1. C1 - 1
Learning Objectives
1. Nature of a Business
2. The Role of Accounting in Business
3. Business Ethics
4. Profession of Accounting
5. Generally Accepted Accounting Principles
6. Assets, Liabilities, and Owner’s Equity
7. Business Transactions
8. Financial Statements
9. Financial Analysis and Interpretation
Power Notes
Introduction to Accounting and BusinessIntroduction to Accounting and Business
Chapter 1
C1

2. C1 - 2
Note: To select a topic, type the slide # and press Enter.
• Accounting – An Information Process
• Users of Accounting Information
• Profession of Accounting
• The Accounting Equation
• Business Transactions
• Financial Statements
• Ratio of Liabilities to Owner’s Equity
Slide # Power Note Topics
Power Notes
Introduction to Accounting and BusinessIntroduction to Accounting and Business
Chapter 1
3
9
11
16
19
53
70

3. C1 - 3
Accounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information Process
Identification
of Users

4. C1 - 4
User
Information
Needs
Accounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information Process
Identification
of Users

5. C1 - 5
Identification
of Users
User
Information
Needs
Accounting
System
Accounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information Process

6. C1 - 6
Identification
of Users
User
Information
Needs
Accounting
System
Economic Data
and Activities
Accounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information Process

7. C1 - 7
Identification
of Users
User
Information
Needs
Accounting
System
Economic Data
and Activities
Reports
Accounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information Process

8. C1 - 8
Identification
of Users
User
Information
Needs
Accounting
System
Reports
Economic Data
and Activities
User
Decisions
Accounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information ProcessAccounting — An Information Process

9. C1 - 9
EXTERNAL USERS
Financial AccountingFinancial Accounting
• investors
• creditors
• regulators
• customers
• competitors
Users of Accounting InformationUsers of Accounting InformationUsers of Accounting InformationUsers of Accounting Information

10. C1 - 10
EXTERNAL USERS
Financial AccountingFinancial Accounting
• investors
• creditors
• regulators
• customers
• competitors
• owners
• managers
• employees
INTERNAL USERS
ManagerialManagerial AccountingAccounting
Users of Accounting InformationUsers of Accounting InformationUsers of Accounting InformationUsers of Accounting Information

11. C1 - 11
What are the starting rates for new graduates?
GovernmentGovernment IndustryIndustry CPA FirmsCPA Firms
College Graduates
The Accounting ProfessionThe Accounting Profession
Auditor
Staff
Accountant
Junior
Accountant

12. C1 - 12
GovernmentGovernment IndustryIndustry CPA FirmsCPA Firms
Staff
Accountant
Junior
AccountantAuditor
College Graduates
How soon would I get promoted?
The Accounting ProfessionThe Accounting Profession
Senior
AccountantSupervisor Chief
Accountant

13. C1 - 13
What are the top positions in each category?
GovernmentGovernment IndustryIndustry CPA FirmsCPA Firms
Chief
Accountant
Staff
Accountant
Senior
Accountant
Junior
Accountant
Supervisor
Auditor
College Graduates
The Accounting ProfessionThe Accounting Profession
Controller ManagerDirector

14. C1 - 14
What is the fastest path to top management?
GovernmentGovernment
Administrator
IndustryIndustry
Vice President
Finance
CPA FirmsCPA Firms
Chief
Accountant
Staff
Accountant
Controller
Partner
Manager
Senior
Accountant
Junior
Accountant
Director
Supervisor
Auditor
College Graduates
The Accounting ProfessionThe Accounting Profession

15. C1 - 15
10 to 20 years of experience1
GovernmentGovernment
The Accounting ProfessionThe Accounting Profession
Administrator
IndustryIndustry
Vice President
Finance
CPA FirmsCPA Firms
1
6 to 8 years of experience2
Chief
Accountant
Staff
Accountant
Controller
Partner
Manager
Senior
Accountant
Junior
Accountant
2
Director
Supervisor
Auditor
College Graduates

16. C1 - 16
Resources
The Accounting EquationThe Accounting Equation
What are an organization’s resources called?

17. C1 - 17
Assets
Resources = Sources
The Accounting EquationThe Accounting Equation
What are the
sources of the
assets?
Cost of
resources used
in the business

18. C1 - 18
Assets
Liabilities
Owner’s
Equity
Resources = Sources
Cost of
resources used
in the business
Resources
supplied by
creditors and
owners
The Accounting EquationThe Accounting Equation

19. C1 - 19
a. Chris Clark deposits $25,000 in a bank account
for NetSolutions.
ASSETS
=
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
OWNER’S EQUITY
LIABILITIES

20. C1 - 20
a. Chris Clark deposits $25,000 in a bank account
for NetSolutions.
ASSETS
=
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
OWNER’S EQUITY
CashCash
25,00025,000
LIABILITIES

21. C1 - 21
a. Chris Clark deposits $25,000 in a bank account
for NetSolutions.
ASSETS
=
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
OWNER’S EQUITY
CashCash
25,00025,000
LIABILITIES
Chris Clark,Chris Clark,
CapitalCapital
25,00025,000

22. C1 - 22
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
b. NetSolutions buys land for $20,000.
ASSETS
= OWNER’S EQUITY
LIABILITIES

23. C1 - 23
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
b. NetSolutions buys land for $20,000.
ASSETS
= OWNER’S EQUITY
LIABILITIES
CashCash
(20,000)(20,000)

24. C1 - 24
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
b. NetSolutions buys land for $20,000.
ASSETS
= OWNER’S EQUITY
LIABILITIES
CashCash
(20,000)(20,000)
LandLand
20,00020,000

25. C1 - 25
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
c. NetSolutions buys supplies for $1,350, agreeing to
pay the supplier in the near future.

26. C1 - 26
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
SuppliesSupplies
1,3501,350
c. NetSolutions buys supplies for $1,350, agreeing to
pay the supplier in the near future.

27. C1 - 27
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
c. NetSolutions buys supplies for $1,350, agreeing to
pay the supplier in the near future.
Accounts PayableAccounts Payable
1,3501,350
SuppliesSupplies
1,3501,350

28. C1 - 28
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
d. NetSolutions earns fees of $7,500, receiving cash.

29. C1 - 29
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
CashCash
7,5007,500
d. NetSolutions earns fees of $7,500, receiving cash.

30. C1 - 30
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
CashCash
7,5007,500
Fees EarnedFees Earned
7,5007,500
d. NetSolutions earns fees of $7,500, receiving cash.

31. C1 - 31
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
e. NetSolutions paid: wages, $2,125; rent, $800;
utilities, $450; and miscellaneous, $275.

32. C1 - 32
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
CashCash
(3,650)(3,650)
e. NetSolutions paid: wages, $2,125; rent, $800;
utilities, $450; and miscellaneous, $275.

33. C1 - 33
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
CashCash
(3,650)(3,650)
ExpensesExpenses
(3,650)(3,650)
e. NetSolutions paid: wages, $2,125; rent, $800;
utilities, $450; and miscellaneous, $275.

34. C1 - 34
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
f. NetSolutions pays $950 to creditors on account.

35. C1 - 35
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
CashCash
(950)(950)
f. NetSolutions pays $950 to creditors on account.

36. C1 - 36
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
CashCash
(950)(950)
Accounts PayableAccounts Payable
(950)(950)
f. NetSolutions pays $950 to creditors on account.

37. C1 - 37
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
g. At the end of the month, the cost of supplies on
hand is $550.

38. C1 - 38
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
SuppliesSupplies
(800)(800)
g. At the end of the month, the cost of supplies on
hand is $550.

39. C1 - 39
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
SuppliesSupplies
(800)(800)
Supplies ExpenseSupplies Expense
(800)(800)
g. At the end of the month, the cost of supplies on
hand is $550.

40. C1 - 40
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
h. Chris Clark withdraws $2,000 in cash.

41. C1 - 41
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
CashCash
(2,000)(2,000)
h. Chris Clark withdraws $2,000 in cash.

42. C1 - 42
Business TransactionsBusiness TransactionsBusiness TransactionsBusiness Transactions
ASSETS
= OWNER’S EQUITY
LIABILITIES
CashCash
(2,000)(2,000)
Chris Clark,Chris Clark,
DrawingDrawing
(2,000)(2,000)
h. Chris Clark withdraws $2,000 in cash.

43. C1 - 43
Transaction SummaryTransaction SummaryTransaction SummaryTransaction Summary
ASSETS
=
OWNER’S EQUITY
LIABILITIES
CashCash 5,9005,900
SuppliesSupplies 550550
LandLand 20,00020,000

44. C1 - 44
Transaction SummaryTransaction SummaryTransaction SummaryTransaction Summary
ASSETS
=
OWNER’S EQUITY
LIABILITIES
CashCash 5,9005,900
SuppliesSupplies 550550
LandLand 20,00020,000
Accts. PayableAccts. Payable 400400

45. C1 - 45
Transaction SummaryTransaction SummaryTransaction SummaryTransaction Summary
ASSETS
=
OWNER’S EQUITY
LIABILITIES
CashCash 5,9005,900
SuppliesSupplies 550550
LandLand 20,00020,000
Accts. PayableAccts. Payable 400400
C. Clark, CapitalC. Clark, Capital 25,00025,000
C. Clark, DrawingC. Clark, Drawing (2,000)(2,000)
Fees EarnedFees Earned 7,5007,500
Wages ExpenseWages Expense (2,125)(2,125)
Rent ExpenseRent Expense (800)(800)
Supplies ExpenseSupplies Expense (800)(800)
Utilities ExpenseUtilities Expense (450)(450)
Misc. ExpenseMisc. Expense (275)(275)

46. C1 - 46
OWNER’S EQUITY
Effects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s Equity

47. C1 - 47
OWNER’S EQUITY
Effects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s Equity
decreased bydecreased by

48. C1 - 48
OWNER’S EQUITY
Effects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s Equity
Owner’s withdrawals
Expenses
decreased bydecreased by

49. C1 - 49
OWNER’S EQUITY
Effects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s Equity
increased byincreased by

50. C1 - 50
OWNER’S EQUITY
Effects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s Equity
Owner’s investments
Revenues
increased byincreased by

51. C1 - 51
OWNER’S EQUITY
Effects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s Equity
Owner’s withdrawals
Expenses
Owner’s investments
Revenues
decreased bydecreased by increased byincreased by

52. C1 - 52
OWNER’S EQUITY
Effects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s EquityEffects of Transactions on Owner’s Equity
Owner’s withdrawals
Expenses
Owner’s investments
Revenues
decreased bydecreased by increased byincreased by
NET INCOME

53. C1 - 53
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
NetSolutions
Income Statement
For the Month Ended November 30, 2002
Fees earned $7,500
Operating expenses:
Wages expense $2,125
Rent expense 800
Supplies expense 800
Utilities expense 450
Miscellaneous expense 275
Total operating expenses 4,450
Net income $3,050

54. C1 - 54
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
NetSolutions
Income Statement
For the Month Ended November 30, 2002
Fees earned $7,500
Operating expenses:
Wages expense $2,125
Rent expense 800
Supplies expense 800
Utilities expense 450
Miscellaneous expense 275
Total operating expenses 4,450
Net income $3,050

55. C1 - 55
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
NetSolutions
Income Statement
For the Month Ended November 30, 2002
Fees earned $7,500
Operating expenses:
Wages expense $2,125
Rent expense 800
Supplies expense 800
Utilities expense 450
Miscellaneous expense 275
Total operating expenses 4,450
Net income $3,050

56. C1 - 56
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
NetSolutions
Income Statement
For the Month Ended November 30, 2002
Fees earned $7,500
Operating expenses:
Wages expense $2,125
Rent expense 800
Supplies expense 800
Utilities expense 450
Miscellaneous expense 275
Total operating expenses 4,450
Net income $3,050

57. C1 - 57
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
Chris Clark, capital, November 1, 2002 $ 0
Investment on November 1, 2002 $25,000
Net income for November 3,050
$28,050
Less withdrawals 2,000
Increase in owner’s equity 26,050
Chris Clark, capital, November 30, 2002 $26,050

58. C1 - 58
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
Chris Clark, capital, November 1, 2002 $ 0
Investment on November 1, 2002 $25,000
Net income for November 3,050
$28,050
Less withdrawals 2,000
Increase in owner’s equity 26,050
Chris Clark, capital, November 30, 2002 $26,050

59. C1 - 59
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
Chris Clark, capital, November 1, 2002 $ 0
Investment on November 1, 2002 $25,000
Net income for November 3,050
$28,050
Less withdrawals 2,000
Increase in owner’s equity 26,050
Chris Clark, capital, November 30, 2002 $26,050

60. C1 - 60
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
Chris Clark, capital, November 1, 2002 $ 0
Investment on November 1, 2002 $25,000
Net income for November 3,050
$28,050
Less withdrawals 2,000
Increase in owner’s equity 26,050
Chris Clark, capital, November 30, 2002 $26,050

61. C1 - 61
NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2002
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
Chris Clark, capital, November 1, 2002 $ 0
Investment on November 1, 2002 $25,000
Net income for November 3,050
$28,050
Less withdrawals 2,000
Increase in owner’s equity 26,050
Chris Clark, capital, November 30, 2002 $26,050

