Académique Documents
Professionnel Documents
Culture Documents
Accounting
Environment
1
(Syllabus:
Chap. 1
&2)
100 Shares
Accounting?
$1 par value
Learning Objectives
Identify users and uses of
accounting
Identify opportunities in
accounting and related fields
Explain the meaning of
Generally Accepted
Accounting Principles, and
define and apply several key
principles of accounting
Identify Professional
Accounting Bodies and
standards setting in Malaysia
Define and interpret the
accounting equation and
each of its components
Analyze business
transactions using the
accounting equation
Identify and prepare basic
financial statements and
explain how they interrelate
The McGraw-Hill Companies, Inc., 2007
Importance of Accounting
is a
Accounting
Identifies
system that
Records
information
Relevant
that is
Communicates
Reliable
Comparable
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
Accounting Activities
Identifying
Business
Activities
Recording
Business
Activities
Communicating
Business
Activities
External Users
Lenders
Sales Staff
Officers
Governments Customers
Budget Officers
Internal Users
Characteristics of Accounting
Information
USEFUL
FINANCIAL
INFORMATION
RELEVANCE
1. Predictive value
2. Feedback value
3. Timely
COMPARABILITY
RELIABILITY
1. Verifiable
2. Faithful representation
3. Neutral
CONSISTENCY
Opportunities in Accounting
Financial
Preparation
Analysis
Auditing
Regulatory
Consulting
Planning
Criminal
investigation
Accountingrelated
Managerial
Taxation
General accounting
Cost accounting
Budgeting
Internal auditing
Consulting
Controller
Treasurer
Strategy
Preparation
Planning
Regulatory
Investigations
Consulting
Enforcement
Legal services
Estate planning
Lenders
Consultants
Analysts
Traders
Directors
Underwriters
Planners
Appraisers
FBI investigators
Market researchers
Systems designers
Merger services
Business valuation
Human services
Litigation support
Entrepreneurs
The McGraw-Hill Companies, Inc., 2007
Reliable Information
Is trusted by
users.
Comparable
Information
Is helpful in contrasting
organizations.
PRINCIPLES
CONSTRAINTS
Economic entity
Historical costs
Conservatism
Monetary unit
Revenue recognition
Materiality
Going concern
Matching
Time period
Full disclosure
Accounting Assumptions
Now
Future
Economic Entity
The business is accounted for
separately from other business
entities, including its owner
Going-Concern Principle
Reflects assumption that the
business will continue operating
instead of being closed or sold
Time Period
The economic life of business can be
divided into artificial time period for
the purpose of financial reporting
Accounting Principles
Revenue Recognition
1. Recognize revenue when it is
Historical Cost
earned.
Accounting information is based
2. Proceeds need not be in cash.
on actual cost.
3. Measure revenue by cash
received plus cash value of items
received.
Matching
Expenses are matched against
revenues, and recorded in the
same period in which the related
revenues are earned
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
Full Disclosure
Report enough information for
users to make knowledgeable
decisions about the company
The McGraw-Hill Companies, Inc., 2007
Accounting Constraints
Conservatism
Income and assets be reported at
their lowest reasonable amounts (i.e.
minimizing the assets and
understating the income)
Materiality
Accountants are required to
accurately account for significant
items and transactions
Proprietorship
Partnership
Corporation
Characteristics of Businesses
Characteristics
Proprietorship Partnership Corporation
Business entity
yes
yes
yes
Legal entity
no
no
yes
Limited liability
no*
no*
yes
Unlimited life
no
no
yes
Business taxed
no
no
yes
One owner allowed
yes
no
yes
Corporation
End of Chapter 1
Accounting Equation
Assets
Liabilities
Assets
Equity
Liabilities
& Equity
Assets
Cash
Accounts
Receivable
Vehicles
Resources
owned or
controlled
by a
company
Store
Supplies
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
Notes
Receivable
Land
Buildings
Equipment
The McGraw-Hill Companies, Inc., 2007
Liabilities
Accounts
Payable
Notes
Payable
Creditors
claims on
assets
Taxes
Payable
Wages
Payable
The McGraw-Hill Companies, Inc., 2007
Equity
Owner
Withdrawals
Owner
Investments
Owners
claims
on
assets
Revenues
Expenses
The McGraw-Hill Companies, Inc., 2007
Assets
Owner
Capital
Liabilities
Owner
Withdrawals
+
Revenues
Equity
Expenses
Assets
Liabilities
Equity
Transaction Analysis
J. Scott, the owner, contributed $20,000
cash to start the business.
