EXP EXP EXP by alicejenny

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    Introduction to
Accounting and Business


             Student Version

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           Describe the nature of a
           business, the role of
           accounting, and ethics in
           business.




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             Types of Businesses
  Service Business        Service
  Delta Air Lines         Transportation services

 Merchandising Business   Product
 Wal-Mart                 General merchandise

 Manufacturing Business   Product
 General Motors Corp.     Cars, trucks, vans
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       The Role of Accounting in Business

       Accounting can be defined as an
       information system that provides
       reports to users about the economic
       activities and condition of a business.



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             Managerial Accounting
       The area of accounting that provides
       internal users with information is called
       managerial accounting.
       The objective of managerial
       accounting is to provide relevant and
       timely information for managers’ and
       employees’ decision-making needs.

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              Financial Accounting
       The area of accounting that provides
       external users with information is
       called financial accounting.
       The objective of financial accounting
       is to provide relevant and timely
       information for the decision-making
       needs of users outside of the
       business.
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       Summarize the
       development of accounting
       principles and relate them
       to practice.




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              Business Entity Concept
           Under the business entity
           concept, the activities of a
           business are recorded
           separately from the activities
           of its owners, creditors, or
           other businesses.

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                 Forms of Business Entity
       • A proprietorship is owned by one individual.
       • A partnership is similar to proprietorship
           except that it is owned by two or more
           individuals.
       •   A corporation is organized under state or
           federal statutes as a separate legal taxable
           entity.
       •   A limited liability company (LLC) combines
           attributes of a partnership and a corporation.
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                   Cost Concept
           Under the cost concept,
           amounts are initially recorded
           in the accounting records at
           their cost or purchase price.



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              Objectivity Concept
       The objectivity concept requires
       that the amounts recorded in the
       accounting records be based on
       objective evidence.


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              Unit of Measure Concept
           The unit of measure concept
           requires that economic data
           be recorded in dollars.




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       State the accounting
       equation and define each
       element of the equation.




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            The Accounting Equation

       Assets = Liabilities + Owner’s Equity


  The resources The rights of the The rights of the
   owned by a creditors are the       owners
    business      debts of the
                   business


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       Describe and illustrate how
       business transactions can be
       recorded in terms of the resulting
       change in the elements of the
       accounting equation.




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             Business Transaction
       A business transaction is an
       economic event or condition that
       directly changes an entity’s
       financial condition or its results
       of operations.


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       Transaction A

       On November 1, 2009, Chris Clark
       deposits $25,000 in a bank account
       in the name of NetSolutions.



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                        Transaction A (continued)




           Assets   =         Owner’s Equity
            CASH            CHRIS CLARK, CAPITAL
  a.       25,000   =       25,000
                            Investment by Chris Clark




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       Transaction B
       On November 5, 2009, NetSolutions
       paid $20,000 for the purchase of land
       as a future building site.




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                                 Transaction B (continued)




             Assets              =     Owner’s Equity
           CASH    +    LAND          CHRIS CLARK, CAPITAL
Bal. 25,000                      =            25,000
b. –20,000             +20,000
Bal.       5,000       20,000                 25,000




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       Transaction C
       On November 10, 2009,
       NetSolutions purchased supplies
       for $1,350 and agreed to pay the
       supplier in the near future.


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                                 Transaction C (continued)



             Assets             = Liabilities + Owner’s Equity
                                    ACCOUNTS CHRIS CLARK,
     CASH + SUPPLIES + LAND          PAYABLE + CAPITAL
                                =
Bal. 5,000             20,000                  25,000
c.            +1,350                  +1,350
Bal. 5,000     1,350   20,000          1,350       25,000




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       Transaction D
       On November 18, 2009, NetSolutions
       received cash of $7,500 for providing
       services to customers. A business
       earns money by selling goods or
       services to its customers. This amount
       is called Revenue.

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                                Transaction D (continued)



                            Assets
              CASH     +   SUPPLIES +   LAND
       Bal.    5,000        1,350       20,000
       d.     +7,500
       Bal.   12,500        1.350       20,000




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                               Transaction D (continued)



               Liabilities +       Owner’s Equity
              ACCOUNTS         CHRIS CLARK,  FEES
               PAYABLE    +      CAPITAL + EARNED
       Bal.     1,350            25,000
       d.                                       +7,500
       Bal.    1,350             25,000          7,500




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       Transaction E
       On November 30, 2009, NetSolutions
       paid the following expenses during
       the month: wages, $2,125; rent, $800;
       utilities, $450; and miscellaneous,
       $275.

