ACCOUNTING IN BUSINESS

Information about ACCOUNTING IN BUSINESS

Published on July 5, 2009

Author: ankush85

Source: authorstream.com

Content

Slide 1: ACCOUNTING IN BUSINESS OBJECTIVES : OBJECTIVES Conceptual- Explain aim and influence of accounting in the information age Compare and contrast the different forms of organizations and their characteristics Identify and describe the three major activities in organizations Categorize the types of users and uses of accounting Identify opportunities in accounting OBJECTIVES…continued : OBJECTIVES…continued Analytical Describe income and its two major components Explain the relation between return and risk Explain and interpret the accounting equation Compute and interpret return on investment Procedural Identify and analyze and interpret basic financial statements Demonstrate whether certain financial statements represent gains, losses, or they breakeven Importance of Accounting : Identifies Records Communicates Relevant Reliable Comparable Importance of Accounting Accounting to help users make better decisions Accounting Activities : Identifying Business Activities Recording Business Activities Communicating Business Activities Accounting Activities Users of Accounting Information : Users of Accounting Information Users of Accounting Information : Users of Accounting Information Internal Users Managerial accounting provides information needs for internal decision makers Opportunities in Accounting : Opportunities in Accounting Generally Accepted Accounting Principles : Financial accounting practice is governed by concepts and rules known as generally accepted accounting principles (GAAP) Generally Accepted Accounting Principles Setting Accounting Principles : The Securities and Exchange Commission is the government group that establishes reporting requirements for companies that issue stock to the public. Setting Accounting Principles Financial Accounting Standards Board is the private group that sets both broad and specific principles. Principles of Accounting : Principles of Accounting Principles of Accounting : Principles of Accounting Business Entity Forms : Business Entity Forms Corporation : Corporation Accounting Equation : Assets Liabilities & Equity Accounting Equation Assets : Land Equipment Buildings Cash Vehicles Store Supplies Notes Receivable Accounts Receivable Resources owned or controlled by a company Assets Liabilities : Taxes Payable Wages Payable Notes Payable Accounts Payable Creditors’ claims on assets Liabilities Equity : Owner’s claims on assets Revenues Owner Investments Owner Withdrawals Expenses Equity Transaction Analysis Equation : The accounting equation must remain in balance after each transaction Transaction Analysis Equation Transaction Analysis : The accounts involved are: (1) Cash (asset) (2) J. Scott, Capital (equity) J. Scott, the owner, contributed $20,000 cash to start the business. Transaction Analysis Transaction Analysis : Transaction Analysis J. Scott, the owner, contributed $20,000 cash to start the business Transaction Analysis : The accounts involved are: (1) Cash (asset) (2) Supplies (asset) Transaction Analysis Purchased supplies, paying $1,000 cash Transaction Analysis : Transaction Analysis Purchased supplies, paying $1,000 cash Transaction Analysis : The accounts involved are: (1) Cash (asset) (2) Equipment (asset) Transaction Analysis Purchased equipment for $15,000 cash Transaction Analysis : Transaction Analysis Purchased equipment, for $15,000 cash Transaction Analysis : The accounts involved are: (1) Supplies (asset) (2) Equipment (asset) (3) Accounts Payable (liability) Transaction Analysis Purchased Supplies of $200 and Equipment of $1,000 on account Transaction Analysis : Transaction Analysis Purchased Supplies of $200 and Equipment of $1,000 on account Transaction Analysis : The accounts involved are: (1) Cash (asset) (2) Notes payable (liability) Transaction Analysis Borrowed $4,000 from 1st American Bank Transaction Analysis : Transaction Analysis Borrowed $4,000 from 1st American Bank Transaction Analysis : Transaction Analysis The balances so far appear below. Note that the Balance Sheet Equation is still in balance. Now let’s look at transactions involving revenue, expenses and withdrawals Transaction Analysis : The accounts involved are: (1) Cash (asset) (2) Revenues (equity) Transaction Analysis Rendered consulting services receiving $3,000 cash Transaction Analysis : Transaction Analysis Rendered consulting services receiving $3,000 cash Transaction Analysis : The accounts involved are: (1) Cash (asset) (2) Salaries expense (equity) Transaction Analysis Paid salaries of $800 to employees Remember that the balance in the salaries expense account actually increases. But, equity actually decreases because expenses reduce equity. Transaction Analysis : Transaction Analysis Remember that expenses decrease equity Paid salaries of $800 to employees Transaction Analysis : The accounts involved are: (1) Cash (asset) (2) J. Scott, Withdrawals (equity) Transaction Analysis J. Scott withdrew $500 from the business for personal use. Remember that the balance in the J. Scott, Withdrawals account actually increases. But, equity actually decreases because withdrawals reduce equity. Transaction Analysis : Transaction Analysis Remember that withdrawals decrease equity J. Scott withdrew $500 from the business for personal use Financial Statements : Financial Statements Let’s prepare the Financial Statements reflecting the transactions we have recorded Income Statement Statement of Owner’s Equity Balance Sheet Statement of Cash Flows Slide 38: Net income is the difference between Revenues and Expenses The income statement describes a company’s revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities Slide 39: The net income of $2,200 increases Scott’s capital by $2,200 The Statement of Owner’s Equity explains changes in equity from net income (or net loss) and from owner investments and withdrawals for a period of time. Slide 40: The Balance Sheet describes a company’s financial position at a point in time Slide 41: The Statement of Cash Flows identifies cash inflows and cash outflows over a period of time Return on Assets (ROA) : Net income ÷ Average total assets ROA is viewed as an indicator of operating efficiency Return on Assets (ROA)

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