School of Business Department of Accounting BACC200 Financial Accounting Chapter 1 Part 1 Accounting in Action Objective Identify the activities and users associated with accounting State the accounting equation and define its components Describe the four financial statements and how they are prepared Analyze the effects of business transactions on the accounting equation LEARNING OBJECTIVE 1 Identify the activities and users associated with accounting Accounting consists of three basic activities Identifying Recording Communicating the economic events of an organization to interested users LO 1 Who Uses Accounting Data INTERNAL USERS LO 1 Who Uses Accounting Data EXTERNAL USERS LO 1 Forms of Business Ownership Proprietorship Partnership Corporation Owned by one person Owned by two or more persons Ownership divided into shares of stock LO 2 LEARNING OBJECTIVE 2 State the accounting equation and define its components Assets Liabilities Owner s Equity Basic Accounting Equation The fundamental accounting equation also called the balance sheet equation It represents the relationship between the assets liabilities and owner s equity of business LO 3 Basic Accounting Equation Assets Liabilities Owner s Equity Assets are the resources that the business owns Current Assets Long Term Investment Property Plant Equipment Intangible Assets Basic Accounting Equation Assets Liabilities Owner s Equity Liabilities are debts and obligations parties to whom we owe money Current Liabilities Long Term Liabilities Basic Accounting Equation Assets Liabilities Owner s Equity Owner s Equity are claims on total assets Owner s Capital end of the accounting period 1 Current Assets 2 Long term Investments 4 Intangible Assets 3 Property Plant Equipment PPE Copyright Goodwill Patent Trademark ASSETS Investments in bonds stocks Investments in Real Estates Land Buildings Automative Equipment Cash Short Term Investment Accounts Receivable A R Notes Receivable N R Inventory Supplies Prepaid Expenses LIABILITIES 1 Current Liabilities 2 Long Term Liabilities Notes Payable N P less than 1 year Notes Payable N P more than 1 year Accounts Payable A P Long Term Loans Accrued Expenses Unearned Revenue Bonds Payable Mortgage Payable Owner s Equity Increase OE Decrease OE Additional Investment Owner s Drawings Revenues Expenses Owner s Equity Owner s Capital at The beginning of the period Additional Investment Revenues Drawings Expenses Owner s Capital at The End of the period BACC 210 Chapter 1 Balance Sheet Assets Liabilities Owner s Equity Debit Accounts Credit Accounts Liabilities Current Assets Current Liabilities Cash Notes Payable N P less than one year Short Term Investment Account Payable A P Accounts Receivable A R Accrued Expenses salaries utulities Notes Receivable N R Unearned Revenue Inventory Supplies Long Term Liabilities Prepaid Expenses Rent Insurance Notes Payable N P More than one year Long term loans Long Term Investment Bonds Payable Public Investments in stocks Mortgage Payable Investments in Real Estate Property Plant and Equipment PPE Owner s Equity Land Owner s Capital Buildings Vehicles trucks cars Equipment Intangible Assets Goodwill Patent Copyright Trademark Total Assets Total Liabilities Owner s Equity LEARNING OBJECTIVE 3 Describe the four financial statements and how they are prepared Companies prepare four financial statements Income Statement Owner s Equity Statement Balance Sheet Statement of Cash Flows It Summarizes all the revenues earned and expenses incurred for a given period of time It Summarizes the changes in OE after adding Investment and Income and Deducting Drawings and losses It is a list of the Company s assets liabilities and Owner s equity at a specific date It summarizes the inflow and outflow of cash for a specific accounting period LO 5 Financial Statements SOFTBYTE Income Statement For the Month Ended September 30 2017 Net income is needed to determine the ending balance in owner s equity SOFTBYTE Owner s Equity Statement For the Month Ended September 30 2017 LO 5 SOFTBYTE Owner s Equity Statement For the Month Ended September 30 2017 The ending balance in owner s equity is needed in preparing the balance sheet Illustration 1 9 SOFTBYTE Balance Sheet September 30 2017 End Of Chapter One part one