CHAPTER 1-THE BASIC FRAMEWORK-CHAPTER1

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Slide 1: 

THE BASIC FRAMEWORK Chapter 1 PERAKAUNAN AWALAN

Slide 2: 

PEOPLE AND BUSINESS Accounting is something that effect people in their personal lives just as it affects business. RECORDING ACCOUNTING DATA ii. They cannot keep all the details in their minds so they have to keep record of its. -organization record cash received and paid, record goods bought and sold. WHAT IS ACCOUNTING

Slide 3: 

CLASSIFYING AND SUMMARISING iii. Data being organized so as to be most useful to the business. -so as it will be possible to work out how much profit or loss has been made by the business. - possible to show what resources are owned, what resources are owned by the business. COMMUNICATING INFORMATION iv. Be able to tell whether or not the business is performing well financially -able to ascertain the strengths and weaknesses of the business.

What is Accounting? : 

What is Accounting? LO 1 Explain what accounting is. The purpose of accounting is to: identify, record, and communicate the economic events of an organization to interested users.

What is Accounting? : 

Three Activities What is Accounting? LO 1 Explain what accounting is. Illustration 1-1 Accounting process The accounting process includes the bookkeeping function.

WHAT IS BOOKKEEPING : 

WHAT IS BOOKKEEPING Bookkeeping is a part of accounting that is concerned with recording data. Bookkeeping is the process of recording data relating to accounting transactions in the accounting books.

Slide 7: 

USER OF ACCOUNTING INFORMATION Owner of the business A prospective buyer The bank Tax inspector A prospective partner Investors Suppliers Employees

Who Uses Accounting Data? : 

Management Common Questions Human Resources IRS Labor Unions SEC Marketing Finance Investors Creditors Who Uses Accounting Data? LO 2 Identify the users and uses of accounting. Customers Internal Users External Users

Who Uses Accounting Data? : 

Common Questions Asked User 1.Can we afford to give our employees a pay raise? Human Resources 2. Did the company earn a satisfactory income? 3. Do we need to borrow in the near future? 4. Is cash sufficient to pay dividends to the stockholders? 5. What price for our product will maximize net income? Who Uses Accounting Data? LO 2 Identify the users and uses of accounting. 6. Will the company be able to pay its short-term debts? Investors Management Finance Marketing Creditors

The Building Blocks of Accounting : 

The Building Blocks of Accounting Ethics In Financial Reporting LO 3 Understand why ethics is a fundamental business concept. Standards of conduct by which one’s actions are judged as right or wrong, honest or dishonest, fair or not fair, are Ethics. Recent financial scandals include: Enron, WorldCom, HealthSouth, AIG, and others. Congress passed Sarbanes-Oxley Act of 2002. Effective financial reporting depends on sound ethical behavior.

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THE ACCOUNTING EQUATION The whole of financial accounting based upon this simple idea which known as accounting equation. ii. Resources supplied by owner = capital Actual resources that are in the business = assets that is: CAPITAL = ASSETS

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Liabilities iii. If people other than the owner have supplied asset we call it as liabilities. Means liabilities is the amount business owe for these assets.

The Basic Accounting Equation : 

Assets Liabilities Owners’ Equity = + Provides the underlying framework for recording and summarizing economic events. Assets are claimed by either creditors or owners. Claims of creditors must be paid before ownership claims. The Basic Accounting Equation LO 6 State the accounting equation, and define assets, liabilities, and owner’s equity.

