ACG 2021 Financial Accounting - PowerPoint PPT Presentation

1 / 38
About This Presentation

ACG 2021 Financial Accounting


Financial Accounting ... The Entity Concept A business is separate & distinct from it s owners The Reliability Principle Accounting records are based on the ... – PowerPoint PPT presentation

Number of Views:97
Avg rating:3.0/5.0
Slides: 39
Provided by: financiala


Transcript and Presenter's Notes

Title: ACG 2021 Financial Accounting

ACG 2021Financial Accounting
  • Chapter One
  • The Financial Statements

The Accounting System
What is accounting
  • Been in place for hundreds of years
  • 1494 Luca Pacioli's Summa de Arithmetica
    Geometria Proportionalita (A Review of
    Arithmetic, Geometry and Proportions)
  • First written description of double-entry
  • Incan khipus
  • cryptic assemblages of string and knots
  • May have been used for record-keeping (i.e.
    accounting) Gary Urton and Carrie Brezine
  • Annotated Khipu on Flickr
  • System
  • Of recording business transactions
  • Language
  • Whether knots
  • Debits or Credits written in a journal
  • Digital values stored on a computer
  • Weve been accounting for many, many years

Information System Model
The Accounting System
  • An Information System
  • Inputs to the system are business events
  • Sales
  • Purchases
  • Inventory (things to re-sell, things to use in
    building), buildings
  • Payroll
  • Processing takes place in the various Journals
    and General Ledger where transactions are stored
  • Financial Statements are the Outputs and
    represent Summary Information
  • Income Statement
  • Statement of Retained Earnings
  • Balance Sheet
  • Cash Flows

Accounting Information System
  • Procedures, Techniques and Resources to
  • Collect Disseminate
  • Relevant Business Information to Interested Users
  • Individuals (Management)
  • Investors Creditors
  • Taxing Authorities
  • Non-Profit Organizations

Accounting (The Language of Business) Is...
  • The process of identifying, measuring, and
    communicating economic information (via reports)
    to permit informed judgments and decisions by
    users of the information.
  • Balance Sheet Resources
  • Income Statement Results of Operations
  • Cash Flow Management of Asset

Language Dialects
  • Financial Accounting
  • Managerial Accounting
  • Tax Accounting
  • Governmental (non-profit) Accounting

ACG 2021
  • Who are we Accounting for
  • Business Forms
  • And
  • Accounting Rules and Assumptions

Accounting Assumptions
  • Business activity occurs via distinct entities
  • Sole Proprietorship
  • Partnerships
  • Corporations
  • Business activity is conducted via measurable,
    observable transactions
  • Transactions can be described using standard
    units of measurement (s) in accounts (Valuation)

Forms of Business Organization
  • Proprietorship
  • Has a single owner
  • Proprietor is personally liable
  • for debts of the business
  • Not a separate legal entity
  • For accounting, the proprietorship is a separate
    entity from the proprietor

Forms of Business Organization
  • Partnerships
  • Two or more partners are co-owners
  • Each partner can be liable for all the debts of
    the partnership
  • Not a separate legal entity
  • For accounting, the partnership is a separate
    entity from its partners

Forms of Business Organization
  • Corporations
  • May have many owners (stockholders)
  • Stockholders are not personally liable for debts
    of the business
  • Is a separate legal entity
  • Stockholders elect a Board of Directors to
    appoint corporate officers and set policies

Accounting Guidelines
  • Formulated by the Financial Accounting Standards
    Board (FASB)
  • Generally Accepted Accounting Principles (GAAP)
  • The Entity Concept
  • A business is separate distinct from its
  • The Reliability Principle
  • Accounting records are based on the most
    objective evidence available
  • The Historical Cost Principle
  • s are recorded at time of transaction (actual
  • s that a willing buyer paid a willing seller
  • Not some point in the future
  • The Going-Concern Principle
  • The Entity will not go Out-of-Business
  • The Stable-Monetary-Unit Concept
  • the monetary units (s) purchasing power is
    stable (ignores inflation)

ACG 2021Financial Accounting
  • The Accounting Equation
  • Assets Liabilities Owners Equity

The Accounting Equation

Liabilities Owners Equity
  • Economic resources (value, s)
  • Owned and Controlled by business entity
  • Expected to produce a benefit in the future
  • Cash
  • Investments
  • Accounts Receivable
  • Inventory
  • Buildings, Equipment, Gold Mines, Patents

  • Economic obligations (debt) of a business
  • Accounts Payable
  • Notes Payable
  • Accrued Expenses
  • Payroll that we owe
  • Taxes that we owe
  • Rent, Insurance, etc. that we owe
  • Money we borrowed and of course owe
  • Claims by Creditors
  • Convey Assets
  • This means that the creditor expects an asset
    (most often cash) be given for what is owed
  • Perform Service
  • This means that the creditor expects a service
    (like prepare a tax return, or provide rental
    retail space) be given for what is owed

