Post on 28-Dec-2015
The Basis for Business Decisions
Accounting
Accounting and theBusiness
Environment
Chapter 1
Objective 1
Use accounting vocabulary
1.1 What is Accounting
Key words
• Financial statements 财务报表
• Investors 投资者• Creditors 债权人• Entity 实体• Financial accounting
财务会计
• Management accounting 管理会计• FASB 财务会计准则委员会• CPAs 注册会计师• CMAs 注册管理师• AICPA 美国注册会计师协会• IMA 管理会计师协会
• GAAP 公认会计原则
• Measures
• Processes
• Communicates…..
Financial information to decision makers
is an information system that…is an information system that…
1.Definition of Accounting
is called the language of business.is called the language of business.
Accounting...
External usersmake decisionsabout the entity.
External usersmake decisionsabout the entity.
Internal usersmake decisionsfor the entity.
Internal usersmake decisionsfor the entity.
2.Users of Accounting Information
Users of Accounting Information
External Users
•Lenders
•Shareholders
•Governments
•Consumer Groups
•External Auditors
•Customers
Internal Users
•Managers
•Officers/Directors
•Internal Auditors
•Sales Staff
•Budget Officers
•Controllers
C 2
External vs. Internal UsersInternal Users
Decision Making by:• Management• Employees
External Users
Decision making by:• Investors• Creditors
Management AccountingManagement Accounting
Financial AccountingFinancial Accounting
3. Fields of Accounting
Provides information for people outside the company.
Focuses on information for internal decision makers
1.2 Regulating Accounting
Let’s look at the
governing organization
s
The stock market The stock market crash of 1929 lead to crash of 1929 lead to federal regulation of federal regulation of the securities market.the securities market.
The Securities and The Securities and Exchange Exchange Commission (SEC) Commission (SEC) adopted strict adopted strict regulations for regulations for companies issuing companies issuing stock.stock.
Companies are Companies are required to file and required to file and disclose extensive disclose extensive financial information financial information to protect investors.to protect investors.
October 29, 1929October 29, 1929The Dow Jones IndustrialThe Dow Jones Industrial
AverageAverage
The Dow Jones The Dow Jones
Industrial AverageIndustrial Average
October 29, 1929October 29, 1929
Unregulated marketplace
gulated marketplace
Down the tubes!
1.Governing Organizations
(SEC) Securities and Exchange Commission
(AICPA) American Institute of Certified Public Accountants
(FASB) Financial Accounting Standards Board
(IMA) Institute of Management Accountant
A governmental agency with oversight powers.
The private professional organization of practicing CPAs.
Private sector agency that formulate accounting standards
Public Sector(SEC)
Public Sector(SEC)
Private Sector(FASB)
Private Sector(FASB)
Private Sector(AICPA) (IMA)
Private Sector(AICPA) (IMA)
GAAPGAAP
The Authority Underlying Accounting in the U.S
International Accounting StandardsInternational Accounting Standards
The International Accounting Standards Committee (IASC) was formed in 1973 and recently renamed International Accounting Standards Board (IASB)
The objective is to narrow divergence in international financial reporting.
U.S standards determined by the FinancialU.S standards determined by the FinancialAccounting Standards Board (FASB); international Accounting Standards Board (FASB); international accounting standards under development by theaccounting standards under development by theInternational Accounting Standards Committee (IASC).International Accounting Standards Committee (IASC).
Accounting ProfessionalsAccounting Professionals
• Public Accountants– Work in public accounting– CPA’s specialize in tax preparation,
consultation, auditing, and management
• Private Accountants– Work for businesses/corporations– Prepare financial statements, internal audits,
and management reports
Accounting Jobs by Area
Government,not-for-profit,& education
15%
Publicaccounting
25%
Privateaccounting
60%
C 3
Key words
• Proprietorship 独资• Partnership 合伙• Corporation 公司• Liability 负债• The going-concern concept 持续经营概
念
1.3Types of Business Organizations
Sole Proprietorship
Sole Proprietorship
PartnershipPartnership CorporationCorporation
C 5
1. Sole Proprietorship
• A business is owned by a single individual.
2. Partnership• A business is owned by two or more
owners.
3. Corporation • A business is owned by stockholders• entity that legally functions separate
and apart from its owners.• Owners’ liability is limited to the
amount of their investment in the firm.• Owners hold common stock certificates,
and ownership can be transferred by selling the certificates.
