PPT - Accounting and the Business Enviornment.PPT

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					AGRICULUTURAL TECHNICAL INSTITUTE
     BUS TEC T101 ACCOUNTING




           Chapter 1
       Accounting and the
      Business Environment
 ACCOUNTING CONCEPTS
CH 1: ACCT & THE BUS ENVIRONMENT
CH 2: RECORDING TRANSACTIONS
CH 3: MEASURING INCOME; ADJUSTMENTS
CH 4: COMPLETING THE ACCTING CYCLE
CH 5: MERCHANDISE OPERATIONS
CH 6: MERCHANDISE INVENTORY
CH 7: SPECIAL JOURNALS
CH 8: CONTROLLING CASH
CH 9: RECEIVABLES
CH 10: PLANT ASSETS & INTANGIBLES
CH 11: CURRENT LIABILTIES & PAYROLL
CH 17: CASH FLOW
CH 1: ACCT & THE BUS ENVIRONMENT

       LEARNING OBJECTIVES
   AFTER COMPLETING THIS LESSON, THE
        STUDENT SHOULD BE ABLE TO:
1. Use Accounting Vocabulary
2. Apply Accounting Principles to Business
3. Use Acct Equation to Describe Financial
  Position
4. Use Acct Equation To Analyze Business
  Transactions.
5. Prepare and use financial statements.
   ACCOUNTING CONCEPTS
Business Transactions   Chapter One




Financial Statements
04
OBJ   1        Use Accounting Vocabulary
                 Accounting...
          is an information system that...

          measures business activities,

  processes information into reports, and...

      communicates financial information.

  Accounting is the language of business.
05
 OBJ   1     Use Accounting Vocabulary
 Users of Accounting Information
             Financial Accounting


           FINANCIAL STATEMENTS


               External users
              make decisions
              about the entity.
05
 OBJ    1     Use Accounting Vocabulary

                 Govt - IRS
       Revenue, Expenses, Depreciation

                   Financial
 Creditors                       Insurance Co.
                  Accounting

       Investors/Partners/Stockholders

            FINANCIAL STATEMENTS
External users make decisions about the entity.
05
 OBJ   1       Use Accounting Vocabulary
 Users of Accounting Information
           Managerial Accounting


           FINANCIAL STATEMENTS


               Internal users
              make decisions
                for the entity.
OBJ   1       Use Accounting Vocabulary
      Classification of Businesses
          SERVICE



  MERCHANDISE



 BOTH MECHANDISE
    & SERVICE
08
OBJ   1     Use Accounting Vocabulary
 Types of Business Organizations
          Proprietorships
   What are some advantages?
  – total undivided authority
  – no restrictions on type of business –
    must be legal
   What are some disadvantages?
  – unlimited liability
  – limitation on size – fund raising power
08
OBJ   1      Use Accounting Vocabulary

 Types of Business Organizations
           Partnerships
 What are some advantages?
– better credit standing – possibly
– more brain power, but consultation
  with partners required
 What are some disadvantages?
– unlimited personal liability for general partners
– need for written partnership agreement
08
OBJ   1    Use Accounting Vocabulary

 Types of Business Organizations
              Corporations
   What are some advantages?
  – separate legal existence
  – limited liability of stockholders
  – easy transferability of ownership
   What are some disadvantages?
  – taxes – possible double taxation
  – extensive governmental regulation
09
OBJ   2    Apply Accounting Principles

           Generally Accepted
          Accounting Principles
   The rules of how accountants measure,
     process, and communicate financial
  information in order to provide information
    useful for making investment & lending
                   decisions
09
OBJ   2     Apply Accounting Principles

             The Entity Principle
     An organization or a section of an
organization that, for accounting purposes is
          a separate economic unit
        The accounting entity is separate
      from the legal entity of the business
 1. a proprietor & the business have the same
 legal entity, but the business records are kept
 separate from personal records
 2. Different divisions or departments may be
 different entities within the same business
09
OBJ   2   Apply Accounting Principles


The Reliability (Objectivity) Principle
       Information      Information
           must             must
      be reasonably     be free from
        accurate.           bias.

