Slide 1Learning Objective 1Organizational FormsThe Accounting SystemLearning Objective 2The Basic Accounting EquationAssetsLiabilitiesStockholders’ EquityRevenues, Expenses and Net IncomeDividendsFinancial StatementsThe Income StatementThe Statement of Retained EarningsThe Balance SheetThe Statement of Cash FlowsRelationships Among the Financial StatementsRelationships Among the Financial StatementsRelationships Among the Financial StatementsNotes to the Financial StatementsLearning Objective 3Using Financial StatementsLearning Objective 4Accounting StandardsAlternative TermsSlide 26Slide 27Slide 28Slide 29Slide 30Slide 31Slide 32Slide 33Slide 34End of Chapter 1Chapter 1Business Decisions and Financial AccountingPowerPoint Authors:Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMAJon A. Booker, Ph.D., CPA, CIAFred Phillips, Ph.D., CABrandy Macintosh, CAEdited by: Muriel Anderson, MBA, CPALearning Objective 1Describe various organizational forms and business decision makers.1-2Organizational FormsPartnershipBusiness organization owned by two or more people. Each partner is personally liable for all debts of the business.CorporationA separate entity from both a legal and accounting perspective. Owners of corporations (stockholders) are not personally responsible for debts of the corporation.Sole ProprietorshipBusiness organization owned by one person. The owner is personally liable for all debts of the business.1-3The Accounting SystemBusiness and Financing ActivitiesAccountingSystemAccounting ReportsFinancial ManagerialExternal users(creditors, investors, etc.)Internal users(managers, etc.)Run the companyEvaluate the companyAccounting is a system of analyzing, recording, summarizing and reporting the results of a business’s activities.1-4Learning Objective 2Describe the purpose, structure, and content of the four basic financial statements.1-5The Basic Accounting EquationResources Owned . . .by the company Resources Owed . . . to creditors to stockholdersSeparate Entity AssumptionRequires that a business’s financial reports include only the activities of the business and not those of its stockholders. Assets = Liabilities + Stockholders’ Equity1-6AssetsResources controlled by the company that have measurable value and are expected to provide future benefits to the company.CashSupplies FurnitureEquipment1-7LiabilitiesAmounts owed by the business to creditors.Notes PayableAccounts Payable1-8Stockholders’ EquityOwners’ claim to the business resources.Revenues, Expenses and Net IncomeRevenuesSales of goods or services to customers. They are measured at the amount the business charges the customer.ExpensesThe costs of business necessary to earn revenues, including wages to employees, advertising, insurance, and utilities.Revenues – Expenses = Net Income1-10DividendsDistributions of a company’s earnings to its stockholders as a return on their investment.Dividends are not an expense. 1-11Financial StatementsIncome StatementStatement of Retained Earnings Balance SheetStatement of Cash Flows1-12Financial statements are typically prepared in this order.The Income StatementReports the amount of revenues less expenses for a period of time.The unit of measure assumption states that results of business activities should be reported in an appropriate monetary unit.SONICGATEWAY INC.Income Statement (Projected)For the Month Ended September 30, 2015Revenues Sales Revenue Service Revenue Total RevenuesExpenses Salaries and Wages Expense Rent Expense Utilities Expense Insurance Expense Advertising Expense Income Tax Expense Total ExpensesNet Income$ 9,000 3,000 12,0005,0002,5001,600300100 500 10,000$ 2,000The Statement of Retained EarningsReports the way that net income and the distribution of dividends affected the financial position of the company during the period.SONICGATEWAY, INC.Statement of Retained Earnings (Projected)For the Month Ended September 30, 2015Retained Earnings, September 1, 2015 Add: Net Income Subtract: DividendsRetained Earnings, September 30, 2015$ 0 2,000 (1,000)$ 1,000The Balance SheetReports at a point in time:1. What a business owns (assets).2. What it owes to creditors (liabilities).3. What is left over for the owners of the company’s stock (stockholders’ equity).BASIC ACCOUNTING EQUATIONAssets = Liabilities + Stockholders’ EquitySONICGATEWAY, INC.Balance Sheet (Projected)At September 30, 2015Assets Cash Accounts Receivable Supplies Equipment SoftwareTotal AssetsLiabilities Accounts Payable Notes Payable Total LiabilitiesStockholders’ Equity Common Stock Retained Earnings Total Stockholders’ EquityTotal Liabilities and Stockholders’ Equity$ 13,0002,500500 14,000 6,000$ 36,000$ 5,000 20,000 25,00010,000 1,000 11,000$ 36,000The Statement of Cash FlowsSummarizes how a business’s operating, investing, and financing activities caused its cash balance to change over a particular period of time.SONICGATEWAY, INC.Statement of Cash Flows (Projected)For the Month Ended September 30, 2015Cash Flows from Operating ActivitiesCash received from customersCash paid to employees and suppliers Cash Provided by Operating ActivitiesCash Flows from (Used in) Investing ActivitiesCash used to buy equipment and software Cash from (Used in) Investing ActivitiesCash Flows from Financing ActivitiesCash received for stock issuanceCash dividends paid to stockholdersCash borrowed from the bank Cash Provided by Financing ActivitiesChange in CashBeginning Cash Balance, September 1, 2015Ending Cash Balance, September 30, 2015$ 9,500 (5,500) 4,000 (20,000) (20,000)10,000(1,000) 20,000 29,00013,000 -$ 13,000Relationships Among the Financial Statements Net income from the income statement is a component in determining ending Retained Earnings on the Statement of Retained Earnings. 11 SONICGATEWAY, INC.Income StatementFor the Month Ended September 30, 2015Revenues Sales Revenue Service Revenue Total RevenuesExpenses Salaries and Wages Expense Rent Expense Utilities Expense Insurance Expense Advertising Expense Income Tax Expense Total ExpensesNet Income$ 9,000 3,000 12,0005,0002,5001,600300100 500 10,000$ 2,000SONICGATEWAY, INC.Statement of Retained EarningsFor the Month Ended September 30, 2015Retained Earnings, September 1, 2015Add: Net IncomeSubtract: