phm_poa1_ch01_stu

8/8/2019 phm_poa1_ch01_stu

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Copyright 2007 Prentice-Hall. All rights reserved 1

Accounting and theAccounting and theBusiness EnvironmentBusiness EnvironmentAccounting and theAccounting and the

Business EnvironmentBusiness EnvironmentChapter 1


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Obj ective 1Obj ective 1Obj ective 1Obj ective 1D escribe the nature and types

of business organizations


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Typ es of Business O rganizationsTyp es of Business O rganizationsTyp es of Business O rganizationsTyp es of Business O rganizations

S ervice companies - provide servicesto customers

M erchandise or retail companies -sell products M anufacturing companies - maketheir own products


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O rganization Accounta b ilityO rganization Accounta b ilityO rganization Accounta b ilityO rganization Accounta b ility

F iduciary obligation to manage theresources of an organization

responsibly S takeholders investors, creditors,suppliers, employees, customers,government agencies, and investees


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AccountingAccountingAccountingAccounting

M easures P rocesses

Communicates F inancial information to decisionmakers


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Financial vs. ManagerialFinancial vs. Managerial

AccountingAccounting

Financial vs. ManagerialFinancial vs. Managerial

AccountingAccounting F inancial Accounting - for thoseoutside of the company Reports are called F inancial S tatements P repared according to GAA P

M anagerial Accounting Helps managers plan, control, and make

decisions


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Obj ective 3Obj ective 3Obj ective 3Obj ective 3D efine Generally Accepted

Accounting P rinciples anddescribe the basic accountingconcepts


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G AAPG AAPG AAPG AAP

Generally Accepted AccountingP rinciples - established rules,principles, and concepts

F ormulated by F inancial AccountingS tandards Board ( F AS B)


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G AAPG AAPG AAPG AAP

P rimary objective of financialaccounting provide informationthat is useful for making investmentand lending decisions


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Entity Conce p tEntity Conce p tEntity Conce p tEntity Conce p t

Accounting E ntity organization thatstands apart as a separate economicunit


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Accounting information is based onthe most reliable data available Verifiable F ree from bias I ndividuals would arrive at similar

conclusions using same data

Relia b ility (Obj ectivit y) Relia b ility (Obj ectivit y)

Princi p lePrinci p le

Relia b ility (Obj ectivit y) Relia b ility (Obj ectivit y)

Princi p lePrinci p le


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Cost Princi p leCost Princi p leCost Princi p leCost Princi p le

Acquired assets and services shouldbe recorded at their actual cost(historical cost)


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G oing Concern Conce p tG oing Concern Conce p tG oing Concern Conce p tG oing Concern Conce p t

Assumes that the entity will remainin operation for the foreseeablefuture


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S1S1--11S1S1--11

a. An organization that stands as aseparate economic unit must nothave its financial affairs confusedwith that of other entities.

____ 1. Cost principle ____ 2. E ntity concept ____ 3. Going-concern concept ____ 4. Reliability principle

a.


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S1S1--11S1S1--11

b. D ata must be verifiable.c. The entity will remain in operation

for the foreseeable future. ____ 1. Cost principle ____ 2. E ntity concept

____ 3. Going-concern concept ____ 4. Reliability principle

a.

b.c.


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S1S1--11S1S1--11

d. Acquired assets and servicesshould be recorded at their actualcost.

____ 1. Cost principle ____ 2. E ntity concept

____ 3. Going-concern concept ____ 4. Reliability principle

a.

b.c.

d.


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Obj ective 4Obj ective 4Obj ective 4Obj ective 4U se the accounting equation

to analyze businesstransactions


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Claims to the AssetsClaims to the AssetsClaims to the AssetsClaims to the Assets

Liabilities economic obligationspayable to an individual or

organization outside the businessAccounts payableNotes payable

S alary payable


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Claims to the AssetsClaims to the AssetsClaims to the AssetsClaims to the Assets

O wners E quity (capital) claim of business owner to the assets of thebusiness


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EconomicResources

Claims toEconomicResources

The Accounting EquationThe Accounting EquationThe Accounting EquationThe Accounting Equation

Assets = Liabili t i es + Owners Equ i ty


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RevenuesRevenuesRevenuesRevenues

Amounts earned by delivering goodsor services to customers S ales revenue S ervice revenue I nterest revenue D ividend revenue


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Exp ensesExp enses

D ecrease in owners equity - occursfrom using resources in the course of delivering goods or services tocustomers S alary e x pense Rent e x pense U tilities e x pense I nterest e x pense


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N et Income (Loss )N et Income (Loss )N et Income (Loss )N et Income (Loss )

Revenues Ex penses


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Com p onents ofCom p onents of

Ow ners Equit yOw ners Equit y

Com p onents ofCom p onents of

Ow ners Equit yOw ners Equit y

B eginningB alance of

Owners Equity

Owner Investments

+

Revenues

Expenses

-

=

Net Income(Net Loss)

+ Owner Withdrawals-

EndingB alance of

Owners Equity=


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TransactionTransactionTransactionTransaction

An event that affects the financialposition of a particular entity and canbe recorded reliably


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S1S1--44S1S1--44a. D ebts that are owed to creditorsb. E conomic resources that are

e x pected to be of benefit in thefuturec. Claims of the owner of the business

_____ 1. Assets _____ 2. Liabilities _____ 3. O wners equity

a.b.

c.


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S1S1--99S1S1--99

____ 1. U tilities Ex pense ____ 2. Accounts Receivable ____ 3. Gay Gillen, Capital

____ 4.O

fficeS

upplies ____ 5. Lease Ex pense, Computer ____ 6. S alary Ex pense

a. Assets b. Liabilitiesc. Owners Equity d. Revenues e. Expenses

a

a

e

e

e

c


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S1S1--99S1S1--99

____ 7. Cash ____ 8. Rent Ex pense, O ffice ____ 9. S ervice Revenue

____ 10. Accounts P ayable ____ 11. Land

a. Assets b. Liabilitiesc. Owners Equity d. Revenues e. Expenses

aed

ab


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Exercise 1Exercise 1- -1414Exercise 1Exercise 1- -1414Assets Liabilities O wners

E quity

Gemstone $ ? $61,800 $21,000

S ampsonHardware 72,000 ? 34,000

LundyP lumbing 102,700 79,800 ?

$82,800

38,000

22,900


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(1) Cash ( asset )(2) Owners Equity ( equity )

Does the account increase or decrease?

J uly 6: Hobt invested $60,000 in thebusiness by opening a bank account inthe name of K. Hobt, D.D.S.

Anal yze this:Anal yze this:Anal yze this:Anal yze this:

W hat accounts are involved?


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Date Assets Liabilities OwnersEquity

July Cash DentalSupplies

Land AccountsPayable

K. Hobt,Capital

Type of Transaction

Exercise 1Exercise 1- -1818Exercise 1Exercise 1- -1818

60,000 I nvestment

A ssets = $60,000 Liabilities & Owners Equity = $60,000

60,0006


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(1) Cash ( asset )

(2) Land ( asset )

Anal yze this:Anal yze this:Anal yze this:Anal yze this:J uly 9: The business paid $55,000cash for land. Ken plans to build anoffice building on the land.

Does the account increase or decrease?W hat accounts are involved?


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K. Hobt,Capital

Type of Transaction


60,000 I nvestment

55,000


60,0006

-55,0009

60,00055,0005,000Bal


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(1) Dental Supplies ( asset )

(2) A ccounts Payable ( liability )

Anal yze this:Anal yze this:Anal yze this:Anal yze this:J uly 12: The business purchaseddental supplies for $2,000 on account.

Does the account increase or decrease?W hat accounts are involved?


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K. Hobt,Capital

Type of Transaction


2,000


2,00012

60,00055,0005,000Bal 2,0002,000

60,00055,0005,000Bal


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(1) Cash ( asset )(2) Revenues ( equity )

Anal yze This:Anal yze This:Anal yze This:Anal yze This:J uly 15: The business treated patientsand earned service revenue of $7,000,receiving cash.

W hat accounts are involved?

W hen the ownercompletes work,

his interest inthe assetsincreases


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K. Hobt,Capital

Type of Transaction



7,00015 7,000 Revenue

67,00055,00012,000Bal 2,0002,000

60,00055,0005,000Bal 2,0002,000


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(1) Cash ( asset )(2) Expense ( equity )

Anal yze This:Anal yze This:Anal yze This:Anal yze This:

J uly 17: The business paid officerent, $1,000.

What accounts are involved?

When an expense isincurred, ownersequity decreases


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K. Hobt,Capital

Type of Transaction



-1,00017 -1,000 Rent Exp

66,00055,00011,000Bal 2,0002,000

67,00055,00012,000Bal 2,0002,000


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Does the account increase or decrease?(1) Cash ( asset )(2) Medical Supplies ( asset )


J uly 28: The business sold supplies toanother dentist for the cost of thosesupplies, $500.



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K. Hobt,Capital

Type of Transaction



50028 -500

66,00055,00011,500Bal 2,0001,500

66,00055,00011,000Bal 2,0002,000


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Does the account increase or decrease?(1) Cash ( asset )(2) A ccounts Payable ( liability )


J uly 31: The business paid $1,500 onaccount related to the J uly 12purchase.



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K. Hobt,Capital

Type of Transaction



-1,50031 -1,500

66,00055,00010,000Bal 5001,500

66,00055,00011,500Bal 2,0001,500


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Accounting for BusinessAccounting for Business

TransactionsTransactions

Accounting for BusinessAccounting for Business

TransactionsTransactionsThe equation always stays in balanceE ach transaction affects at least two

accounts, sometimes more S ome transactions affect only oneside of the equation; some affectboth sides


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Obj ective 5Obj ective 5Obj ective 5Obj ective 5P repare financial statements

and ex

plain the relationshipsbetween them


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Income S tatementIncome S tatementIncome S tatementIncome S tatement

S ummary of an entitys revenues,e x penses, and net income or net lossfor a specific period

Revenues - Ex pensesNet I ncome: Revenues > Ex penses Net Loss: Ex penses > Revenues


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S tatement of Ow ners Equit yS tatement of Ow ners Equit yS tatement of Ow ners Equit yS tatement of Ow ners Equit y S ummary of changes in an entitysowners equity during a specificperiod

Beginning owners equity+ O wners investments+ Net income

- Net loss- O wners withdrawalsE nding owners equity


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Balance SheetBalance SheetBalance SheetBalance Sheet

Reports the entitys assets, liabilities,and owners equity as of a specificdate

Assets = Liabilities + O wners E quity


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S tatement of Cash Flo wsS tatement of Cash Flo wsS tatement of Cash Flo wsS tatement of Cash Flo ws

Reports cash receipts and cashpayments during a period O perating I nvesting F inancing


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S1S1--1010S1S1--1010I ncome S tatement ( IS )Balance S heet (B S )S tatement of O wners E quity ( O E )

_____1. Accounts Receivable _____2. Notes P ayable _____3. Advertising Ex pense

_____4. S ervice Revenue _____5. J. P ., Capital, June 1 _____6. O ffice S upplies

IS

BS

O E

BS

IS

BS


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K . Hobt, D . D . S .K . Hobt, D . D . S .I ncome S tatementI ncome S tatement

F or the M onth E nded July 31, 2007F or the M onth E nded July 31, 2007

K . Hobt, D . D . S .K . Hobt, D . D . S .I ncome S tatementI ncome S tatement

F or the M onth E nded July 31, 2007F or the M onth E nded July 31, 2007Revenue:

F ees earned $7,000

Ex penses:Rent e x pense 1,000

Net income $6,000

N otice theproper

heading

Doubleunderlinefor your

final answer


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K . Hobt, capital, July 1, 2007 $ 0Add: I nvestment by owner 60,000

Net income for the month 6,000S ubtotal $66,000

Less: Withdrawals by owner 0K . Hobt, capital, July 31, 2007 $66,000

K . Hobt, D . D . S .K . Hobt, D . D . S .S tatement of O wners E quityS tatement of O wners E quity

For the

Month

Ended July 31, 2007

For the

Month

Ended July 31, 2007

K . Hobt, D . D . S .K . Hobt, D . D . S .S tatement of O wners E quityS tatement of O wners E quity

For the

Month

Ended July 31, 2007

For the

Month

Ended July 31, 2007

Dates areimportant tothe reader of the financial

reports

From incomestatement


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D etails, D etailsD etails, D etailsD etails, D etailsD etails, D etails

Note the headings for both of thesestatements

Name of companyName of financial statement

F or the period ended .

