesses, how businesses make money, and business stakeholders
Describe the three business activities of financing, investing, and operating.
Define accounting and describe its role in business. Describe and illustrate the basic financial statements
and how they interrelate. Describe eight accounting concepts underlying
financial reporting.
![Page 3: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/3.jpg)
Learning Objective 1Learning Objective 1
Describe the types and forms of businesses, how businesses make money, and business stakeholders
![Page 4: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/4.jpg)
Types of Businesses?
Service BusinessService Business Merchandising BusinessMerchandising BusinessManufacturing BusinessManufacturing Business
![Page 5: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/5.jpg)
Forms of Business• Proprietorship
• Partnership
• Corporation
• Limited Liability Company
• Ease of formation
• Ability to raise capital
• Legal liability
• Taxation
• Limitation on life
Considerations in Choosing a Form of Business Organization
![Page 6: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/6.jpg)
Differences in Forms of Business Organization
Form Ease
Legal Liability Taxation
Limited Life
Capital Access
Proprietorship Simple No limit Nontaxable Yes Limited
Partnership Simple No limit Nontaxable Yes Average
Corporation Complex Limited Taxable No Extensive
Limited Liability Co. Moderate Limited Nontaxable Yes Average
![Page 7: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/7.jpg)
How Do Businesses Make Money?
By providing goods and services to customers so that they can make a Profit. To maximize their profits, by using one of the following two strategies:
PremiumPremiumPricePrice
StrategyStrategy
LowLowCostCost
StrategyStrategy
![Page 8: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/8.jpg)
Business Stakeholders
![Page 9: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/9.jpg)
Learning Objective 2Learning Objective 2
Describe the three business activities of financing, investing, and operating
![Page 10: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/10.jpg)
Business Activities
• Borrowing from a 3rd party• Investing in the business
• Use assets to earn revenues and profits
(Revenues < expenses = net loss; Revenues > expenses = net income
• Use business assets to acquire more assets: tangible
(machinery, buildings, computers, etc.) and intangible (patents and goodwill)
![Page 11: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/11.jpg)
Learning Objective 3Learning Objective 3
Define accounting and
describe its role in business
![Page 12: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/12.jpg)
Objectives of Financial Accounting
Sometimes called the “language of business”, Accounting is an information system that provides reports to stakeholders about the economic activities and condition of a business.
Essentially, it summarizes the financial performance of the firm for external users.
![Page 13: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/13.jpg)
Two Major Objectives of Financial Accounting
Financial ConditionFinancial ConditionAs of a POINT IN
TIME
Financial ConditionFinancial ConditionAs of a POINT IN
TIME
Financial ConditionFinancial ConditionOver a PERIOD OF
TIME
Financial ConditionFinancial ConditionOver a PERIOD OF
TIME
![Page 14: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/14.jpg)
Learning Objective 4Learning Objective 4
Describe and illustrate the basic financial statements and how they
interrelate.
![Page 15: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/15.jpg)
Financial Statements
• Income Statement
• Retained Earnings Statement
• Balance Sheet
• Statement of Cash Flows
![Page 16: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/16.jpg)
Income Statement
• Summary of revenue and expenses for a specific period of time (e.g., month, quarter, or year)
• Reports the change in financial condition due to the operations of a business • Uses the Matching Concept• Expenses for the period are matched against revenues for the same period
Revenue – Expenses = Net IncomeRevenue – Expenses = Net Income
![Page 17: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/17.jpg)
Retained Earnings
• Reports changes in financial condition due to changes in retained earnings during a period
• Retained earnings is the portion of net income retained by the business
![Page 18: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/18.jpg)
Balance Sheet
• Reports financial condition at a point in time.
• Measured by total assets and claims to those assets:
Assets = Liabilities + Assets = Liabilities + Stockholders’ EquityStockholders’ Equity
![Page 19: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/19.jpg)
Balance Sheet - Preparation
• Step 1: Each asset is listed and added to arrive at total assets
• Step 2: Each liability is listed and added to arrive at total liabilities
• Step 3: Each stockholders’ equity item is listed and added to arrive at total stockholders’ equity
• Step 4: Total liabilities and total stockholder’s equity are added together
• Step 5: Total assets must equal total liabilities and stockholders’ equity
![Page 20: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/20.jpg)
Statement of Cash Flows
• Reports the change in financial condition due to the changes in cash during a period– Net change in operating
cash flows
– Net change in investing cash flows
– Net change in financing cash flows
![Page 21: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/21.jpg)
Statement of Cash Flows – Operating Activities
• Net cash flows from operating activities is reported first.
• Cash flow from operating activities is a focus of creditors, employees, managers, suppliers and customers.
• Operating activities are transactions that involve the acquisition or production of products and services and the sale of those products or services to customers
![Page 22: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/22.jpg)
Statement of Cash Flows – Investing Activities
• Net cash flows from investing activities is reported second.
• Cash receipts from selling property, plant, and equipment are reported in this section.
• Cash used to purchase property, plant, and equipment is also reported in this section.
• Negative cash flow from investing activities is normal for an expanding company.
![Page 23: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/23.jpg)
Statement of Cash Flows – Financing Activities
• Net cash flows from financing activities is reported third.
• Any cash receipts from issuing debt or stock are reported in the section.
• Cash payments on debt and dividends is also reported in this section.
![Page 24: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/24.jpg)
• Statement of cash flows is linked to cash on the balance sheet.
• Net income from the income statement is linked to the retained earnings statement.
• Retained earnings is linked to the balance sheet in stockholders’ equity.
Integrated Financial Statements
![Page 25: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/25.jpg)
Learning Objective 5Learning Objective 5
Describe eight accounting concepts underlying financial reporting
![Page 26: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/26.jpg)
The Accounting “Rules”
Generally accepted accounting principles (GAAP)
![Page 27: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/27.jpg)
Eight Concepts
ADEQUATE ADEQUATE DISCLOSUREDISCLOSURE
ACCOUNTING ACCOUNTING PERIODPERIOD
BUSINESS BUSINESS ENTITYENTITY
UNIT OF UNIT OF MEASUREMEASURE
OBJECTIVITY OBJECTIVITY CONCEPTCONCEPT
COST COST CONCEPTCONCEPT
MATCHING MATCHING CONCEPTCONCEPT
GOING GOING CONCERNCONCERN
![Page 28: Survey 5e ch1_lecture](https://reader034.fdocuments.us/reader034/viewer/2022050801/549d1670b4795991318b493e/html5/thumbnails/28.jpg)
End of Chapter 1End of Chapter 1End of Chapter 1End of Chapter 1