Accounting 1MGT 130

Lecture 02

• Overview of Lecture 01

• Lecture 02

•Lecture 02• Business Organizations – Proprietorships,

– partnerships

– corporations.

• Business Types–Manufacturing

–Merchandizing

– Services business.

• Business strategy

• Low-cost strategy

• Differential strategy

STAKEHOLDERS

Internal: Owners, managers, employees

External: Customers, creditors, government

The Process of Providing InformationThe Process of Providing InformationThe Process of Providing InformationThe Process of Providing Information

1. Identify stake-holders.

2. Assess stakeholders’ informational needs

3. Design the accounting information system to meet stakeholders’ needs

4. Record economic data about business activities and events

5. Prepare accounting reports for stakeholders

• Purpose of Information

• The Purpose of Accounting

• Accounting System

• Accounting

Accounting System

Financial Accounting Balance Sheet Income Statement Cash Flow Statement Statement of Changes in Owner’s Equity

Managerial AccountingCost Accounting

Distinction Between Financial Accounting and Managerial Accounting

• Users of information

• Regulations

• Source of Data

• Nature of Reports and Procedures

Accounting Equation

• Techniques of calculating – Assets,

– Liabilities and

– Owner’s equity

• Transactions in Accounting Equation

Fees earned Rs. 7500

Operating expenses:

Rent expense

Rs. 2125Wages expense

800

Supplies expense

450 Utilities expense

275 Miscellaneous expense

Total operating expenses 4450

Opportunities Inc.Income Statement

For the Month Ended November 30, 2010

800

Net income Rs.3050

Javid Iqbal, capital, November 1, 2010 Rs.

Opportunities Inc.Statement of Owner’s Equity

For the Month Ended November 30, 2010

Investment on November 1 Rs.25 000 Net income for November 3 050

Rs.28 050Less withdrawals 2 000 Increase in owner’s equity 26 050Javid Iqbal, capital, November 30, 2010 Rs.26 050

Javid Iqbal, capital, November 1, 2010 Rs.

Opportunities Inc.Statement of Owner’s Equity

For the Month Ended November 30, 2010

Investment on November 1 Rs.25 000Net income for November 3 050

Rs.28 050Less withdrawals 2 000Increase in owner’s equity 26 050Javid Iqbal, capital, November 30, 2010 Rs.26 050

Fees earned Rs. 7500

Operating expenses:

Rent expense

Rs. 2125Wages expense

800

Supplies expense

450 Utilities expense

275 Miscellaneous expense

Total operating expenses 4450

Opportunities Inc.Income Statement

For the Month Ended November 30, 2010

800

Net income Rs.3050

Javid Iqbal, capital, November 1, 2010 Rs.

Opportunities Inc.Statement of Owner’s Equity

For the Month Ended November 30, 2010

Investment on November 1 Rs.25 000Net income for November 3 050

Rs.28 050Less withdrawals 2 000Increase in owner’s equity 26 050Javid Iqbal, capital, November 30, 2010 Rs.26 050

Assets Liabilities

Opportunities Inc.Balance Sheet

November 30, 2010

Cash Rs, 5 900 Accounts Payable Rs. 400

Supplies 550 Owner’s Equity

Land 20 000 Javid Iqbal, cap. 26 050

Total liabilities and

Total assets Rs.26 450 owner’s equity Rs.26 450

This balance sheet presented using the account form

Cash Flows from Operating Activities—This section reports a summary of cash receipts and cash payments from operations.

Cash Flows from Investing Activities—This section reports the cash transactions for the acquisition and sale of relatively permanent assets.

Cash Flows from Financing Activities—This section reports the cash transactions related to cash investments by the owner, borrowings, and cash withdrawals by the owner.

Cash flows from operating activities:Cash received from customers Rs. 7 500Deduct cash payments for expenses and payments to creditors 4 600Net cash flow from operating activities 2 900

Cash flows from investing activities:Cash payment for acquisition of land (20 000

Cash flows from financing activities:

Cash received as owner’s investment Rs.25000

Deduct cash withdrawal by owner 2000Net cash flow from financing activities 23 000

Net cash flow and Nov. 30, 2005 cash bal. Rs. 5 900

Opportunities Inc.Statement of Cash Flows

For the Month Ended November 30, 2010

)

Assets Liabilities

Opportunities Inc.Balance Sheet

November 30, 2010

Cash Rs, 5 900 Accounts Payable Rs. 400

Supplies 550 Owner’s Equity

Land 20 000 Javid Iqbal, cap. 26 050

Total liabilities and

Total assets Rs.26 450 owner’s equity Rs.26 450

This balance sheet presented using the account form

Ratio of liabilities to owner’s equity

=Total Liabilities

Total owner’s equity (or total stockholders’ equity)

The ratio of liabilities to owner’s equity allows owners like Javid Iqbal to analyze the firm’s ability to withstand poor business conditions.

The ratio of liabilities to owner’s equity allows owners like Javid Iqbal to analyze the firm’s ability to withstand poor business conditions.

Ratio of liabilities to

owner’s equity=

Rs.400

Rs.26,050

= 0.015 / 15%Ratio of

liabilities to owner’s equity

Collective Transactions of Accounting equations

Treatment of these transactions

Income Statement

Statement of Owner’s Equity

Balance Sheet

Statement of Cash Flows

A list of the accounts in a ledger is called a chart of accounts.

CashSuppliesBuildingAccounts

receivable

Accounts payable

Notes payableWages payable

CashSuppliesBuildingAccounts

receivable

Accounts payable

Notes payableWages payable

Javid Iqbal, Capital

Javid Iqbal, Drawing

Fees EarnedFares EarnedCommission

Revenue

Rent ExpenseSalary ExpenseUtilities

Expense

Major Account ClassificationsMajor Account Classifications

Cash

Cash

Left side debit

Cash

Left side debit

Right side credit

Cash3,7504,3002,900

8501,400

7002,900

Typical entries

Cash3,7504,3002,900

8501,400

7002,90010,950

First, total the debit

side.

First, total the debit

side.

8501,400

7002,900

Cash3,7504,3002,900

10,9505,850

Next, total thecredit side.

Next, total thecredit side.

8501,400

7002,900

Cash3,7504,3002,900

10,9505,850

5,100

Transactions and Balance Sheet Accounts

Debits Credits

Asset accounts………. Increase (+) Decrease (-)

Liability accounts…… Decrease (-) Increase (+)

Owner’s equity (capital) accounts…. Decrease (-) Increase (+)

Rules of Debit / Credit Balance Sheet Accounts

Chapter 01Chapter 01

Lecture 02Lecture 02