       Information    Individuals would
      must report      arrive at similar
      what actually   conclusions using
       happened.         same data.
09
OBJ   2   Apply Accounting Principles

          The Cost Principle

            Assets and services
                  acquired
            should be recorded
            at their actual cost.
10
OBJ    2     Apply Accounting Principles


      The Going Concern Principle


      The entity will continue
      to operate in the future.
11
OBJ   2   Apply Accounting Principles


  Stable-Monetary-Unit Principle


 The dollar’s purchasing
   power is relatively
         stable.
OBJ   1      Use Accounting Vocabulary
  When you learn a new language you must first
learn the basic components of the language such
as letters, whether they are vowels or constants,
and the sounds associated with them before you
can make understandable statements.
   There are five basic components to the
accounting language:

                     Assets
                    Liabilities
                     Capital
                    Revenue
                    Expenses
11
OBJ   3        Use Accounting Equation

       The Accounting Equation
      Assets    =   Liabilities + Owner’s Equity



  Economic                  Claims to
  Resources                 Economic
                            Resources
11
      3    Use The Accounting Equation
OBJ        to Describe Financial Position

              ASSETS
A. RESOURCES WITH FUTURE BENEFITS
B. THINGS OF ECONOMIC VALUE TO FIRM
C. PROPERTY WE POSSESS
 1. TANGIBLE
    a. CURRENT OR SHORT TERM: < 1 YR
    b. WORKING OR INTERMEDIATE: 1-10 YR
    c. FIXED OR LONG TERM: 10+ YRS
 2. INTANGIBLE
    a. TRADEMARKS
   b. COPYRIGHTS
   c. PATENTS
11          Use The Accounting Equation
       3
OBJ         to Describe Financial Position
CLAIMS TO ECON RESOURCES
A. FROM OTHERS = LIABILITIES
     1. FROM OUTSIDERS
     2. FROM CREDITORS
     3. OBLIGATIONS
         a. DEBTS
         b. BILLS
         c. IOU's
         d. LOANS
         e. ACCT PAYABLE
     4. WHAT WE OWE
11         Use The Accounting Equation
      3
OBJ        to Describe Financial Position
B. OURSELVES = OWNERS EQUITY
     1. INITIAL INVESTMENT
     2. RETAINED PROFITS
     3. WHAT WE OWN
     4. BANKERS’ TERMS
       a. NET WORTH
       b. EQUITY
       c. CAPITAL
       d. NET ASSETS
 5. “INSIDE” CLAIM ON ASSETS
OBJ   3     Use The Accounting Equation
            to Describe Financial Position
Transactions Affecting Owner’s Equity
   INCREASES IN                         DECREASES IN
  OWNER’S EQUITY                       OWNER’S EQUITY

Owner Investments                    Owner Withdrawals
 in the Business                     from the Business


                    Owner’s Equity


            Net Profits Increase Equity
Revenues                                    Expenses
           Net Losses Decrease Equity
OBJ   3   Use The Accounting Equation
          to Describe Financial Position
              REVENUES
   What are revenues?
   They are amounts received or to be
    received from customers for sales of
    products or services.
  – sales
  – performance of services
  – rent
  – Interest
  – They increase the owner’s equity
OBJ   3   Use The Accounting Equation
          to Describe Financial Position
               EXPENSES
   What are expenses?
   They are amounts that have been paid
    or will be paid later for costs that have
    been incurred to earn revenue.
  – salaries and wages
  – utilities
  – supplies used
  – Advertising
  – They decrease owner’s equity
OBJ   3       Use The Accounting Equation
              to Describe Financial Position
                      S1-5         Pg 27

      Assets =        Liabilities   + Owner’s Equity
                  =                  +
                  =                  +
      ---------        ---------           ---------
                  =                  +
OBJ   3       Use The Accounting Equation
              to Describe Financial Position
                   E1-5         Pg 28

            Assets = Liabilities + Owner’s Equity

AUTOZONE ?=        =         $61,800    +        $21,000

                        ?=
SURPLUS    $72,000 =                    +        $34,000

                                            ?=
HALLMARK   $102,700 =        79,800     +
              Use the accounting equation to
OBJ
      4
              analyze business transactions.
       Basic Business Transactions
   Sell
           Products            Cash
           Service

   Buy                       Credit
           Inventory            Internal
            Equipment             “On account”
            Supplies            External
           Services                Credit Card
           Use the accounting equation to
OBJ
      4
           analyze business transactions.
       Basic Business Transactions
   Sell        Buy
                            Cash



                           Credit
                             Internal
                               “On account”
                             External
                                Credit Card
13          Use the accounting equation to
OBJ
      4
            analyze business transactions.
Accounting for Business Transactions
  What is a transaction?
   It is an event that affects the financial
     position of a business and can be reliably
     recorded.
   Notice that the equation always stays in
    balance.
   Each transaction affects at least two
    accounts, sometimes more.
   Some transactions affect only one side of
    the equation; some affect both sides.
13              Use the accounting equation to
OBJ
       4
                analyze business transactions.