Owners Equity
  • The owners claim on the entitys assets
  • Capital (for Proprietorship or Partnership)
  • Stockholders equity (for Corporation)
  • Shares of Stock
  • Net assets
  • Assets liabilities owners equity

Stockholders Equity
  • For a corporation, stockholders equity is
    divided into two main categories.
  • Paid in capital
  • The amount that investors have given to the
  • In exchange for shares of stock
  • Retained earnings
  • The amount of Earnings the company has either
    earned (profit) or lost over time
  • The amount of dividends that have been paid to

The Accounting Equation Expanded
  • Assets Liabilities Owners Equity
  • Replace Owners Equity with
  • Paid-in capital - amount invested by its owners -
    common stock
  • Increases Owners Equity
  • Retained earnings - amount earned by
    income-producing activities and kept for use in
    the business
  • Dividends distributions of assets to
  • Decreases Retained Earnings

Assets Liabilities Paid-in capital Retained
The Accounting Equation
  • Retained Earnings accumulate Revenues and
    Expenses of an Organization and Dividends that
    have been paid
  • Revenues Sales of Product or Services
  • increases Retained Earnings from delivering goods
    or services to customers
  • Measured by corresponding increase in Asset
    received as payment
  • Expenses goods or services Consumed from
    Revenue Generation
  • decreases Retained Earnings that result from
  • Measured by historical cost of assets given up in
    the sale or consumed to make the sale

Components of Retained Earnings
Revenues for the period

Expenses for the period
Start of the period

Net income (or Net loss) for the period
Dividends for the period

Beginning balance of retained earnings

Accounting Equation Expanded (again)
  • Assets Liabilities Paid-in Capital
    Dividends Revenue Expenses
  • Retained Earnings

  • A simultaneous exchange between one accounting
    entity and another accounting entity
  • Customers
  • Suppliers
  • Employees
  • Owners
  • Each party Gives and Receives something of value

Chapter 1
  • Exercise 1-4

ACG 2021Financial Accounting
  • The Financial Statements

The Financial Statements
  • Balance Sheet
  • Income Statement
  • Statement of Retained Earnings
  • Statement of Cash Flows

Balance Sheet
Rank Place Situation Standing
  • Assets used to reach company objectives
  • s represent One Particular Point in Time
  • Snapshot
  • What is the companys financial position at the
    end of a period?
  • Assets Liabilities Owners Equity

Balance Sheet
  • Assets appear in order of Liquidity
  • Easily Turned into Cash
  • Why?
  • So Creditors can quickly ascertain if a company
    has enough Cash to pay back what is owed
  • So Creditors can quickly ascertain what
    collateral a company has against possible loans
    that might be made
  • Liabilities appear in order in which they will be
  • Within 1 year or less
  • Greater then 1 year
  • Stockholders Equity shows the amount contributed
    by investors the amount of Income retained by
    the company
  • Dividends are paid out of this retained amount
    (but NOT with it)

Income Statement
  • Presents information about profitability
  • How well did the company perform during the
  • Revenue Amount paid or promised to pay for
    goods or services of the firm, increase of assets
  • Expenses Costs of providing goods or services
    to the customer, using up of assets
  • Temporary (periodic) Retained Earnings accounts
  • Revenues
  • Expenses
  • Net Income (Loss)

Statement of Retained Earnings
  • The portion of a firms Net Income retained by the
  • Why did the company's retained earnings change
    during the year?
  • Beginning retained earnings
  • Net income or (-Net loss)
  • - Dividends
  • Ending retained earnings

Statement of Cash Flows
  • Changes to Cash during a specific time period
  • How much cash did the company generate and spend
    during the year?
  • Operating cash flows
  • Investing cash flows
  • Financing cash flows
  • Increase (decrease) in cash

Information Reported in the F/S
Relationships Amongthe Financial Statements
ABC Company Income Statement Year Ended
December 31, 2006 Revenues 700,000 Expenses
670,000 Net income 30,000
Relationships Amongthe Financial Statements
ABC Company Statement of Retained Earnings Year
Ended December 31, 2006 Beginning retained
earnings 180,000 Net income 30,000 Cash
dividends (10,000) Ending retained
earnings 200,000
Relationships Amongthe Financial Statements
ABC Company Balance Sheet December 31,
2006 Assets Cash 25,000 All other
assets 275,000 Total
assets 300,000 Liabilities Total
liabilities 120,000 Stockholders
equity Common stock 40,000 Retained
earnings 200,000 Other
equity (60,000) Total liabilities and
stockholders equity 300,000
Relationships Amongthe Financial Statements
ABC Company
Statement of Cash Flows
Year Ended December 31, 2006 Net cash
provided by operating activities 90,000 Net
cash used for investing activities (110,000) Net
cash provided by financing activities
40,000 Net increase in cash 20,000 Beginning
cash balance 5,000 Ending cash balance
Write a Comment
User Comments (0)