Accounting in Business
Accounting in Business
Accounting in Business
Importance of Accounting
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Opportunities in Accounting
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1-6
Fraud Triangle
Three factors must exist for a person to commit fraud:
opportunity, pressure, and rationalization.
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Generally Accepted
Accounting Principles (GAAP)
Financial accounting is governed by concepts and rules known
as generally accepted accounting principles (GAAP). GAAP aims
to make information relevant, reliable, and comparable.
Reliable information is
trusted by users.
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International Standards
In today’s global economy, there is increased demand by external
users for comparability in accounting reports. This demand often
arises when companies wish to raise money from lenders and
investors in different countries.
International Accounting International Financial
Standards Board (IASB) Reporting Standards (IFRS)
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General principles are the basic Specific principles are detailed rules
assumptions, concepts, and used in reporting business
guidelines for preparing financial transactions and events. Specific
statements. General principles stem principles arise more often from the
from long-used accounting practices. rulings of authoritative groups.
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Accounting Principles
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Accounting Assumptions
Going-Concern Assumption
Monetary Unit Assumption
Reflects assumption that the
Express transactions and events in
business will continue operating
monetary, or money, units.
instead of being closed or sold.
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Proprietorship, Partnership,
and Corporation
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Sarbanes–Oxley (SOX)
Congress passed the Sarbanes–Oxley Act to help curb financial abuses at
companies that issue their stock to the public. SOX requires that these public
companies apply both accounting oversight and stringent internal controls.
The desired results include more transparency, accountability, and
truthfulness in reporting transactions.
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01-A1: The Accounting
Equation
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Net Income 18
The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Slide
1-19 SO 5 Explain the monetary unit assumption and the economic entity assumption.
The
The Basic
Basic Accounting
Accounting Equation
Equation
Slide
1-20 SO 6 State the accounting equation, and define its components.
The
The Basic
Basic Accounting
Accounting Equation
Equation
Assets
Resources a business owns.
Provide future services or benefits.
Cash, Inventory, Equipment, etc.
Slide
1-21 SO 6 State the accounting equation, and define its components.
The
The Basic
Basic Accounting
Accounting Equation
Equation
Liabilities
Claims against assets (debts and obligations).
Creditors - party to whom money is owed.
Accounts payable, Notes payable, etc.
Slide
1-22 SO 6 State the accounting equation, and define its components.
The
The Basic
Basic Accounting
Accounting Equation
Equation
Equity
Ownership claim on total assets.
Referred to as residual equity.
Share capital and retained earnings.
Slide
1-23 SO 6 State the accounting equation, and define its components.
The
The Basic
Basic Accounting
Accounting Equation
Equation
Illustration 1-7
Revenues result from business activities entered into for the purpose
of earning income.
Generally results from selling merchandise, performing services,
renting property, and lending money.
Slide
1-24 SO 6 State the accounting equation, and define its components.
The
The Basic
Basic Accounting
Accounting Equation
Equation
Illustration 1-7
Slide
1-25 SO 6 State the accounting equation, and define its components.
The
The Basic
Basic Accounting
Accounting Equation
Equation
Illustration 1-7
Slide
1-26 SO 6 State the accounting equation, and define its components.
Using
Using The
The Accounting
Accounting Equation
Equation
Slide
1-27 SO 7 Analyze the effects of business transactions on the accounting equation.
Using
Using The
The Accounting
Accounting Equation
Equation
Illustration: Are the following events recorded in the
accounting records?
Discuss Illustration 1-8
Purchase product
Event Pay rent.
computer. design with
customer.
Record/
Don’t Record
Slide
1-28 SO 7 Analyze the effects of business transactions on the accounting equation.
Using
Using The
The Accounting
Accounting Equation
Equation
Transaction Analysis
Slide
1-29 SO 7 Analyze the effects of business transactions on the accounting equation.
Transactions
Transactions Analysis
Analysis
Slide
1-40 SO 7 Analyze the effects of business transactions on the accounting equation.
Financial
Financial Statements
Statements
Companies
Companiesprepare
preparefour
fourfinancial
financialstatements
statementsfrom
fromthe
the
summarized
summarized accounting
accounting data:
data:
Slide
1-41 SO 8 Understand the four financial statements and how they are prepared.