Sole Proprietorship
• Advantages– Easiest to start
– Least regulated
– Single owner keeps all the profits
– Taxed once as personal income
• Disadvantages– Limited to life of
owner
– Equity capital limited to owner’s personal wealth
– Unlimited liability
– Difficult to sell ownership interest
Partnership
• Advantages– Two or more owners
– More capital available
– Relatively easy to start
– Income taxed once as personal income
• Disadvantages– Unlimited liability
• General partnership
• Limited partnership
– Partnership dissolves when one partner dies or wishes to sell
– Difficult to transfer ownership
Corporation
• Advantages– Limited liability
– Unlimited life
– Separation of ownership and management
– Transfer of ownership is easy
– Easier to raise capital
• Disadvantages– Separation of
ownership and management
– Double taxation (income taxed at the corporate rate and then dividends taxed at personal rate)
Who Are The Decision Makers In A Corporation?
• Chief Executive Officer CEO• Chief Operations Officer COO• Chief Financial Officer CFO
– Financial manager• Treasurer
• Controller
TreasurerCapital BudgetingCash ManagementCredit Management
Dividend DisbursementFin Analysis/PlanningPension ManagementInsurance/Risk MngmtTax Analysis/Planning
Organization of the Financial Management Function
VP of Finance
ControllerCost Accounting
Cost ManagementData ProcessingGeneral Ledger
Government ReportingInternal Control
Preparing Fin StmtsPreparing Budgets
Preparing Forecasts
Basic Business Forms
Type of Operations
Merchandising - a business that sells ready made merchandise (typical retailer).
Manufacturing - a business that converts raw materials to finished goods to sell to customers.
Service - a business that provides a service to customers.
PAUSE AND REFLECT
Can you think of a business that fits into each of these categories?
Wal-Mart is a merchandiser; General
Motors is a manufacturer; American Express is a
service business.
Wal-Mart is a merchandiser; General
Motors is a manufacturer; American Express is a
service business.
Objective 2
Apply accountingconcepts and
principles
To provide information usefulfor making investment and
lending decisions
To provide information usefulfor making investment and
lending decisions
1.4 Generally AcceptedAccounting Principles
• What is the primary objective of financial reporting?
Information must be • Relevant
• Reliable
• Comparable
GAAP Accounting guidelines that govern how
accountants measure, process, and communicate financial information
G A PA
Formulated by FASB
1.The Entity Concept
Organization that stands apart as a separate economic unit
Although a proprietor is not legally distinct from the business activities of the proprietorship, the Entity Concept requires that the transactions of the business (proprietorship) are accounted for separately from the transactions of the proprietor.
Business Entity AssumptionBusiness Entity Assumption• The economic entity can be identified with
a particular unit of accountability.• The economic entity assumption is an
accounting concept, and not a legal construct.
Business Entity Concept• Accounts are kept for entities, rather than for
the persons who own, operate, or otherwise are associated with those entities.
• Eg. Suppose Green Company is a business entity, and Sue Smith is its owner.
• Sue Smith withdraws $100 from the business.• In preparing financial accounts for Green
Company, we should record the effect of this withdrawal on the accounts of ... ..[Sue Smith / the entity].
The Entity Concept Example
• Assume that John decides to open up a gas station and coffee shop.
• The gas station made $250,000 in profits, while the coffee shop lost $50,000.
The Entity Concept Example
• How much money did John make?
• At a first glance, we would assume that John made $200,000.
• However, by applying the entity concept we realize that the gas station made $250,000 while the coffee shop lost $50,000.
2.The Reliability/Objectivity Principle
Accounting information is based on the most reliable data available
3.The Cost Principle
Acquired assets and services should be recorded at their actual cost (historical cost)
Acquired assets and services should be recorded at their actual cost (historical cost)
Historical Cost Principle
All transactions are recorded at historical cost.
Historical cost is assumed to represent the fair market value of the item at the
date of the transaction because it reflects the actual use of resources by
independent parties.
All transactions are recorded at historical cost.
Historical cost is assumed to represent the fair market value of the item at the
date of the transaction because it reflects the actual use of resources by
independent parties.
