Chapter 1 - Chapter 1 Business: What’s it all About? 1...

Info iconThis preview shows pages 1–9. Sign up to view the full content.

View Full Document Right Arrow Icon
1-1 1 Chapter 1 Business: What’s it all About? 2 Class Outline • Financial accounting - Users - Accounting equation - Balance Sheet - Income Statement - Statement of Changes in Owners’ Equity - Statement of Cash Flows
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
1-2 3 Simple Model of a Business The Firm” INPUTS Value added conversion OUTPUTS Capital (financing) Property, Plant, Equipment Raw Materials Labor Inventory Goods & Services Delivery of Product or Service Acquisition/Payment Cycle Sales/Collection Cycle 4 Financial Accounting Information Information related to: Various views of the data: The Company’s Information System Financial data for external reports Product information Customer and vendor information Sales Purchases Collections Payments
Background image of page 2
1-3 5 Who needs accounting information? A) Management B) Those with direct financial interest Current or potential investors Current or potential creditors C) Those with an indirect financial interest » Tax Authorities » Regulatory Agencies » Economic Planners » Labor unions, financial advisors, others. D) Employees 6 Financial vs. Managerial Accounting Accounting System Financial Accounting System (preparation of four basic financial statements). Managerial Accounting System (preparation of detailed plans, forecasts and reports). External Decision Makers (investors, creditors, suppliers, customers, etc.). Internal Decision Makers (managers throughout the organization).
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
1-4 7 US Accounting Standard versus IFRS 8 Accounting Equation Debits = Credits
Background image of page 4
1-5 9 Assets = Claims Assets = Liabilities + Equity Asset : something of value Liability : something owed (creditors’ share of the assets) Equity : what remains (owner’s share of the assets) The Accounting Equation 10 There are two sources of equity equity “contributed” by owners equity “earned” by operations Expanded accounting equation: ASSETS = LIABILITIES CONTRIBUTED CAPITAL RETAINED EARNINGS + + Equity: The Owner’s Share
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
1-6 11 Expanded accounting equation : Together, these are called Shareholders’ Equity , Stockholders’ Equity , or Owners’ Equity . They are all names for the same thing--the owners’ claims to the firm’s assets. ASSETS = LIABILITIES CONTRIBUTED CAPITAL RETAINED EARNINGS + + Equity: The Owner’s Share 12 Accounting Equation • Assets = Claim • Example – We decide to start a pizza store. – Then what do we need? $$$ Money – We invest $5,000 cash. Cash $ 5,000 Equity $ 5,000 = Assets Stockholders’ Equity (Claimed by owner)
Background image of page 6
1-7 13 Accounting Equation • Example – We borrow $1,000 from the ABC Bank. Cash $ 5,000 Equity $ 5,000 = Assets $ 6,000 Stockholders’ Equity (Claimed by owner ) Cash $ 1,000 Debt $ 1,000 Liability (Claimed by creditor ) = Liabilities + SE $ 6,000 14 Accounting Equation • Example – We earn $400 from the business. Cash $ 5,000 Contributed Capital $ 5,000 = Assets $ 6,400 Stockholders’ Equity (Claimed by owner ) Cash $ 1,000 Debt $ 1,000 Liability (Claimed by creditor ) = Liabilities + SE $ 6,400 Cash $ 400 Retained Earning $ 400
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
1-8 15 Basic Accounting Equation - the same song in different words Assets = Liabilities + Owners’ Equity Creditor’s Claims to Assets Owner’s Claims to Assets Company Resources = + What is the major idea behind the Accounting Equation?
Background image of page 8
Image of page 9
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 29

Chapter 1 - Chapter 1 Business: What’s it all About? 1...

This preview shows document pages 1 - 9. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online