The accounts involved are:
(1) Cash (asset)
(2) J. Scott, Capital (equity)
Transaction Analysis
J. Scott, the owner, contributed $20,000
cash to start the business.
Assets
Cash
Supplies Equipment
(1) $ 20,000
$ 20,000 $
$ 20,000
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
Liabilities
Accounts
Notes
Payable Payable
$
=
20,000
Equity
J. Scott,
Capital
$ 20,000
$ 20,000
Transaction Analysis
Purchased supplies paying $1,000
cash.
The accounts involved are:
(1) Cash (asset)
(2) Supplies (asset)
Transaction Analysis
Purchased supplies paying $1,000
cash.
Assets
Cash
Supplies Equipment
(1) $ 20,000
(2)
(1,000) $ 1,000
$ 19,000 $ 1,000 $
$ 20,000
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
Liabilities
Accounts
Notes
Payable Payable
$
=
20,000
Equity
J. Scott,
Capital
$ 20,000
$ 20,000
Transaction Analysis
Purchased equipment for $15,000
cash.
The accounts involved are:
(1) Cash (asset)
(2) Equipment (asset)
Transaction Analysis
Purchased equipment for $15,000
cash.
Assets
Cash
Supplies Equipment
(1) $ 20,000
(2)
(1,000) $ 1,000
(3)
(15,000)
$ 15,000
4,000 $ 1,000 $
15,000
$ 20,000
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
Liabilities
Accounts
Notes
Payable Payable
$
=
20,000
Equity
J. Scott,
Capital
$ 20,000
$ 20,000
Transaction Analysis
Purchased Supplies of $200 and
Equipment of $1,000 on account.
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.
Assets
Cash
Supplies Equipment
(1) $ 20,000
(2)
(1,000) $ 1,000
(3)
(15,000)
$ 15,000
(4)
200
1,000
$
4,000 $ 1,200 $
Equity
J. Scott,
Capital
$ 20,000
$ 1,200
16,000
$ 21,200
Liabilities
Accounts
Notes
Payable Payable
$ 1,200 $
=
$ 20,000
21,200
Transaction Analysis
Borrowed $4,000 from 1st American
Bank.
The accounts involved are:
(1) Cash (asset)
(2) Notes payable (liability)
Transaction Analysis
Borrowed $4,000 from 1st American
Bank.
Assets
Cash
Supplies Equipment
(1) $ 20,000
(2)
(1,000) $ 1,000
(3)
(15,000)
$ 15,000
(4)
200
1,000
(5)
4,000
$ 8,000 $ 1,200 $ 16,000
$ 25,200
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
Liabilities
Accounts
Notes
Payable Payable
Equity
J. Scott,
Capital
$ 20,000
$ 1,200
$
$ 1,200 $
4,000
4,000
25,200
$ 20,000
Transaction Analysis
The balances so far appear below. Note that the
equation is still in balance.
Assets
$ 8,000 $ 1,200 $
$ 25,200
16,000
=
Liabilities
Equity
Accounts Notes
Payable Payable
$ 1,200 $ 4,000
J. Scott,
Capital
$ 20,000
$ 20,000
1,200 $
4,000
$ 25,200
Transaction Analysis
Rendered consulting services
receiving $3,000 cash.
The accounts involved are:
(1) Cash (asset)
(2) Revenues (equity)
Transaction Analysis
Rendered consulting services
receiving $3,000 cash.
Assets
Cash
Supplies Equipment
Bal. $ 8,000 $ 1,200 $ 16,000
(6)
3,000
$ 11,000 $
1,200 $
16,000
$ 28,200
Liabilities
Equity
Accounts Notes
Payable Payable
$ 1,200 $ 4,000
J. Scott,
Capital Revenue
$ 20,000
$ 3,000
$ 1,200 $
$ 20,000 $ 3,000
4,000
$ 28,200
Transaction Analysis
Paid salaries of $800 to employees.
The accounts involved are:
(1) Cash (asset)
(2) Salaries expense (equity)
Remember that the balance in the salaries
expense account actually increases.
But, equity actually decreases because
expenses reduce equity.
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
Transaction Analysis
Paid salaries of $800 to employees.