Eg. The fair value of most assets is known on the date the assets was acquired because the buyer and the seller agreed on the amount.If Garsden Company purchased a plot of land in 2003 for $100000,this land would have been reported on its December 31,2003 balance sheet as $100000.What was its fair value on December 31,2004?
A.$100000
B.More than $100000
C.Gardson doesn’t know.
Eg. The fair value of most assets is known on the date the assets was acquired because the buyer and the seller agreed on the amount.If Garsden Company purchased a plot of land in 2003 for $100000,this land would have been reported on its December 31,2003 balance sheet as $100000.What was its fair value on December 31,2004?
A.$100000
B.More than $100000
C.Gardson doesn’t know.
Eg. The two reasons why accounting focuses on costs,rather than on fair values for some assets are:
1.Fair values are difficult to estimate;that is ,they are ________,whereas costs are_________. [objective/subjective]
2.The __________ concept makes it unnecessary to know the market value of many assets;the assets will be used in future operations rather than being sold immediately.
Eg. The two reasons why accounting focuses on costs,rather than on fair values for some assets are:
1.Fair values are difficult to estimate;that is ,they are ________,whereas costs are_________. [objective/subjective]
2.The __________ concept makes it unnecessary to know the market value of many assets;the assets will be used in future operations rather than being sold immediately.
GOING CONCERN CONCEPT
0
5
10
15
20
25
30
35
Food Gas Motel
Jan
Feb
Mar
Apr
May
Jun
The foreseeable future
The business at work today
Assumes that the entity will remain in operation for the foreseeable future
Assumes that the entity will remain in operation for the foreseeable future
4.The Going Concern Concept
Going Concern Assumption• The business is assumed to continue
indefinitely unless terminated by owners.
• The basis of recording financial elements is historical accounting.
• Liquidation accounting (based on liquidation values) is not followed unless so indicated.
Eg. The ______________ concept states that accounting assumes that an entity will continue to operate indefinitely unless there is evidence to the contrary.
Eg. The ______________ concept states that accounting assumes that an entity will continue to operate indefinitely unless there is evidence to the contrary.
Eg. On December 31,2004,the balance sheet of Hamel Company reported total assets of $500000.If Hamel Company ceases to operate now,
A.its assets could be sold for $500000.
B. its assets could be sold for approximately $500000.
C. its assets could be sold for at least $500000.
D.we don’t know what its assets could be sold for.
Eg. On December 31,2004,the balance sheet of Hamel Company reported total assets of $500000.If Hamel Company ceases to operate now,
A.its assets could be sold for $500000.
B. its assets could be sold for approximately $500000.
C. its assets could be sold for at least $500000.
D.we don’t know what its assets could be sold for.
The dollar’s purchasingpower is stable.
The dollar’s purchasingpower is stable.
5.The Stable-Monetary-Unit Concept
Monetary Unit• Money is the common unit of measure of
economic transactions.• Use of a monetary unit is relevant,
simple to understand and universally available.
• Price level changes are ignored in accounting, leading to the assumption that the dollar remains relatively stable.
money-measurement Concept
• Eg. If a fruit store owned $200 in cash, 100 dozen oranges, and 200 apples,
could you add up its total assets from this information? ... [Yes / No]
• If you knew that the 100 dozen oranges cost $5 a dozen and the 200 apples cost $0.40 each, you could then add these amounts to the
• $200 cash, and find the total assets to be $
• To add together objects as different as apples, oranges, automobiles, shoes, cash, supplies, etc.;
• they must be stated in . . …….. [different /
similar] units.
• Can you add the amounts of apples and oranges if they are stated in terms of money? . . . [Yes / No]
• The money-measurement concept states that accounting reports only those facts that can be stated as m___________ amounts.
The main concepts and principles
• The entity concept
• The reliable principle
• The cost principle
• The going-concern concept
• The stable-monetary-unit concept
Objective 3Objective 3
Use the accounting equation
Key words• Assets 资产• Liabilities 负债• Owner’s equity 所有者权益• Accounts receivable 应收账款• Accounts payable 应付账款• Notes payable 应付票据
1.5 Accounting Elements
The key elements of a business balance sheet.
• Assets 、 Liabilities and Owner’s equity
The key elements of a business income statement.
• Revenues and expenses
1. Assets
• Asset are economic resources owned or controlled by a business that are expected to benefit future operations.
