INTRODUCTION TO ACCOUNTING
The objective of most businesses is to earn
a profit. Profit is the difference between the
amounts received from customers for goods
or services provided and the amounts paid
for the inputs used to provide those goods
A manufacturing business changes basic in-
puts into products that are then sold to cus-
tomers. A service business provides
services rather than products to customers.
A restaurant such as Applebee’s has char-
acteristics of both a manufacturing and a
service business in that Applebee’s takes
raw inputs such as cheese, fish, and beef
and processes them into products for con-
sumption by its customers. At the same
time, Applebee’s provides services of wait-
ing on its customers as they dine.
Some users of accounting information in-
clude owners, managers, employees, cus-
tomers, creditors, and the government.
Simply put, the role of accounting is to
provide information for managers to use in
operating the business. In addition, account-
ing provides information to others to use in
assessing the economic performance and
condition of the business.
The corporate form allows the company to
obtain large amounts of resources by issu-
ing stock. For this reason, most companies
that require large investments in property,
plant, and equipment are organized as cor-
No. The business entity concept limits the
recording of economic data to transactions
directly affecting the activities of the busi-
ness. The payment of the interest of $3,000
is a personal transaction of Barry Bergan
and should not be recorded by Elephant
The land should be recorded at its cost of
$115,000 to Gremlin Repair Service. This is
consistent with the cost concept.
No. The offer of $900,000 and the
increase in the assessed value should
not be recognized in the accounting re-
Cash would increase by $900,000, land
would decrease by $475,000, and own-
er’s equity would increase by $425,000.
An account receivable is a claim against a
customer for goods or services sold. An
account payable is an amount owed to a
creditor for goods or services purchased.
Therefore, an account receivable in the re-
cords of the seller is an account payable in
the records of the purchaser.
(a); the business incurred a net loss of
$115,000 ($715,000 – $600,000).
(b); the business realized net income of
$195,100 ($687,500 – $492,400).
Net income or net loss
Owner’s equity at the end of the period
Cash at the end of the period