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Accounting in Action
Study Objectives
1. Explain what accounting is.
2. Identify the users and uses of accounting.
3. Understand why ethics is a fundamental business concept.
4. Explain accounting standards and the measurement principles.
5. Explain the monetary unit assumption and the economic entity
assumption.
6. State the accounting equation, and define its components.
7. Analyze the effects of business transactions on the accounting
equation.
8. Understand the four financial statements and how they are
prepared.
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1-2
Accounting in Action
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1-3
What is Accounting?
(2) organization to
Slide
1-4 SO 1 Explain what accounting is.
What is Accounting?
Illustration 1-1
Slide
1-5 SO 1 Explain what accounting is.
What is Accounting?
Creditors
Marketing Regulatory
Agencies
Investors
Slide
1-6 SO 2 Identify the users and uses of accounting.
What is Accounting?
Common Questions Asked User
1. Can we afford to give our
employees a pay raise? Human Resources
2. Did the company earn a
satisfactory income? Investors
3. Should any product lines be
eliminated? Management
4. Is cash sufficient to pay
dividends to shareholders? Finance
5. What price for our product will
maximize net income? Marketing
6. Will the company be able to
pay its debts? Creditors
Slide
1-7 SO 2 Identify the users and uses of accounting.
Slide
1-8 SO 3 Understand why ethics is a fundamental business concept.
The Building Blocks of Accounting
Slide
1-9 SO 3 Understand why ethics is a fundamental business concept.
Review Question
Ethics are the standards of conduct by which one's
actions are judged as:
a. right or wrong.
b. honest or dishonest.
c. fair or not fair.
d. all of these options.
Solution on
Slide
1-10
notes page SO 3 Understand why ethics is a fundamental business concept.
The Building Blocks of Accounting
Accounting Standards
Slide
1-11 SO 4 Explain accounting standards and the measurement principles.
Issues:
Reported at cost when purchased and also over the time the
asset is held.
Slide
1-12 SO 4 Explain accounting standards and the measurement principles.
The Building Blocks of Accounting
Slide
1-13 SO 4 Explain accounting standards and the measurement principles.
Assumptions
Monetary Unit Assumption – include in the accounting records
only transaction data that can be expressed in terms of money.
Proprietorship.
Forms of Business
Partnership.
Ownership
Corporation.
Slide
1-14 SO 5 Explain the monetary unit assumption and the economic entity assumption.
The Building Blocks of Accounting
Slide
1-15 SO 5 Explain the monetary unit assumption and the economic entity assumption.
Review Question
Combining the activities of Kellogg and General Mills
would violate the
a. cost principle.
b. economic entity assumption.
c. monetary unit assumption.
d. ethics principle.
Review Question
A business organized as a separate legal entity under
state law having ownership divided into shares is a
a. proprietorship.
b. partnership.
c. corporation.
d. sole proprietorship.
Slide
1-21 SO 6 State the accounting equation, and define its components.
Assets
Resources a business owns.
Provide future services or benefits.
Cash, Inventory, Equipment, etc.
Slide
1-22 SO 6 State the accounting equation, and define its components.
The Basic Accounting Equation
Liabilities
Claims against assets (debts and obligations).
Creditors - party to whom money is owed.
Accounts payable, bank loan, etc.
Slide
1-23 SO 6 State the accounting equation, and define its components.
Equity
Ownership claim on total assets.
Referred to as residual equity.
Share capital and retained earnings.
Slide
1-24 SO 6 State the accounting equation, and define its components.
The Basic Accounting Equation
Illustration 1-7
Revenues result from business activities entered into for the purpose
of earning income.
Generally results from selling merchandise, performing services,
renting property, and lending money.
Slide
1-25 SO 6 State the accounting equation, and define its components.
Slide
1-26 SO 6 State the accounting equation, and define its components.
The Basic Accounting Equation
Illustration 1-7
Slide
1-27 SO 6 State the accounting equation, and define its components.
Solution on
Slide
1-28
notes page SO 6 State the accounting equation, and define its components.
Using The Accounting Equation
Slide
1-29 SO 7 Analyze the effects of business transactions on the accounting equation.
Purchase product
Event Pay rent.
computer. design with
customer.
Record/
Don t
Record
Slide
1-30 SO 7 Analyze the effects of business transactions on the accounting equation.
Using The Accounting Equation
Transaction Analysis
Slide
1-31 SO 7 Analyze the effects of business transactions on the accounting equation.
Transaction Analysis
Transaction (1). Investment by Shareholders. Ray and Barbara Neal
decide to open a computer programming service which they name
Softbyte. On September 1, 2014, they invest €15,000 cash in exchange for
€15,000 of ordinary shares.