The Basic Accounting Equation : 

Assets Liabilities Owners’ Equity = + Provides the underlying framework for recording and summarizing economic events. The Basic Accounting Equation LO 6 State the accounting equation, and define assets, liabilities, and owner’s equity. Resources a business owns. Provide future services or benefits. Cash, Supplies, Equipment, etc. Assets

The Basic Accounting Equation : 

Assets Liabilities Owners’ Equity = + Provides the underlying framework for recording and summarizing economic events. The Basic Accounting Equation LO 6 State the accounting equation, and define assets, liabilities, and owner’s equity. Claims against assets (debts and obligations). Creditors - party to whom money is owed. Accounts payable, Notes payable, etc. Liabilities

The Basic Accounting Equation : 

Assets Liabilities Owners’ Equity = + Provides the underlying framework for recording and summarizing economic events. The Basic Accounting Equation LO 6 State the accounting equation, and define assets, liabilities, and owner’s equity. Ownership claim on total assets. Referred to as residual equity. Capital, Drawings, etc. (Proprietorship or Partnership). Owners’ Equity

Owners’ Equity : 

Owners’ Equity Revenues result from business activities entered into for the purpose of earning income. Common sources of revenue are: sales, fees, services, commissions, interest, dividends, royalties, and rent. Illustration 1-6 LO 6 State the accounting equation, and define assets, liabilities, and owner’s equity.

Owners’ Equity : 

Owners’ Equity Expenses are the cost of assets consumed or services used in the process of earning revenue. Common expenses are: salaries expense, rent expense, utilities expense, tax expense, etc. Illustration 1-6 LO 6 State the accounting equation, and define assets, liabilities, and owner’s equity.

Using The Basic Accounting Equation : 

Using The Basic Accounting Equation Transactions are a business’s economic events recorded by accountants. May be external or internal. Not all activities represent transactions. Each transaction has a dual effect on the accounting equation. LO 7 Analyze the effects of business transactions on the accounting equation.

Transactions (Problem) : 

P1-1A: Barone’s Repair Shop was started on May 1 by Nancy. Prepare a tabular analysis of the following transactions for the month of May. Transactions (Problem) +10,000 1. +10,000 Cash Accounts Receivable Equipment Accounts Payable Barone, Capital LO 7 Analyze the effects of business transactions on the accounting equation. + + = + 1. Invested $10,000 cash to start the repair shop. Investment Assets Liabilities Equity

Transactions (Problem) : 

Transactions (Problem) +10,000 1. +10,000 Cash Accounts Receivable Equipment Accounts Payable Barone, Capital LO 7 Analyze the effects of business transactions on the accounting equation. 2. Purchased equipment for $5,000 cash. -5,000 2. +5,000 + + = + Investment Assets Liabilities Equity

Transactions (Problem) : 

Transactions (Problem) +10,000 1. +10,000 Cash Accounts Receivable Equipment Accounts Payable LO 7 Analyze the effects of business transactions on the accounting equation. 3. Paid $400 cash for May office rent. -5,000 2. +5,000 + + = + -400 3. -400 Expense Barone, Capital Investment Assets Liabilities Equity

Transactions (Problem) : 

Transactions (Problem) +10,000 1. +10,000 Cash Accounts Receivable Equipment Accounts Payable LO 7 Analyze the effects of business transactions on the accounting equation. 4. Received $5,100 from customers for repair service. -5,000 2. +5,000 + + = + -400 3. -400 Expense +5,100 4. +5,100 Revenue Barone, Capital Investment Assets Liabilities Equity

Transactions (Problem) : 

Transactions (Problem) +10,000 1. +10,000 Cash Accounts Receivable Equipment Accounts Payable LO 7 Analyze the effects of business transactions on the accounting equation. 5. Withdrew $1,000 cash for personal use. -5,000 2. +5,000 + + = + -400 3. -400 Expense +5,100 4. +5,100 Revenue -1,000 5. -1,000 Drawings Barone, Capital Investment Assets Liabilities Equity

Transactions (Problem) : 

Transactions (Problem) +10,000 1. +10,000 Cash Accounts Receivable Equipment Accounts Payable LO 7 Analyze the effects of business transactions on the accounting equation. 6. Paid part-time employee salaries of $2,000. -5,000 2. +5,000 + + = + -400 3. -400 Expense +5,100 4. +5,100 Revenue -1,000 5. -1,000 Drawings -2,000 6. -2,000 Expense Barone, Capital Investment Assets Liabilities Equity

