Docstoc

Statement of Owner Equity

Document Sample
Statement of Owner Equity Powered By Docstoc
					  ACCOUNTING
            LECTURE NOTES
                 for use with
Horngren, Harrison, Bamber, Lemon, Norwood
Accounting Canadian Sixth Edition (2005)

          Prepared by Mandy
ABBREVIATIONS
 F/S Financial Statements财务报表
 B/S Balance Sheet资产负债表 (AKA Statement of
  Financial Position)
 I/S Income Statement利润表 (AKA Statement of
  Earnings)
 SOE Statement of Owner‘s Equity所有者权益报
  表
 GAAP Generally Accepted Accounting
  Principles公认会计准则
 A/R, Accounts Receivable应收账款
 A/P Accounts Payable应付账款
   GJ General Journal日计账
   G/L General Ledger总账
   JE Journal Entry会计分录
   T/B Trial Balance试算平衡表
   AJE Adjusting Journal Entry调整分录
   Acc Am. Accumulated Amortization累计折旧
   NBV or BV (Net) Book Value账面价值
   A/T/B, Adjusted T/B调整试算平衡表
   INVT Inventory存货
   BI, Beginning INVT期初存货
   EI Ending INVT期末存货
   COGS Cost of Goods Sold销售成本
   GAFS Goods Available for Sale可供销售货物
   GP Gross Profit (also called GM - Gross Margin)毛利
   ADA Allowance for Doubtful Accounts坏账准备
   WA Weighted Average 平均成本法
   FIFO First In First Out先进先出法
   LIFO Last In First Out 后进先出法
   S/L Straight Line直线法
   UOP Units of Production工作量法
   DDB Double-declining Balance双备余额递减法
CHAPTER ONE

ACCOUNTING AND THE BUSINESS
 ENVIRONME
Objective 1
Use accounting vocabulary for decision making
Objective 2
Apply accounting concepts and principles to business
situations.
Objective 3
Use the accounting equation to describe an
  organization’s financial position
Objective 4
Use the accounting equation to analyze business
  transactions.
Objective 1
Use accounting vocabulary for decision making

            Accounting...

        is an information system that...

         measures business activities,

          processes information, and

     communicates financial information.
                 Accounting...



        is called the language of business.




    £             $            €              ¥
Users of Accounting Information

External users
                     Internal users
make decisions       make decisions
about the entity.     for the entity.
Fields of Accounting

FINANCIAL ACCOUNTING - produces
 financial reports primarily for external
users e.g. investors, creditors, suppliers,
 customers, unions, banks
MANAGEMENT ACCOUNTING generates
 reports and other information primarily
 for internal users e.g. executives,
 managers, owner-operators
WHY SHOULD YOU STUDY
ACCOUNTING?

 You want to be an accountant and make lots
  of money- public practice, management,
  auditing, income tax, government, not-for
  profit (maybe even teach accounting !)
 You want to run your own business (or
  someone else’s business) and make lots of
  money you need to understand accounting
  to make good business decisions
 You want to be a marketer and make lots of
  money- you need to understand accounting
  to be able to understand budgets, costs,
  benefits, cash flow, financing
 You want to work in finance and make lots of
  money (banking, stock broking, investments)
- you need to be able to understand and
  “translate” financial statements
         Types of Business Organizations
Proprietorship
• One owner
• Life is limited by owner’s choice or death
• Proprietor is personally liable
• Proprietorship is separate from owner

  Partnership
• Two or more as owners
• Life is limited by owners’ choices or death
•Partners are personally liable
• Partnership is separate from partners

        Corporation
        • Owned by shareholders
        • Indefinite life
        • Shareholders are not personally liable
        •Corporation is separate from the shareholders
Proprietorships

What are some advantages?
  – one owner
  – business is separate from owner
What are some disadvantages?
  – limited life of organization
  – unlimited personal liability
  – limited credit standing
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
Corporations

What are some advantages?
  – separate legal existence
  – limited liability of shareholders
  – transferability of ownership relatively easy
What are some disadvantages?
  – taxes – possible double taxation
  – extensive governmental regulation
Objective 2


       Apply accounting
   concepts and principles
    to business situations.
Generally Accepted
Accounting Principles
What is the primary objective of financial
 reporting?



        To provide information useful
         for making investment and
              lending decisions
GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (GAAP)

 ENTITY CONCEPT
 The transactions and activities of one
  business should be kept separate from those
  of the owner - and any other business, so
  each business can be evaluated separately
 Thus if a business owner records the cost of
  a birthday present for his mother (who has
  no connection to the business) as a business
  expense, he is not following this principle
RELIABILITY PRINCIPLE
AKA OBJECTIVITY PRINCIPLE

 Must be able to support F/S data by reliable
  evidence
 If it is an external transaction (originating
  outside the business), should be
  independent and unbiased as well
 “Evidence” would include invoices,
  cancelled cheques, payroll reports, bank
  statements, etc
COST PRINCIPLE
AKA HISTORICAL COST PRINCIPLE

 All items in the F/S, especially assets, must
  be recorded at original cost (cash or cash
  equivalent value), NOT at someone’s idea of
  a “good deal” or “fair price”
 As time goes by, the fair market value (FMV)
  of an asset may change but it is still kept at
  cost in the accounting records, because cost
  is reliable and can be verified objectively
GOING CONCERN CONCEPT
AKA CONTINUING CONCERN CONCEPT