Illustration 1-10
Slide
1-32 LO 7
Transaction Analysis
Transaction (2). Purchase of Equipment for Cash. Softbyte purchases
computer equipment for €7,000 cash.
Illustration 1-10
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1-33 LO 7
Transaction Analysis
Transaction (3). Purchase of Supplies on Credit. Softbyte purchases
for €1,600 from Acme Supply Company computer paper and other supplies
expected to last several months. The purchase is on account.
Illustration 1-10
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1-34 LO 7
Transaction Analysis
Transaction (4). Services Provided for Cash. Softbyte receives €1,200
cash from customers for programming services it has provided.
Illustration 1-10
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1-35 LO 7
Transaction Analysis
Transaction (5). Purchase of Advertising on Credit. Softbyte receives a
bill for €250 from the Daily News for advertising but postpones payment
until a later date.
Illustration 1-10
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1-36 LO 7
Transaction Analysis
Transaction (6). Services Provided for Cash and Credit. Softbyte
provides €3,500 of programming services for customers. The company
receives cash of €1,500 from customers, and it bills the balance of €2,000
on account.
Illustration 1-10
Slide
1-37 LO 7
Transaction Analysis
Transaction (7). Payment of Expenses. Softbyte pays the following
expenses in cash for September: store rent €600, salaries and wages of
employees €900, and utilities €200.
Illustration 1-10
Slide
1-38 LO 7
Transaction Analysis
Transaction (8). Payment of Accounts Payable. Softbyte pays its €250
Daily News bill in cash.
Illustration 1-10
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1-39 LO 7
Transaction Analysis
Transaction (9). Receipt of Cash on Account. Softbyte receives €600 in
cash from customers who had been billed for services [in Transaction (6)].
Illustration 1-10
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1-40 LO 7
Transaction Analysis
Transaction (10). Dividends. The corporation pays a dividend of €1,300
in cash.
Illustration 1-10
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1-41 LO 7
Transactions Analysis
Illustration 1-10
Summary of Transactions Tabular summary of
Softbyte transactions
Slide
1-42 SO 7 Analyze the effects of business transactions on the accounting equation.
Financial Statements
Slide
1-43 SO 8 Understand the four financial statements and how they are prepared.
Financial Statements
Review Question
Net income will result during a time period when:
a. assets exceed liabilities.
b. assets exceed revenues.
c. expenses exceed revenues.
d. revenues exceed expenses.
Solution on
notes page
Slide
1-44 SO 8 Understand the four financial statements and how they are prepared.
Financial Statements Income Statement
Slide
1-45 SO 8 Understand the four financial statements and how they are prepared.
Illustration 1-11
Financial statements and
their interrelationships
Slide
1-46 SO 8
Retained Earnings
Financial Statements Statement
Slide
1-47 SO 8 Understand the four financial statements and how they are prepared.
Financial
Statements
The ending
balance in
retained
earnings is
needed in
preparing the
statement of
financial position
Illustration 1-11
Financial statements and
their interrelationships
Slide
1-48 SO 8 Understand the four financial statements and how they are prepared.
Financial Statements Balance Sheet
Illustration 1-11
Financial statements and
their interrelationships
Slide
1-49 SO 8 Understand the four financial statements and how they are prepared.
Financial
Statements
Illustration 1-11
Financial statements and
their interrelationships
Slide
1-50
Financial Statements
Slide
1-51 SO 8 Understand the four financial statements and how they are prepared.
Illustration 1-11
Financial statements and
their interrelationships
Slide
1-52 SO 8 Understand the four financial statements and how they are prepared.
Answer on
notes page
Slide
1-53 SO 8 Understand the four financial statements and how they are prepared.
Financial Statements
Review Question
Which of the following financial statements is prepared
as of a specific date?
a. Balance sheet.
b. Income statement.
c. Retained earnings statement.
d. Statement of cash flows.
Solution on
notes page.
Slide
1-54 SO 8 Understand the four financial statements and how they are prepared.
Understanding U.S. GAAP
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1-55
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Understanding U.S. GAAP
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Both the IASB and the FASB are hard at work developing
standards that will lead to the elimination of major differences in
the way certain transactions are accounted for and reported.
Consider, for example, that as a result of a joint project on the
conceptual framework, the definitions of the most fundamental
elements (assets, liabilities, equity, revenues, and expenses) may
actually change. However, whether the IASB adopts internal
control provisions similar to those in SOX remains to be seen.
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1-58
Career Opportunities APPENDIX
Show me
the Money
Slide
1-59 SO 9 Explain the career opportunities in accounting.
Copyright
Copyright © 2011 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted in
Section 117 of the 1976 United States Copyright Act without the
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Request for further information should be addressed to the
Permissions Department, John Wiley & Sons, Inc. The purchaser
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programs or from the use of the information contained herein.
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