             Rules for Recording
            Business Transactions

  1.    Read business document or source of
        information & answer these questions.
  2.    Using the Accounting Equation: A=L+OE
       1.   Which accounts are affected?
       2.   In which direction? Increase or Decrease
       3.   By how many dollars?
13              Use the accounting equation to
OBJ
         4
                analyze business transactions.
             ASSETS                  =    LIAB         CAPITAL
         ACCT
CK       REC SUPP   EQP   BLD   LD   = ACTS   NOTES INV REC/EXP
+30000                                              +30000


                                              USE       SOURCE
  1. SHAY GILLIAN FORMS A
  BUSINESS BY
  TRANSFERRING $30,000
  FROM A SAVING ACCOUNT
                                         CASH          CAPITAL
  TO A BUSINESS CHECKING
  ACCOUNT
 13             Use the accounting equation to
 OBJ
         4
                analyze business transactions.
             ASSETS                     LIAB         CAPITAL
         ACCT
 CK      REC SUPP   EQP   BLD   LD = ACTS NOTES     INV REC/EXP
+30000                                            +30000
-20000                      +20000

                                          USE         SOURCE


     2. PAID $20,000 CASH
     FOR LAND TO BUILD AN              LAND
     OFFICE.                                         CAPITAL

                                       CASH
 14              Use the accounting equation to
 OBJ
         4
                 analyze business transactions.
             ASSETS                   =      LIAB       CAPITAL
         ACCT
 CK      REC SUPP    EQP   BLD   LD   = ACTS     NOTES INV REC/EXP
+30000                                               +30000
-20000                       +20000
              +500                        +500   USE     SOURCE

                                            SUPP        ACCT PAY


  3. BOUGHT OFFICE
                                            LAND
  SUPPLIES FOR $500
                                                        CAPITAL
  ON ACCOUNT
                                            CASH
 14              Use the accounting equation to
 OBJ
         4
                 analyze business transactions.
             ASSETS                   =      LIAB       CAPITAL
         ACCT
 CK      REC SUPP    EQP   BLD   LD   = ACTS     NOTES INV REC/EXP
+30000                                               +30000
-20000                       +20000
              +500                        +500
+5500                                                         +5500

                                            CASH        REVENUE
                                            SUPP        ACCT PAY
  4. RECEIVED $5500 IN
  CASH REVENUE FOR                          LAND
  SERVICES PERORMED                                     CAPITAL

                                            CASH
 14                  Use the accounting equation to
 OBJ
           4
                     analyze business transactions.
                 ASSETS                   =      LIAB       CAPITAL
          ACCT
 CK       REC SUPP       EQP   BLD   LD   = ACTS     NOTES INV REC/EXP
+30000                                                   +30000
-20000                           +20000
                  +500                        +500
+5500                                                            +5500
         +3000                                                   +3000




   5. EARNED $3000 IN REVENUE FOR
   SERVICES PERFORMED BUT WILL BE PAID
   LATER
 15                  Use the accounting equation to
 OBJ
           4
                     analyze business transactions.
                 ASSETS                   =      LIAB       CAPITAL
          ACCT
 CK       REC SUPP       EQP   BLD   LD   = ACTS     NOTES INV REC/EXP
+30000                                                   +30000
-20000                           +20000
                  +500                        +500
+5500                                                            +5500
         +3000                                                   +3000
-3100                                                             -3100




6. PAID $3100 CASH FOR VARIOUS EXPENSES:
COMPUTER LEASE: $400; OFFICE RENT: $1,100;
SALARY EXPENSE: $1,200; UTILTIES EXP: $400
 15                  Use the accounting equation to
 OBJ
           4
                     analyze business transactions.
                 ASSETS                   =      LIAB       CAPITAL
          ACCT
 CK       REC SUPP       EQP   BLD   LD   = ACTS     NOTES INV REC/EXP
+30000                                                   +30000
-20000                           +20000
                  +500                        +500
+5500                                                            +5500
         +3000                                                   +3000
-3100                                                             -3100
-300                                          -300


  7. PAID $300 CASH ON ACCOUNT TO STORE
  FROM WHICH SHE BOUGHT SUPPLIES.
 16                  Use the accounting equation to
 OBJ
           4
                     analyze business transactions.
                 ASSETS                   =      LIAB       CAPITAL
          ACCT
 CK       REC SUPP       EQP   BLD   LD   = ACTS     NOTES INV REC/EXP
+30000                                                   +30000
-20000                           +20000
                  +500                        +500
+5500                                                            +5500
         +3000                                                   +3000
-3100                                                             -3100
-300                                          -300
+1000 -1000
  8. PERSONAL TRANSACTION: NO ACTION
  9. COLLECTED $1000 CASH ON ACCOUNT OWED
  TO HER
 16                  Use the accounting equation to
 OBJ
           4
                     analyze business transactions.
                 ASSETS                   =      LIAB       CAPITAL
          ACCT
 CK       REC SUPP       EQP   BLD   LD   = ACTS     NOTES INV REC/EXP
+30000                                                   +30000
-20000                           +20000
                  +500                        +500
+5500                                                            +5500
         +3000                                                   +3000
-3100                                                             -3100
-300                                          -300
+1000 -1000
+9000                            -9000