Transactions (Problem) : 

Transactions (Problem) +10,000 1. +10,000 Cash Accounts Receivable Equipment Accounts Payable LO 7 Analyze the effects of business transactions on the accounting equation. 7. Incurred $250 of advertising costs, on account. -5,000 2. +5,000 + + = + -400 3. -400 Expense +5,100 4. +5,100 Revenue -1,000 5. -1,000 Drawings -2,000 6. -2,000 Expense +250 7. -250 Expense Barone, Capital Investment Assets Liabilities Equity

Transactions (Problem) : 

Transactions (Problem) +10,000 1. +10,000 Cash Accounts Receivable Equipment Accounts Payable LO 7 Analyze the effects of business transactions on the accounting equation. 8. Provided $750 of repair services on account. -5,000 2. +5,000 + + = + -400 3. -400 Expense +5,100 4. +5,100 Revenue -1,000 5. -1,000 Drawings -2,000 6. -2,000 Expense +250 7. -250 Expense +750 8. +750 Revenue Barone, Capital Investment Assets Liabilities Equity

Transactions (Problem) : 

Transactions (Problem) +10,000 1. +10,000 Cash Accounts Receivable Equipment Accounts Payable LO 7 Analyze the effects of business transactions on the accounting equation. 9. Collected $120 cash for services previously billed. -5,000 2. +5,000 + + = + -400 3. -400 Expense +5,100 4. +5,100 Revenue -1,000 5. -1,000 Drawings -2,000 6. -2,000 Expense +250 7. -250 Expense +750 8. +750 Revenue +120 9. -120 Barone, Capital Investment Assets Liabilities Equity 6,820 + 630 + 5,000 = 250 + 12,200

Slide 29: 

EQUALITY OF THE ACCOUNTING EQUATION Every transaction has effected two items. Sometimes it changed the assets side and the capital side. Sometimes it has changed two assets by reducing one and and increasing the other.

Slide 30: 

EQUALITY OF THE ACCOUNTING EQUATION

Financial Statements : 

Companies prepare four financial statements from the summarized accounting data: Balance Sheet Income Statement Statement of Cash Flows Owners’ Equity Statement Financial Statements LO 8 Understand the four financial statements and how they are prepared.

THE BALANCE SHEET AND THEEFFECTS OF BUSINESS TRANSACTIONS : 

THE BALANCE SHEET AND THEEFFECTS OF BUSINESS TRANSACTIONS Balance sheet shows the financial position of an organisation at a point in time.

Slide 34: 

The introduction of capital On 1 May 20x7, B Blake started in business and deposited RM5,000 into a bank account opened specially for the business

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The introduction of capital B Blake Balance Sheet as at 1 May 20x7 Assets RM Cash at bank 5,000 Capital 5,000

Slide 36: 

The purchase of an asset by cheque On 3 May 20x7, B Blake buys a building for RM3,000 paying by cheque. The effect by this transaction on the balance sheet is that the cash at the bank is decreased and the new asset, building is added;

Slide 37: 

The purchase of an asset by cheque B Blake Balance Sheet as at 3 May 20x7 Assets RM Building 3,000 Cash at bank 2,000 5,000 Capital 5,000

Slide 38: 

The purchase of an asset and the incurring of a liability On 6 May 20x7, Blake buys some goods for RM500 from Smith and agrees to pay for them some time within the next two weeks. The effect of this is that a new asset, stock of goods, is acquired, and a liability for the good is created. A person to whom money is owed for goods is known as creditor.

Slide 39: 

The purchase of an asset and the incurring of a liability B Blake Balance Sheet as at 6 May 20x7 Assets RM Building 3,000 Stock of goods 500 Cash at bank 2,000 Capital 5,500 Less: creditor ( 500) 5,000 Capital 5,000

Slide 40: 

End – Chapter 1

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