Professional Documents
Culture Documents
Chapter 1
Organization Accountability
Fiduciary obligation to manage the resources of an organization responsibly Stakeholders investors, creditors, suppliers, employees, customers, government agencies, and investees
Business Activities
Financing Investing Operating
Accounting
Measures Processes Communicates Financial information to decision makers
Managerial Accounting
Helps managers plan, control, and make decisions
GAAP
Generally Accepted Accounting Principles - established rules, principles, and concepts Formulated by Financial Accounting Standards Board (FASB)
GAAP
Primary objective of financial accounting provide information that is useful for making investment and lending decisions
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Entity Concept
Accounting Entity organization that stands apart as a separate economic unit
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Cost Principle
Acquired assets and services should be recorded at their actual cost (historical cost)
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Assets
Economic resources, expected to benefit the business in the future
Cash Accounts receivable Merchandise inventory Furniture Land
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Assets
Economic Resources
Revenues
Amounts earned by delivering goods or services to customers
Sales revenue Service revenue Interest revenue Dividend revenue
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Expenses
Decrease in owners equity - occurs from using resources in the course of delivering goods or services to customers
Salary expense Rent expense Utilities expense Interest expense
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Ending Owner Owner + Net Income = Balance of Investments Withdrawals (Net Loss) Owners Equity
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Transaction
An event that affects the financial position of a particular entity and can be recorded reliably
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Financial Statements
Income statement Statement of owners equity Balance sheet Statement of cash flows
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Income Statement
Summary of an entitys revenues, expenses, and net income or net loss for a specific period Revenues - Expenses
Net Income: Revenues > Expenses Net Loss: Expenses > Revenues
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Balance Sheet
Reports the entitys assets, liabilities, and owners equity as of a specific date Assets = Liabilities + Owners Equity
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K. Hobt, D.D.S. Income Statement For the Month Ended July 31, 2007 Revenue: Fees earned Expenses: Rent expense Net income
Double underline for your final answer
Copyright 2007 Prentice-Hall. All rights reserved 30
$7,000
1,000 $6,000
K. Hobt, D.D.S. Statement of Owners Equity income From statement Dates are For the Month Ended July 31, 2007
$ 0 60,000 6,000 $66,000 0 $66,000
July 1, 2007 Add: Investment by owner Net income for the month Subtotal Less: Withdrawals by owner K. Hobt, capital, July 31, 2007
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Details, Details
Note the headings for both of these statements
Name of company Name of financial statement For the period ended .
Both statements report activity over a period of time Final sums are double-underlined
Copyright 2007 Prentice-Hall. All rights reserved 32
Details, Details
Negative amounts are presented in parentheses Net income is computed first because you need that number to complete the ending balance in owners equity When preparing a financial statement, clearly label each line in the statement
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Details, details
If you are using columnar paper, always start your number columns in the far right-hand column Numbers that are added or subtracted from each other should be in the same column
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$ 66,500
Liabilities Accounts payable $500 Owners equity, M. Lange, capital 66,000 Total liabilities and owners equity $ 66,500
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Details, Details
Note - heading for the balance sheet is different from other statements Name of company Name of financial statement Date This statement reports what the company owns and who has claims to the assets at a specific point in time
Copyright 2007 Prentice-Hall. All rights reserved 36
Exercise 1-20 1Hawkins Graphic Design Balance Sheet November 30, 2009 Assets Cash Accounts receivable Supplies Equipment $2,000 6,900 600 15,500 Liabilities Accounts payable Note payable Total liabilities Owners Equity A. Samuel, capital Total Assets $25,000 14,500 $2,500 8,000 $10,500
Ethics
Audit
Examination of companys financial situation Performed by independent accountants (CPAs)
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End of Chapter 1
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