62. C1 - 62
NetSolutions
Balance Sheet
November 30, 2002
Assets
Cash $5,900
Supplies 550
Land 20,000
Total assets $26,450
Liabilities
Accounts payable $ 400
Owner’s Equity
Chris Clark, capital 26,050
Total liabilities and
owner’s equity $26,450
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements

63. C1 - 63
NetSolutions
Balance Sheet
November 30, 2002
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
Assets
Cash $5,900
Supplies 550
Land 20,000
Total assets $26,450
Liabilities
Accounts payable $ 400
Owner’s Equity
Chris Clark, capital 26,050
Total liabilities and
owner’s equity $26,450

64. C1 - 64
NetSolutions
Balance Sheet
November 30, 2002
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
Assets
Cash $5,900
Supplies 550
Land 20,000
Total assets $26,450
Liabilities
Accounts payable $ 400
Owner’s Equity
Chris Clark, capital 26,050
Total liabilities and
owner’s equity $26,450

65. C1 - 65
NetSolutions
Balance Sheet
November 30, 2002
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
Assets
Cash $5,900
Supplies 550
Land 20,000
Total assets $26,450
Liabilities
Accounts payable $ 400
Owner’s Equity
Chris Clark, capital 26,050
Total liabilities and
owner’s equity $26,450

66. C1 - 66
NetSolutions
Statement of Cash Flows
For the Month Ended November 30, 2002
Cash flows from operating activities:
Cash received from customers $ 7,500
Deduct cash payments for expenses
and payments to creditors 4,600
Net cash flow from operating activities $ 2,900
Cash flows from investing activities:
Cash payments for acquisition of land (20,000)
Cash flows from financing activities:
Cash received as owner’s investment $25,000
Deduct cash withdrawal by owner 2,000
Net cash flow from financing activities 23,000
Net cash flow and Nov. 30, 2002 cash balance $5,900
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements

67. C1 - 67
NetSolutions
Statement of Cash Flows
For the Month Ended November 30, 2002
)
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
Cash flows from operating activities:
Cash received from customers $ 7,500
Deduct cash payments for expenses
and payments to creditors 4,600
Net cash flow from operating activities $ 2,900
Cash flows from investing activities:
Cash payments for acquisition of land (20,000
Cash flows from financing activities:
Cash received as owner’s investment $25,000
Deduct cash withdrawal by owner 2,000
Net cash flow from financing activities 23,000
Net cash flow and Nov. 30, 2002 cash balance $5,900

68. C1 - 68
NetSolutions
Statement of Cash Flows
For the Month Ended November 30, 2002
)
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
Cash flows from operating activities:
Cash received from customers $ 7,500
Deduct cash payments for expenses
and payments to creditors 4,600
Net cash flow from operating activities $ 2,900
Cash flows from investing activities:
Cash payments for acquisition of land (20,000)
Cash flows from financing activities:
Cash received as owner’s investment $25,000
Deduct cash withdrawal by owner 2,000
Net cash flow from financing activities 23,000
Net cash flow and Nov. 30, 2002 cash balance $5,900

69. C1 - 69
NetSolutions
Statement of Cash Flows
For the Month Ended November 30, 2002
Financial StatementsFinancial StatementsFinancial StatementsFinancial Statements
Cash flows from operating activities:
Cash received from customers $ 7,500
Deduct cash payments for expenses
and payments to creditors 4,600
Net cash flow from operating activities $ 2,900
Cash flows from investing activities:
Cash payments for acquisition of land (20,000
Cash flows from financing activities:
Cash received as owner’s investment $25,000
Deduct cash withdrawal by owner 2,000
Net cash flow from financing activities 23,000
Net cash flow and Nov. 30, 2002 cash balance $5,900
)

70. C1 - 70
Ratio of Liabilities to Owner’s EquityRatio of Liabilities to Owner’s EquityRatio of Liabilities to Owner’s EquityRatio of Liabilities to Owner’s Equity
Ratio of liabilities
to owner’s equity
=
FormulaFormula
Objective: Use the ratio of liabilities to owner’s equity to
analyze the ability of a business to withstand poor
business conditions and to pay its creditors.
Total liabilities
Total owner’s equity
NetSolutions =
ExampleExample
$400
$16,050
.025 or 2.5%

71. C1 - 71
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Power NotesChapter 1
Introduction to Accounting and BusinessIntroduction to Accounting and Business