Both statements report activity overa period of time

F inal sums are double-underlined


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Negative amounts are presented inparenthesesNet income is computed first becauseyou need that number to completethe ending balance in owners equityWhen preparing a financialstatement, clearly label each line inthe statement


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D etails, detailsD etails, detailsD etails, detailsD etails, details

I f you are using columnar paper,always start your number columns inthe far right-hand columnNumbers that are added orsubtracted from each other shouldbe in the same column


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K . Hobt, D . D . S K . Hobt, D . D . S Balance S heetBalance S heet

July 31, 2007July 31, 2007

K . Hobt, D . D . S K . Hobt, D . D . S Balance S heetBalance S heet

July 31, 2007July 31, 2007AssetsCash $10,000M edical supplies 1,500Land 55,000

Total assets $ 66,500

LiabilitiesAccounts payable $500O wners equity,M . Lange, capital 66,000

Total liabilities andowners equity $ 66,500

From statement of owners equity

N otice theproper

heading


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Note - heading for the balance sheetis different from other statements

Name of companyName of financial statement

D ate

This statement reports what thecompany owns and who has claimsto the assets at a specific point intime


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Cash $2,000

Accounts receivable 6,900

S upplies 600

E quipment 15,500

Total Assets $25,000

Hawkins Graphic D esignBalance S heet

November 30, 2009

Liabilities

Accounts payable $2,500Note payable 8,000

Total liabilities $10,500

O wners E quity

A. S amuel, capital 14,500

Total liabilities andowners equity $25,000

Assets



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Exercise 1Exercise 1- -2020Exercise 1Exercise 1- -20201. What type of business organization

is Hawkins Graphic D esign?You can tell what type of

organization a company is bye x amining the owners equitysection of the balance sheet. S incethere is one owner capital account,it is a sole proprietorship

3. What does the balance sheetreport? F inancial position


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O ffice F urniture

U tilities Ex pense

Accounts P ayable

T. S ullivan, Capital

S ervice Revenue

Accounts Receivable

S upplies Ex pense

Asset

Asset

Ex pense

Ex pense

LiabilityO wners E quity

Revenue


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Note P ayable

Rent Ex pense

CashO ffice S upplies

S alary Ex pense

S alaries P ayable

P roperty Ta x Ex pense

AssetAsset

Ex pense

Ex pense

Ex pense

Liability

Liability


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Exercise 1Exercise 1- -2121Exercise 1Exercise 1- -2121S ullivan, ArchitectI ncome S tatement

Year E nded D ecember 31, 2009S ervice revenue $161,200

Ex penses:S alary e x pense $60,000Rent e x pense 24,000U tilities e x pense 6,800

S upplies e x pense 4,000P roperty ta x e x pense 1,200

Total e x penses 96,000Net income $65,200


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Exercise 1Exercise 1- -2121Exercise 1Exercise 1- -2121S ullivan, Architect

S tatement of O wners E quityYear E nded D ecember 31, 2009

S ullivan, capital, January 1, 2009 $ 0

Add: Net income 65,200I nvestment by owner 15,000

S ubtotal $80,200Less: O wner withdrawal ?

S ullivan, capital, D ecember 31, 2009 $27,100

53,100


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Obj ective 6Obj ective 6Obj ective 6Obj ective 6

Ex plain the role of ethics inaccounting and business


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EthicsEthicsEthicsEthics

The principles of right behavior thatguide decision-making Responsibility F airness Trustworthiness Respect

Caring Citizenship


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EthicsEthicsEthicsEthics

Audit Ex amination of companys financial

situation P erformed by independent accountants

(C P As)


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End of Cha p ter 1End of Cha p ter 1End of Cha p ter 1End of Cha p ter 1

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