Assets
Cash
Supplies Equipment
Bal. $ 8,000 $ 1,200 $ 16,000
(6)
3,000
(7)
(800)
$ 10,200 $ 1,200 $ 16,000
$ 27,400
Liabilities
Equity
Accounts Notes
Payable Payable
$ 1,200 $ 4,000
J. Scott,
Capital Revenue Expenses
$ 20,000
$ 3,000
$
(800)
$ 1,200 $ 4,000
$ 20,000 $ 3,000 $
(800)
$ 29,000
Transaction Analysis
J. Scott withdrew $500 from the
business for personal use.
The accounts involved are:
(1) Cash (asset)
(2) J. Scott, Withdrawals (equity)
Remember that the balance in the J. Scott,
Withdrawals account actually increases.
But, equity actually decreases because
withdrawals reduce equity.
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
Transaction Analysis
J. Scott withdrew $500 from the
business for personal use.
Assets
Accounts Notes
Payable Payable
$ 1,200 $ 4,000
Cash
Supplies Equipment
Bal. $ 8,000 $ 1,200 $ 16,000
(6)
3,000
(7)
(800)
(8)
(500)
$ 9,700 $ 1,200 $ 16,000
$ 26,900
Liabilities
$ 1,200 $ 4,000
=
Equity
J. Scott,
J. Scott,
Capital Withdrawal Revenue Expenses
$ 20,000
$ 3,000
$
(800)
$
(500)
$ 20,000 $
(500) $ 3,000 $
(800)
$ 29,500
Financial Statements
Lets prepare the Financial Statements
reflecting the transactions we have recorded.
1. Statement of Profit or Loss and
Other Comprehensive Income
2. Statement of Owners Equity
3. Statement of Financial
Position (or Balance Sheet)
4. Statement of Cash Flows
Scott Company
State m e nt of Profit or Los s
Profit is the
difference
between
Revenues
and
Expenses.
Scott Company
Statement of Profit & Loss
and Other Comprehensive Income
For Month Ended 31 December 2006
Revenues:
Consulting revenue
$
3,000
Less Expenses:
Salaries expense
800
Profit for the period
$
2,200
The profit of
$2,200
increases
Scotts capital
by $2,200.
Scott Company
The Statement of
Statement of Owner's Equity
Owners Equity
For Month Ended 31 December 2006
explains changes in
equity from profit (or
$
loss) and from owner J. Scott, Capital, 1 Dec. 2006
Add: Investment by owner
20.000
investments and
Net income
2.200
withdrawals for a
Less: Withdrawals
500
period of time.
J. Scott, Capital, 31 Dec. 2006
21.700
Scott Company
Statement of Owner's Equity
For Month Ended 31 December 2006
J. Scott, Capital, 1 Dec. 2006
Add: Investment by owner
Profit for the period
Less: Withdrawals
J. Scott, Capital, 31 Dec.2006
20.000
2.200
500
21.700
The Statement of
Financial Position or
Balance Sheet
describes a
companys financial
position at a point in
time.
Owners Equity in Statement of Financial
Position or Balance Sheet
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
SCOTT COMPANY
$16,000
$16,000
Current Assets
Cash
Supplies
Total current assets
Total assets
$ 9,700
1,200
10,900
$ 26,900
$ 21,700
SCOTT COMPANY
STATEMENT OF FINANCIAL POSITION
31 DECEMBER 2006
Current liabilities
Accounts payable
Notes payable
Total current liabilities
$1,200
4,000
$5,200
$26,900
SCOTT COMPANY
STATEMENT OF CASH FLOWS
FOR THE MONTH ENDED 31 DECEMBER 2006
Cash flows from operating activities:
Cash received from clients
$ 3,000
Purchase of supplies
(1,000)
Cash paid to employees
(800)
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of equipment
(15,000)
Net cash used in investing activities
Cash flows from financing activities:
Investment by owner
20,000
Borrowed at bank
4,000
Withdrawal by owner
(500)
Net cash provided by financing activities
Net increase in cash
Cash balance, 1 December 2006
Cash balance, 31 December 2006
1,200
(15,000)
$
$
23,500
9,700
9,700
The Statement of Cash Flows identifies cash inflows and cash outflows over a
period of time.
Larson, Wild, Chiapetta, Ropidah, Haslinda, Aryati, Liana
End of Chapter 2