Something a business owns.
Or
Eg. For an item to be listed as an assets,it must meet three requirements:
1.It must be ______ed or c_______ed by the entity;
2.It must be v_________to the entity;
3.It must have been acquired at a m________ cost.
Eg. For an item to be listed as an assets,it must meet three requirements:
1.It must be ______ed or c_______ed by the entity;
2.It must be v_________to the entity;
3.It must have been acquired at a m________ cost.
owned ontroll
aluable
onetary
PAUSE AND REFLECT
Can you List the assets of your business ?
Cash, inventory,building,equipments,
Accounts receivable…
Cash, inventory,building,equipments,
Accounts receivable…
2. Liability
• Economic obligations payable to an individual or organization outside the business
Something a business owes
Or
Accounts payableNotes payableSalary payable
3.Owner’s Equity (capital) • Claim of business owner to the assets of
the business
– the same as net assets
4.Revenues
• Amounts earned by delivering goods or services to customers– Sales revenue– Service revenue– Interest revenue– Dividend revenue
• Decrease in owner’s equity that occurs from using assets or increasing liabilities in the course of delivering goods or services to customers– Salary expense– Rent expense– Utilities expense– Interest expense
5. Expenses
Expenses
• Cost of doing business
• A firm cannot generate revenue without expenses.
1.6 Accounting Equation
balance sheet equation
(basic accounting equation)
Assets = Liabilities + Owners’ Equity
Slide 2.8
EconomicResources
Claims toEconomicResources
The Accounting Equation
Assets = Liabilities + Owner’s Equity
Accounting Equation• Assets = Liabilities + Owners’ Equity
Sources of Funding
Creditors’claimsagainst
resources
= + Owners’claimsagainst
resources
Resources
Resources to use to generate revenues
Other forms of accounting equation
Assets - Liabilities
= Owners’ Equity
Keep in mind the fundamental accounting equation:
___________=__________+____________.
Keep in mind the fundamental accounting equation:
___________=__________+____________.
Exercise 1-18
Assets Liabilities Owner’s Equity
Pep Boys $ ? $60,000 $21,000
Eddie Bauer 72,000 ? 40,000
Benbrook Exxon
100,000 79,000 ?
$81,000
32,000
21,000
PAUSE AND REFLECT
If a business has $200,000 in assets and $50,000 in liabilities, what is the total of its owners equity?
If the business borrows $20,000 and uses it to purchase a piece of equipment, how does owners’ equity change?
Owners’ equity is $150,000. When the
business borrows $20,000 to buy the equipment, liabilities
also go up by $20,000. Owners’ equity is unchanged.
Owners’ equity is $150,000. When the
business borrows $20,000 to buy the equipment, liabilities
also go up by $20,000. Owners’ equity is unchanged.
Income statement equation:
• Revenues – expenses=net income( net loss)
Transactions that AffectOwner’s Equity
OWNER’S EQUITY
INCREASES
OWNER’S EQUITYDECREASES
Owner Investments
Revenues Expenses
Owner Withdrawals
Owner’s Equity
• Capital
• - owner’s withdrawal
• + net income
• +new additional capital
Summary You should remember:Assets are economic resources owned by a
business that are expected to be of benefit in the future.
Liabilities are creditor’s claims to the assetsOwner’s equity is the owner’s claim to the
assets. It’s the amount of assets that remains after subtracting the liabilities.
SummaryOwner’s equity is increased by
owner investments and revenues
owner withdrawals and expenses.
Owner’s equity is decreased by
Objective 4
Analyze business transactions
1.7Accounting for Business Transactions
• What is a transaction?
• An event that affects the financial position of a particular entity and can be recorded reliably
Business Transactions
An economic event Examples of Transactions
Investment of cash by owner Purchase of office equipment Purchase of office supplies for cash Payment of a liability Sale of merchandise
Accounting for Business Transactions
1 Gay Gillen invests $30,000 to begin Gay Gillen eTravel.
2 Gillen purchases an office location, paying $20,000 in cash.
3 She buys office supplies, agreeing to pay $500 in 30 days.
4 She earns and collects $5,500 revenues.
Accounting for Business Transactions
5 Gillen performs services, and the client agrees to pay $3,000 within one month.
6 During the month, she pays $3,100 for expenses incurred.
7 Gillen pays $300 to the store from which she purchased $500 worth of supplies.
• What is the effect of these transactions on the accounting equation?