  10. SELL PART OF LAND, AT COST, FOR $9,000
 16                  Use the accounting equation to
 OBJ
           4
                     analyze business transactions.
                 ASSETS                   =      LIAB        CAPITAL
          ACCT
 CK       REC SUPP       EQP   BLD   LD   = ACTS     NOTES INV/W REC/EXP
+30000                                                   +30000
-20000                           +20000
                  +500                        +500
+5500                                                                +5500
         +3000                                                       +3000
-3100                                                                -3100
-300                                          -300
+1000 -1000
+9000                            -9000
-2100                                                        -2100
  11. WITHDREW $2100 FROM THE PROFITS
 18                  Use the accounting equation to
 OBJ
           4
                     analyze business transactions.
                 ASSETS               =      LIAB       CAPITAL
          ACCT (USES)                     (SOURCES)
 CK       REC SUPP EQP     BLD LD = ACTS NOTES INV REC/EXP
+30000                                       +30000
-20000                        +20000
                  +500               +500
+5500                                                +5500
         +3000                                       +3000
-3100                                                        -3100
-300                                      -300
+1000 -1000
+9000                         -9000
-2100                                                -2100
20000 +2000       +500       +11000 = +200          +27900   +5400
                             +33500 = +200          +33300
                             +33500 = +33500
17                  Prepare And Use
        5
OBJ               Financial Statements.
            Financial Statements...
        – are the final    – tell how (1) the
       product of the    business is performing
     accounting process. and (2)where it stands.

               Income Statement
Statement Of Owner’s Equity / Retained Earnings
                 Balance Sheet
           Statement Of Cash Flows
17          Prepare And Use
      5
OBJ       Financial Statements.
17                Prepare And Use
      5
OBJ             Financial Statements.
               Name of Business
               Income Statement
          For Period Ending xx/xx/20xx
Revenue:
  Fees earned                            $8,500
Expenses:
  Salary expense               $1,200
  Utilities & telephone expense 400
  Equipment rental expense       400
  Office rent expense           1,100     3,100
Net income (Net Loss)                      $5,400
20                 Prepare And Use
      5
OBJ              Financial Statements.
                Name of Business
           Statement of Owner’s Equity
          For Period Ending xx/xx/20xx
S. Gillen, capital, April 1, 20xx    $       0
Contribution of capital                  30,000
Net income                           $ 5,400
Cash distributions (Withdraws)       – 2,100
S. Gillen, capital, April 30, 20xx   $33,300
20                    Prepare And Use
      5
OBJ                 Financial Statements.
                 Name of Business
                   Balance Sheet
                  As of xx/xx/20xx

           Assets                         Liabilities
Cash                $ 20,000   Accounts payable         $   200
Accounts receivable    2,000   Notes payable                 $0
Supplies                 500   S. Gillen, capital        33,300
Land                  11,000
                               Total liabilities and
Total assets        $ 33,500   owner’s equity           $33,500
20                   Prepare And Use
      5            Financial Statements.
OBJ
                     Name of Business
                 Statement Of Cash Flows
               For Period Ending xx/xx/20xx
Cash flows from operating activities:
  Cash in: receipts from services rendered     $6,500
  Cash out: expenses                           (3,400)
  Net cash flows from Operating activities     $3,100
Cash flows from investing activities
  Cash in: Sale of land                         $9,000
  Cash Out: Purchase of land                    ($20,000)
  Net cash flows from Investing activities    ($11,000)
Cash Flows from financing Activities:
   Cash in: Owner’s Investment                 $30,000
  Cash Out: Owner’s Withdraw                    ($2,100)
   Net cash flows from Financing activities    $27,900
NET INCREASE IN CASH                           $20,000
BEGINING CASH                                     $0
ENDING CASH                                    $20,000
CH 1: ACCT & THE BUS ENVIRONMENT
             SUMMARY
1. New Terms    2. New Procedures
   a. Assets        a. Transactions
   b. Liabilities       b. Financial St.
   c. Equity               1. Income St
   d. Revenue              2. Equity St.
   e. Expenses              3. Balance Sh.
   f. Acct Principles       4. Cash Flow St
CH 1: ACCT & THE BUS ENVIRONMENT
                  SUMMARY
1. Accounting is the language of business
  2. There are two major branches of accounting
     a. Financial: Information for External Users
     b. Managerial: Information for Internal Users
3. Accts are kept according to key principles
 4. The Account Equation (A=L+OE) is the
 foundation for all accounting
5. Transactions are analyzed within the frame-
      work of the accounting equation
6. The end result is the income statement, equity
statement, balances sheet & cash flow statement
CH 1: ACCT & THE BUS ENVIRONMENT


              SUMMARY


  BUSINESS     FINANCIAL    FINANCIAL
TRANSCTIONS   ACCOUNTING   STATEMENTS

				
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