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                           Transaction E (continued)



                        Assets
              CASH +   SUPPLIES +   LAND
       Bal.   12,500     1,350      20,000
       e.     –3,650
       Bal.   8,850     1.350       20,000




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                                   Transaction E (continued)



         Liabilities +            Owner’s Equity
         ACCOUNTS CHRIS CLARK,   FEES   WAGES RENT UTIL. MISC.
          PAYABLE + CAPITAL  + EARNED – EXP. – EXP. – EXP. – EXP.
  Bal.       1,350       25,000   7,500
  e.                                      –2,125   –800   –450 –275
  Bal.       1,350       25,000   7,500   –2,125   –800   –450 –275




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       Transaction F
       On November 30, 2009,
       NetSolutions paid creditors on
       account, $950.




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                               Transaction F (continued)



                           Assets
              CASH    +   SUPPLIES +    LAND
       Bal.   8,850         1,350       20,000
       f.      –950
       Bal.   7,900         1.350       20,000




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                                  Transaction F (continued)



   Liabilities    +                Owner’s Equity
        ACCOUNTS CHRIS CLARK,  FEES    WAGES RENT UTIL. MISC.
         PAYABLE + CAPITAL  + EARNED – EXP. – EXP. – EXP. – EXP.
 Bal.     1,350       25,000    7,500   –2,125   –800   –450   –275
 f.        –950
 Bal.       400       25,000    7,500   –2,125   –800   –450   –275




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       Transaction G
       On November 30, 2009, Chris Clark
       determined that the cost of supplies
       on hand at the end of the period was
       $550.


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                           Transaction G (continued)



                        Assets
              CASH +   SUPPLIES   +   LAND
       Bal.    7,900     1,350        20,000
       g.                –800
       Bal.    7,900      550         20,000




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                                    Transaction G (continued)



   Liabilities +                   Owner’s Equity
       ACCOUNTS CHRIS CLARK, FEES     WAGES RENT SUP. UTIL. MISC.
        PAYABLE + CAPITAL  + EARNED – EXP. – EXP. – EXP. – EXP. – EXP.
Bal.      400       25,000      7,500   –2,125   –800          –450 –275
g.                                                      –800
Bal.      400       25,000      7,500   –2,125   –800   –800 –450 –275




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       Transaction H

           On November 30, 2009, Chris Clark
           withdrew $2,000 from NetSolutions
           for personal use.



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                           Transaction H (continued)



                        Assets
              CASH +   SUPPLIES   +   LAND
       Bal.    7,900      550         20,000
       h.     –2,000
       Bal.    5,900      550         20,000




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                                     Transaction H (continued)



Liabilities +                     Owner’s Equity
 ACCTS.   CLARK, CLARK,      FEES   WAGES RENT SUP. UTIL. MISC.
  PAY. + CAPITAL – DRAW. + EARNED – EXP. – EXP. – EXP. – EXP. – EXP.
Bal. 400       25,000            7,500   –2,125   –800 –800 –450 –275
h.                      –2,000
Bal.400        25,000   –2,000   7,500   –2,125   –800 –800 –450 –275




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       Describe the financial
       statements of a
       proprietorship and
       explain how they
       interrelate.



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                 Income Statement

           The income statement reports
           the revenues and expenses for
           a period of time, based on the
           matching concept.



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                Matching Concept
           The matching concept is
           applied by matching the
           expenses with the revenue
           generated during a period
           by those expenses.


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       The excess of revenue over the
       expenses is called net income
       or net profit. If the expenses
       exceed the revenue, the excess
       is a net loss.


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Exhibit 6   Financial Statements for NetSolutions




                               Net income is carried
                                to the statement of
                                  owner’s equity.
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Exhibit 6   Financial Statements for NetSolutions (continued)


                         From the income statement




                                        To the balance sheet
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Exhibit 6       Financial Statements for NetSolutions (continued)




       This amount is compared             From the statement
       to the net cash flow on the         of owner’s equity
       statement of cash flows.

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Exhibit 6   Financial Statements for NetSolutions (continued)




                         This amount should match
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