 Assumes that the business will continue to
  operate normally for the foreseeable future,
  carrying on operations, earning revenue,
  paying debts and expenses, as well as
  recovering the cost of its assets
 If this is not so, i.e. the business is being
  sold or is going out of business and assets
  have been revalued to liquidation values, the
  reader should be so informed
STABLE-MONETARY-UNIT AKA
MONETARY PRINCIPLE CONCEPT
Reports should include only data that
 can be expressed in monetary terms
 (numbers), i.e. non monetary items are
 not recorded in the F/S
Unit of monetary measure (e.g. the
 dollar) is assumed to remain stable
 over time, i.e. inflation, changes in
 value of the dollar are ignored
REVENUE RECOGNITION
PRINCIPLE
Revenue must be recorded in the
 period earned, REGARDLESS OF
 WHEN THE CUSTOMER PAYS
In other words, the receipt of the cash
 is secondary
MATCHING PRINCIPLE


All expenses incurred to earn the
 revenue recorded must be recorded in
 the same period, REGARDLESS OF
 WHEN THE CASH IS PAID OUT
In other words, the payment of the cash
 is secondary
Objective 3

Use the accounting equation
to describe an organization’s
      financial position.
The Accounting Equation


   Assets    =   Liabilities + Owner’s Equity



 Economic                Claims to
 Resources               Economic
                         Resources
BASIC ACCOUNTING EQUATION
AKA BALANCE SHEET
ASSETS = LIABILITIES + (OWNER’S)
LIABILITIES =
EQUITY      =
Asset

What is an asset?
It is a resource owned that has future
 benefit.
  – cash, office supplies, merchandise
  – furniture, land, buildings
Liability

What is a liability?
It is something a company owes.
  – money
  – service – legal retainers
  – product – magazines
Owner’s Equity

What is owner’s equity?
It is what remains after liabilities have
 been subtracted from assets.
  – the same as net assets
  – the owner’s claim on the entity’s assets
 Transactions that Affect
 Owner’s Equity

    INCREASES                            DECREASES


Owner Investments                    Owner Withdrawals
 in the Business                      from the Business


                    Owner’s Equity



    Revenues                             Expenses
Revenues

What are revenues?
They are amounts earned by delivering
 goods or services to customers.
  – sales
  – performance of services
  – rent earned
  – interest earned
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.
  – rent
  – salaries and wages
  – utilities
  – supplies used
Objective 4


Use the accounting equation
     to analyze business
         transactions.
Accounting for Business
Transactions
What is a transaction?
It is any event that both affects the
 financial position of the business and can
 be reliably recorded.
Accounting for Business
Transactions
1 Don Smith invests $100,000 to begin
  EconoTravel.
2 EconoTravel purchases land for an office
  location, paying $80,000 in cash.
3 EconoTravel buys office supplies,
  agreeing to pay $1,000 in 30 days.
4 EconoTravel earns and collects service
  revenue of $11,000.
Accounting for Business
Transactions
 5 EconoTravel performs services, and the client
   agrees to pay $6,000 within one month.
 6 During the month, EconoTravel pays $5,400
   for expenses incurred.
 7 EconoTravel pays $800 to the store from
   which it purchased $1,000 worth of supplies.

  What is the effect of these transactions on the
   accounting equation?
Accounting for Business
Transactions
                                            Owner’s
                 Assets     = Liabilities + Equity
1) Cash         +$100,000                 +$100,000
2) Cash         – 80,000
   Land         + 80,000
3) Supplies     + 1,000         + 1,000
4) Cash         + 11,000                  + 11,000
5) Receivable   + 6,000                   + 6,000
6) Cash         – 5,400                   – 5,400
7) Cash         –    800        – 800
Totals          +$111,800       + 200     +$111,600
COMPLETE THE FOLLOWING
CALCULATIONS
               Assets = Liabilities + Equity
   Company A   156,000      55,000
   Company B                10,500    48,000
   Company C   110,000                     0
   Company D    100,000    117,800




BOTTOM LINE:
 LEFT SIDE (A) MUST ALWAYS = RIGHT SIDE
  (L + E)!
Business Decisions
 How do we organize transaction effects?
  And where does the business stand financially?
         For a proprietorship,the Accounting Equation:



 How do we measure profits and losses?
                  Income Statement:

 Did owner’s equity increase or decrease?
                Statement of Owner’s Equity:
 Financial Statement Relationships


     Income Statement
          Revenues
       -- Expenses
       = Net Income                    Statement of
                                      Owner’s Equity
                                 Beginning Balance
                               + Net Income
                               -- Withdrawals
                               = Ending Balance

   Balance Sheet
 Assets (including cash) =
Liabilities + Owner’s Equity
Transaction Analysis
 Sam Liu invests $1,000 of his money to start a business, Sam’s Golf
   Co.
             ASSETS = LIABILITIES + OWNER’S EQUITY
         Cash +1,000                  Sam Liu, Capital +1,000

 Sam’s Golf purchases a computer for a cash payment of $400.
             ASSETS = LIABILITIES + OWNER’S EQUITY
 Cash     – 400
 Computer + 400

 Sam’s Golf buys supplies, agreeing to pay $60 within 30 days.
             ASSETS = LIABILITIES + OWNER’S EQUITY
 Supplies + 60 Accounts Payable + 60


 Sam’s Golf provides golf lessons for $300 to be paid in 10 days.
             ASSETS = LIABILITIES + OWNER’S EQUITY
        Accounts Receivable + 300 Lesson Revenue +300

				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:1
posted:10/16/2012
language:English
pages:43