Owner’s Assets = Liabilities + Equity
1) Cash + $30,000 + $30,0002) Cash – 20,000
Land + 20,0003) Supplies + 500 + 5004) Cash + 5,500 + 5,5005) Receivable + 3,000 + 3,0006) Cash – 3,100 – 3,1007) Cash – 300 – 300 Totals + $35,600 + 200 + $35,400
Accounting for Business Transactions
Accounting for Business Transactions
• Other transactions that took place were as follows:
8.The business collected $1,000 from the client.
9.She sold some land at cost for $9,000.
10.She withdraw $2,100 from the business.
conclusion
• 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.
Exercise 1-22Maria Lange opened a medical practice. During July,
the first month of operation, the business, titled Maria Lange, M.D., experienced the following events.
July 6 Lange invested $45,000 in the business by opening a bank account in the name of M. Lange, M.D.
July 9 Paid $35,000 cash for land.
July 12 Purchased medical supplies for $2,000 on account
July 15-31 During the rest of the month, Lang treated patients and earned service revenue of $7,000, receiving cash.
July 15-31 Paid cash expenses: employees’ salaries, $1,700; office rent, $1,000; utilities, $300.
July 28 Sold supplies to another physician for the cost of those supplies, $500.
July 31 Paid $1,500 on account.
Date Assets Liabilities Owner’s Equity
July Cash Medical Supplies
Land Accounts Payable
M.Lange, Capital
Type of Transaction
Exercise 1-22
45,000 Investment
Assets = $45,000 Liabilities & Owner’s Equity = $45,000
45,0006
Date Assets Liabilities Owner’s Equity
July Cash Medical Supplies
Land Accounts Payable
M.Lange, Capital
Type of Transaction
Exercise 1-22
45,000 Investment
35,000
Assets = $45,000 Liabilities & Owner’s Equity = $45,000
45,0006
-35,0009
45,00035,00010,000Bal
Date Assets Liabilities Owner’s Equity
July Cash Medical Supplies
Land Accounts Payable
M.Lange, Capital
Type of Transaction
Exercise 1-22
2,000
Assets = $47,000 Liabilities & Owner’s Equity = $47,000
2,00012
45,00035,00010,000Bal
45,00035,00010,000Bal 2,0002,000
Date Assets Liabilities Owner’s Equity
July Cash Medical Supplies
Land Accounts Payable
M.Lange, Capital
Type of Transaction
Exercise 1-22
Assets = $54,000 Liabilities & Owner’s Equity = $54,000
7,00015-31 7,000 Revenue
52,00035,00017,000Bal 2,0002,000
45,00035,00010,000Bal 2,0002,000
Date Assets Liabilities Owner’s Equity
July Cash Medical Supplies
Land Accounts Payable
M.Lange, Capital
Type of Transaction
Exercise 1-22
Assets = $51,000 Liabilities & Owner’s Equity = $51,000
52,00035,00017,000Bal 2,0002,000
-1,70015-31 -1,700 Salaries Exp
-1,000 Rent Exp-1,000
- 300 Utilities Exp- 300
49,00035,00014,000Bal 2,0002,000
Date Assets Liabilities Owner’s Equity
July Cash Medical Supplies
Land Accounts Payable
M.Lange, Capital
Type of Transaction
Exercise 1-22
Assets = $51,000 Liabilities & Owner’s Equity = $51,000
500 28 -500
49,00035,00014,500Bal 2,0001,500
49,00035,00014,000Bal 2,0002,000
Date Assets Liabilities Owner’s Equity
July Cash Medical Supplies
Land Accounts Payable
M.Lange, Capital
Type of Transaction
Exercise 1-22
Assets = $49,500 Liabilities & Owner’s Equity = $49,500
-1,500 31 -1,500
49,00035,00014,500Bal 2,0001,500
49,00035,00013,000Bal 5001,500
Exercise 1-17Jake’s Roasted Peanuts, a proprietorship,
supplies snack foods. The business experienced the following events. State whether each event (1) increased, (2) decreased, or (3) had no effect on the total assets of the business. Identify any specific asset affected.
a. Jake’s Roasted Peanuts received a cash investment from the owner.
b. Cash purchase of land for a building site.c. Paid cash on accounts payable.d. Purchased equipment; signed a note payable in
paymente. Performed service for a customer on account.f. The owner withdrew cash from the business for
personal useg. Received cash from a customer on account
receivable.h. Borrowed money from the bank.