Financial
Financial Statements
Statements Income Statement
Slide
1-42 SO 8 Understand the four financial statements and how they are prepared.
Net income is needed to determine the
Financial
Financial Statements
Statements ending balance in retained earnings.
Illustration 1-11
Financial statements and
their interrelationships
Slide
1-43 SO 8
Retained Earnings
Financial
Financial Statements
Statements Statement
Slide
1-44 SO 8 Understand the four financial statements and how they are prepared.
Financial
Financial
Statements
Statements
The ending
balance in
retained
earnings is
needed in
preparing the
statement of
financial position
Illustration 1-11
Financial statements and
their interrelationships
Slide
1-45 SO 8 Understand the four financial statements and how they are prepared.
Financial
Financial Statements
Statements Balance Sheet
Illustration 1-11
Financial statements and
their interrelationships
Slide
1-46 SO 8 Understand the four financial statements and how they are prepared.
Financial
Financial
Statements
Statements
Illustration 1-11
Financial statements and
their interrelationships
Slide
1-47
Financial
Financial Statements
Statements
Slide
1-48 SO 8 Understand the four financial statements and how they are prepared.
Financial
Financial Statements
Statements Statement of Cash Flows
Illustration 1-11
Financial statements and
their interrelationships
Slide
1-49 SO 8 Understand the four financial statements and how they are prepared.
NEED-TO-KNOW
Use the accounting equation to compute the missing financial statement amounts.
Use the expanded accounting equation to compute the missing financial statement amounts.
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NEED-TO-KNOW
Assume Tata began operations on January 1 and completed the following transactions during its first month of
operations.
Arrange the following asset, liability, and equity titles in a table: Cash; Accounts Receivable; Equipment;
Accounts Payable; J. Tata, Capital; J. Tata, Withdrawals; Revenues; and Expenses.
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01-P2: Financial Statements
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Financial Statements
The four financial statements and their purposes are:
1. 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.
2. Statement of owner’s equity— explains changes in equity
from net income (or loss) and from any owner investments
and withdrawals over a period of time.
3. Balance sheet — describes a company’s financial position
(types and amounts of assets, liabilities, and equity) at a
point in time.
4. Statement of cash flows — identifies cash inflows (receipts)
and cash outflows (payments) over a period of time.
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NEED-TO-KNOW
Prepare the (a) income statement, (b) statement of owner's equity, and (c) balance sheet, for Apple using the following
condensed data from its fiscal year ended September 28, 20X2.
Accounts payable $22,367 Investments and other assets $163,042
Other liabilities 61,084 Land and equipment 16,597
Cost of sales (expense) 119,724 Selling and other expense 14,149
Cash 14,259 Accounts receivable 13,102
Owner, Capital, September 29, 20X1 118,210 Net income 37,037
Withdrawals in fiscal year 20X2 31,698 Owner, Capital, September 28, 20X2 123,549
Revenues 170,910
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NEED-TO-KNOW
Accounts payable $22,367 Investments and other assets $163,042
Other liabilities 61,084 Land and equipment 16,597
Cost of sales (expense) 119,724 Selling and other expense 14,149
Cash 14,259 Accounts receivable 13,102
Owner, Capital, September 29, 20X1 118,210 Net income 37,037
Withdrawals in fiscal year 20X2 31,698 Owner, Capital, September 28, 20X2 123,549
Revenues 170,910
APPLE APPLE
Income Statement Statement of Owner's Equity
For Fiscal Year Ended September 28, 20X2 For Fiscal Year Ended September 28, 20X2
Revenues $170,910 Owner, Capital, September 29, 20X1 $118,210
Expenses Plus: Net income 37,037
Cost of sales (expense) $119,724 Less: Withdrawals by owner (31,698)
Selling and other expense 14,149 Owner, Capital, September 28, 20X2 $123,549
Total expenses 133,873
Net income $37,037
APPLE
Balance Sheet
September 28, 20X2
Assets Liabilities
Cash $14,259 Accounts payable $22,367
Accounts receivable 13,102 Other liabilities 61,084
Land and equipment 16,597 Total liabilities 83,451
Investments and other assets 163,042 Equity
Owner, Capital, September 28, 20X2 123,549