1 / 51

Accounting and the Business Environment

Accounting and the Business Environment. Chapter 1. Define accounting, and describe the users of accounting information. Objective 1. Accounting. is an information system that. measures business activities,. processes information, and. communicates financial information. $. €. ¥. £.

Télécharger la présentation

Accounting and the Business Environment

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Accounting and theBusiness Environment Chapter 1

  2. Define accounting, and describe the users of accounting information. Objective 1

  3. Accounting... is an information system that... measures business activities, processes information, and communicates financial information.

  4. $ € ¥ £ Accounting... is called the language of business.

  5. Is my business making a profit? Should I hire assistants? Am I earning enough money to expand my business? Business Decisions ...

  6. Users of Accounting Information Individuals Businesses Investors Creditors Accounting Information Government Regulatory & Taxing Agencies Non-profit Organizations Other

  7. Provides information to people outside the company Provides information for internal decision makers Fields of Accounting Financial Accounting Management Accounting

  8. Explain why ethics and rules of conduct are crucial in accounting and business. Objective 2

  9. Potential for Conflict Ethical Consideration in Accounting and Business Users need relevant and reliable information Companies want to look as good as possible to attract investors

  10. Professional Accounting Bodies and Standards of Professional Conduct Certified General Accountants (CGA) Chartered Accountants (CA) Certified Management Accountants (CMA) Standards of Ethical Conduct for each of the professional organizations

  11. Describe and discuss the forms of business organizations. Objective 3

  12. Types of Business Organizations Proprietorships Partnerships Corporations

  13. 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

  14. 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

  15. Corporations • What are some advantages? • separate legal existence • limited liability of shareholders • transferability of ownership relatively easy • indefinite life of organization • What are some disadvantages? • more costly to operate • extensive governmental regulation

  16. Explain the development of accounting standards, and describe the concepts and principles. Objective 4

  17. Development of AccountingStandards Accounting Standards Board (AcSB) of the Canadian Institute of Chartered Accountants (CICA) Generally Accepted Accounting Principles (GAAP)

  18. Level 1 Objective of financial reporting Level 2 Qualitative characteristics of accounting information Level 3 Elements of Financial Statements Level 4 Recognition and measurement criteria Conceptual Framework

  19. Level 1: Objective of Financial Reporting • To provide information useful for making investment and lending decisions. • To assess management’s stewardship.

  20. Level 2: Qualitative Characteristics of Accounting Information • To be useful, information must be: • understandable; • relevant; • reliable; • comparable; and • consistent.

  21. Level 3: Elements of Financial Statements • Assets • Liabilities • Equity • Revenues • Gains • Expenses • Losses

  22. Level 4: Recognition andMeasurement Criteria • Assumptions • Going Concern • Monetary Unit • Economic Entitty • Time Period • Principles • Revenue Recognition • Matching • Full Disclosure • Cost • Constraints • Cost/Benefit • Materiality

  23. The Economic Entity Assumption • Transactions of each entity are accounted for separately from the transactions of all other organizations and persons. • Example: Keep business transactions separate from the personal transactions of the owner.

  24. The Reliability Characteristic Information must be free from bias. Information must be accurate and verifiable. Information must report what actually happened. Individuals would arrive at similar conclusions using same data.

  25. The Cost Principle Assets and services acquired should be recorded at their actual cost.

  26. The Going-Concern Assumption The entity will remain in operation in the foreseeable future.

  27. The Stable-Monetary-Unit Assumption The dollar’s purchasing power is relatively stable.

  28. Describe and use the accounting equation to analyze business transactions. Objective 5

  29. The Accounting Equation = Assets Liabilities + Owner’s Equity Claims to Economic Resources Economic Resources

  30. Asset • What is an asset? • It is a resource owned that has future benefit. • cash, office supplies, merchandise • furniture, land, buildings

  31. Liability • What is a liability? • It is something a company owes. • money • service – legal retainers • product – magazines

  32. 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

  33. Transactions that AffectOwner’s Equity INCREASES DECREASES Owner Withdrawals from the Business Owner Investments in the Business Owner’s Equity Revenues Expenses

  34. Revenues • What are revenues? • They are amounts earned by delivering goods or services to customers. • sales • performance of services • rent earned • interest earned

  35. 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

  36. Accounting for Business Transactions • What is a transaction? • It is an event that must always satisfy two conditions: • it affects the financial position of the business; • it can be reliably recorded.