Exercise 1-17
a. Increased assets (cash)
b. No effect on total assets
c. Decreased assets (cash)
d. Increased assets (equipment)
Exercise 1-17
e. Increased assets (accounts receivable)
f. Decreased assets (cash)
g. No effect on total assets
h. Increased assets (cash)
Objective 5Objective 5
Prepare the financial statements and evaluate business performance
1.8 Financial Statements
• Income statement
• Statement of owner’s equity
• Balance sheet
• Statement of cash flows
Financial Statement Headings
• Name of the business
• Name of the financial statement
• Date or time period covered by the statement
1.The Income Statement
• Basic Format:
• Revenues - Expenses = Net Income
(Net Loss)
Shows the results of a company’s operations over a period of time.
Gay Gillen eTravelIncome Statement
Month ended April 30,20xx
Revenue:
Fees earned $8,500
Expenses:
Salary expense $1,200
Utilities expense 400
Rental expense 1,100
total expense 2700
Net income $5,800
2.Statement of Owner’s EquityFormat:Owner’s capital, beginning of the periodAdd: Investments by owner Net incomeLess: Withdrawals by owner Net lossOwner’s capital, end of period
Changes in owner’s equity during a specific time period.
G. Gillen, capital, April 1, 20xx $ 0
Add : Investment by owner 30,000
Net income $ 5,400
Less : Withdrawals by owner – 2,100
G. Gillen, capital, April 30, 20xx $33,300
Gay Gillen eTravel Statement of Owner’s Equity
Month ended April 30,20xx
3.The Balance Sheet•Basic Format:
•Assets =liabilities + owner’s equity
Summary of the financial position of a company at a particular date.
What Are Classified and Comparative Balance Sheets?
• They distinguish between– current and non-current assets.– current and long-term liabilities.
• Listed in decreasing order of liquidity.
• Financial statement users can identify significant changes over time. They have more than one year on the Balance Sheet.
AssetsCash $ 40
Accounts receivable 100
Land 200
Total assets $340
LiabilitiesAccounts payable $ 50
Notes payable 150
$200Owners’ EquityCapital stock $100
Retained earnings 40
$140
Total liabilities and owners’ equity $340
Sample of Balance Sheet
Must Equal
4.Statement of Cash Flows
Reflect the cash receipts and cash payments during a period (covered in Chapter 16)
.
What Are The Three Primary Types Of Activities On A Statement Of Cash Flows?
Operating Activities: A company’s day-to-day activities.– Major operating cash inflow—cash receipts from selling
goods or from providing services.– Major operating cash outflow—payments to purchase
inventory and to pay operating expenses.
Investing Activities: Buying and selling long-term assets.
Financing Activities: Cash is obtained from or repaid to owners and creditors.
Statement of Cash Flows
CASH OUTFLOWS
OperatingActivities
FinancingActivities
InvestingActivities
CASH INFLOWS
FinancingActivities
OperatingActivities
InvestingActivities
The Example CompanyStatement of Cash Flows
Month Ended December 31, 2003
Cash Flows From Operating Activities:Receipts 48 Payments (43) 5
Cash Flows From Investing Activities:Receipts 0 Payments (4) (4)
Cash Flows Used By Financing Activities:Receipts 10 Payments (6) 4
Net Cash Flow 5
Sample Statement of Cash Flows
Relationships Among the Statements:
Income StatementRevenue:
Fees earned $8,500
Expenses:
Salary expense $1,200
Utilities and telephone expense 400
Equipment rental expense 400
Office rent expense 1,100 3,100
Net income $5,400
G. Gillen, capital, April 1, 20xx $ 0
Contribution of capital 30,000
Net income $ 5,400
Cash distributions – 2,100
G. Gillen, capital, April 30, 20xx $33,300
Relationships Among the Statements:
Statement of Owner’s Equity
Relationships Among the Statements:
Balance Sheet
Assets
Cash $ 20,000
Accounts receivable 2,000
Supplies 500
Land 11,000
Total assets $ 33,500
Liabilities
Accounts payable $ 200
Owner’s equity,
G. Gillen, capital 33,300
Total liabilities and
owner’s equity $33,500
Exercise 1-24
The account balances of Allen Samuel Road Service at November 30, 2009, follow.
