Chapter 1- Financial Accounting I - P

8/11/2019 Chapter 1- Financial Accounting I - P

http://slidepdf.com/reader/full/chapter-1-financial-accounting-i-p 1/14

Financial Accounting I

Chapter 1: Accounting and the BusinessEnvironment

Pamela Gonzalez, MBA



Accounting and the BusinessEnvironment

Accounting

Information system that

provides essentialinformation about the

financial activities of abusiness entity to various

individuals or groups for theiruse in making informed

decisions.

Financial Accounting

Outsiders

Managerial Accounting

Insiders




Business Set goals and measure them

Investors Analyze potential earnings andperformance

Creditors Ability to make the loan payments

Taxing Authorities Figure income tax

CPA – Certified Public Accountans (serve general

public)

CMA – Certified Management Accountants (work for single

company)

FinancialStatement

s




SEC

FASB

PCAOB --AICPA --IMA

US FinancialMarkets

AccountingStandards

Guidelines




Proprietorship

Partnership Corporation LLP/LLC Not-for-profit

One Owner

Limited life

Propietor ispersonallyliable

Two or moreOwners

Limited life

Partners arepersonallyliable

ManyOwners(stockholders)

Unlimited life

Stockholdersnot personallyliable

Members

Unlimited life

Members notpersonallyliable

None

Unlimited life

Fiduciaryliability




PROPRIETORSHIP

Separate legal entity

No continuous life or transferability of ownership

Unlimited liability of owner

Unification of ownership and management

Business taxation

Government regulation




GAAP(Generally Accepted Accounting Principles)

Entity Concept

FaithfulRepresentarion

Principle

Cost PrincipleGoing – Concern

Principle

StableMonetary Unit

Concept

One businessseparate from

its ownersData faithfullyrepresents the

measurement ordescription of that

data

Assets and servicesshould be recorded attheir actual cost(amount paid).

Will remain inoperation for the

foreseeable future

Stable currencybuying power




Assets Liabilities Equity

Everything thebusiness ownsthat has value

Everything thebusiness owes

Net worth

Revenues –

ExpensesDrawings




Assets Liabilities Equity

Transactions affect whatthe company owns, owes

or its net worth

1. The e-learning agency received $30,000 cash and gave capital to Sheena Bright.2. Paid $20,000 cash for land.3. Bought $500 of office supplies on account.4. Received $5,500 cash from clients for service revenue earned.5. Performed services for clients on account, $3,000.6. Paid cash expenses: computer rent, $600; office rent, $1,100; employee salary, $

utilities, $400.1. Paid $300 on the account payable created in transaction2. Bright buys $200 of groceries. This is not a transaction of the business.3. Collected $1,000 on the account receivable created in transaction4. Sold land for cash at its cost of $9,000.5. Owner withdrew cash of $2,000.



Income StatementStatement of Owner ’s EquityBalance Sheet

Statement of Cash Flow




IncomeStatement

Statementof Owner’s

Equity

BalanceSheet

Statementof Cash

Flow

Statement of Earnings or Statement of Operations

Presents a summary of revenues and expenses for a period of time;it tells us whether the business enjoyed net income or suffered netloss.




IncomeStatement


Equity

BalanceSheet

Statementof Cash

Flow

Shows the changes in capital for a business entity during a timeperiod, such as month, quarter, or year.




IncomeStatement


Equity

BalanceSheet

Statementof Cash

Flow

Statement of financial position

Lists a business entity’s assets, liabilities and owner ’s equity as of aspecific date, usually the end of a month, quarter or year.



Documents

Chapter 1- Financial Accounting I - P