  37. Accounting for Business Transactions: An Example • John Lapp invests $60 000 to begin SuperTravel. • SuperTravel purchases land for an office location, paying $40 000 in cash. • SuperTravel buys office supplies, agreeing to pay $1 000 in 30 days. • SuperTravel earns and collects service revenue of $5 000.

  38. Accounting for Business Transactions • SuperTravel performs services, and the client agrees to pay $6 000 within one month. • During the month, SuperTravel pays $5 200 for expenses incurred. • SuperTravel 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?

  39. Accounting for Business Transactions Owner’s Assets = Liabilities + Equity 1) Cash + $60 000 + $60 000 2) Cash – 40 000 Land + 40 000 3) Supplies + 1 000 + 1 000 4) Cash + 5 000 + 5 000 5) Receivable + 6 000 + 6 000 6) Cash – 5 200 – 5 200 7) Cash – 800 – 800 Totals + $66 000 + 200 + $65 800

  40. Accounting for Business Transactions • Notice that the equation always stays in balance. • Each transaction affects at least two accounts, sometimes more. • Some transactions affect only one side of the equation; some affect both sides.

  41. Accounting for Business Transactions Other transactions that took place were as follows: • Remodelled John Lapp’s personal residence. • The business collected $2 000 from the client. • SuperTravel sold some land at cost for $22 000. • John Lapp withdrew $2 000 from the business. • What is the effect of these additional transactions on the accounting equation?

  42. Prepare and evaluate the financial statements. Objective 6

  43. Financial Statements... ... are the formal reports of an entity’s financial information. ... show how the business is performing and where it stands.

  44. Financial Statements • Income Statement • Statement of Owner’s Equity • Balance Sheet • Cash Flow Statement • Let’s look at the relationships among the financial statements

  45. SuperTravelIncome Statementfor the Month Ended April 30, 2007 Revenue: Service revenue $11 000 Expenses: Rent expense $2 200 Salary expense 2 400 Utilities expense 600 Total expenses 5 200 5 200 Net income $5 800

  46. SuperTravelStatement of Owner’s Equity for the Month Ended April 30, 2007 John Lapp, Capital, April 1, 2007 $ 0 Investment by owner 60 000 Net income for the month 5 800 Withdrawals by owner ( 2 000) John Lapp, Capital, April 30, 2007 $63 800

  47. SuperTravelBalance SheetApril 30, 2007 Assets Cash $ 41 000 Accounts receivable 4 000 Office supplies 1 000 Land 18 000 Total assets $ 64 000 Liabilities Accounts payable $ 200 Owner’s Equity J. Lapp, Capital 63 800 Total liabilities and owner’s equity $ 64 000

  48. SuperTravel Cash Flow Statement for the Month Ended April 30, 2007 Cash flows from operating activities: Cash collections from customers $7 000 Cash payments to suppliers ( 3 600) Cash payments to employees ( 2 400) Net cash inflow from operating activities $ 1 000 Cash flows from investing activities Acquisition of land ($40 000) Proceeds from sale of land 22 000 Net cash outflow from investing activities ($ 18 000)

  49. Cash flows from financing activities: Investment by owner $60 000 Withdrawal by owner ( 2 000) Net cash inflow from financing activities $ 58 000 Net increase in cash $ 41 000 Cash balance, April 1, 2007 0 Cash balance, April 30, 2007 $41 000 SuperTravel Cash Flow Statement for the Month Ended April 30, 2007 (continued)

  50. Analysis of the Financial Statements Using the financial statements answer the following questions: • Did the business generate net income or a net loss? • What was the business’s largest expense? • How much cash does the company have at the end of April? • How much does the company owe outsiders at April 30?

More Related