Requirements:
1. Prepare the balance sheet of the business at November 30, 2009.
2. What does the balance sheet report-financial position or operating results? Which financial statement reports the other information?
Equipment $15,500 Service revenue $12,000
Supplies 500 Accounts receivable 6,000
Note payable 5,000 Accounts payable 3,500
Rent expense 800 Allen Samuel, capital ?
Cash 2,000 Salary expense 2,000
Cash $2,000
Accounts receivable 6,000
Supplies 500
Equipment 15,500
Total Assets $24,000
Allen Samuel Road ServiceBalance Sheet
November 30, 2009
Liabilities
Accounts payable $3,500
Note payable 5,000
Total liabilities $8,500
Owner’s Equity
A. Samuel, capital 15,500
Total liabilities and owner’s equity $24,000
Assets
Exercise 1-24
Exercise 1-25Ciliotta Design Studio
Income StatementYear Ended December 31, 2006
Service revenue $158,100Expenses:
Salary expense $60,000
Rent expense 24,000
Utilities expense 6,800
Supplies expense 4,000
Property tax expense 1,200
Total expenses 96,000
Net income $62,100
Exercise 1-25
2. Owner’s withdrawals:
Ciliottas, capital, beginning of year $ 0
Add: Net income 62,100
Investment by owner 15,000
Subtotal $77,100
Less: Owner withdrawal ?
Ciliotta, capital, end of year $27,100 50,000
Problems 1-29ABest Foot Forward
Income Statement
Month Ended September 30, 2007
Revenues:
Service revenue $3,700
Expenses:
Rent expense $900
Advertising expense 100
Total expenses 1,000
Net income $2,700
Continued Req. 3
Best Foot Forward
Statement of Owner’s Equity
Month Ended September 30, 2007
Marilyn Crone, capital, August 31, 2007 $ 7,700
Add:Investments by owner ($20,000 + $1,000) 21,000
Net income for the month 2,700
31,400
Less: Withdrawals by owner (1,500)
Marilyn Crone, capital, September 30, 2007 $29,900
Continued Req. 4
Best Foot Forward
Balance Sheet
September 30, 2007
ASSETS LIABILITIES
Cash $14,500 Accounts payable $ 1,000
Accounts receivable 3,500
Supplies 900 OWNER’S EQUITY
Land 12,000 Marilyn Crone, capital 29,900
Total liabilities and
Total assets $30,900 owner’s equity $30,900
Problems 1-34A
Lone Star Landscaping
Balance Sheet
July 31, 2008
ASSETS LIABILITIES
Cash $ 4,000 Accounts payable $ 8,000
Accounts receivable 23,000 Note payable 36,000
Office supplies 1,000 Total liabilities 44,000
Office furniture 16,000 OWNER’S EQUITY
Land 50,000 Lynn Woodward, Capital 50,000*
Total liabilities and
Total assets $94,000 owner’s equity $94,000
End of chapter 1
Summary:
Gotcha Covered Security Systems
Income Statement
Year Ended December 31, 2007
Revenues:
Service revenue $189,000
Expenses:
Salary expense $63,000
Rent expense 23,000
Advertising expense 13,000
Interest expense 9,000
Property tax expense 4,000
Insurance expense 2,000
Total expenses 114,000
Net income $ 75,000
Gotcha Covered Security Systems
Statement of Owner’s Equity
Year Ended December 31, 2007
Andrew Stryker, capital, December 31, 2006 $150,000
Add: Net income for the year 75,000
225,000
Less: Withdrawals by owner (40,000)
Andrew Stryker, capital, December 31, 2007 $185,000
Gotcha Covered Security Systems
Balance Sheet
December 31, 2007
ASSETS LIABILITIES
Cash $ 14,000
Accounts payable $ 19,000
Accounts receivable 12,000 Salary payable 1,000
Supplies 3,000 Note payable 35,000
Equipment 20,000
Total liabilities 55,000
Building 131,000 OWNER’S EQUITY
Land 60,000 Andrew Stryker, capital 185,000*
Total liabilities and
Total assets $240,000 owner’s equity $240,000