the basis for business decisions accounting accounting and the business environment chapter 1

The Basis for Business Decisions

Accounting

Accounting and theBusiness

Environment

Chapter 1

Objective 1

Use accounting vocabulary

1.1 What is Accounting

Key words

• Financial statements 财务报表

• Investors 投资者• Creditors 债权人• Entity 实体• Financial accounting

财务会计

• Management accounting 管理会计• FASB 财务会计准则委员会• CPAs 注册会计师• CMAs 注册管理师• AICPA 美国注册会计师协会• IMA 管理会计师协会

• GAAP 公认会计原则

• Measures

• Processes

• Communicates…..

Financial information to decision makers

is an information system that…is an information system that…

1.Definition of Accounting

is called the language of business.is called the language of business.

Accounting...

External usersmake decisionsabout the entity.

External usersmake decisionsabout the entity.

Internal usersmake decisionsfor the entity.

Internal usersmake decisionsfor the entity.

2.Users of Accounting Information

Users of Accounting Information

External Users

•Lenders

•Shareholders

•Governments

•Consumer Groups

•External Auditors

•Customers

Internal Users

•Managers

•Officers/Directors

•Internal Auditors

•Sales Staff

•Budget Officers

•Controllers

C 2

External vs. Internal UsersInternal Users

Decision Making by:• Management• Employees

External Users

Decision making by:• Investors• Creditors

Management AccountingManagement Accounting

Financial AccountingFinancial Accounting

3. Fields of Accounting

Provides information for people outside the company.

Focuses on information for internal decision makers

1.2 Regulating Accounting

Let’s look at the

governing organization

s

The stock market The stock market crash of 1929 lead to crash of 1929 lead to federal regulation of federal regulation of the securities market.the securities market.

The Securities and The Securities and Exchange Exchange Commission (SEC) Commission (SEC) adopted strict adopted strict regulations for regulations for companies issuing companies issuing stock.stock.

Companies are Companies are required to file and required to file and disclose extensive disclose extensive financial information financial information to protect investors.to protect investors.

October 29, 1929October 29, 1929The Dow Jones IndustrialThe Dow Jones Industrial

AverageAverage

The Dow Jones The Dow Jones

Industrial AverageIndustrial Average

October 29, 1929October 29, 1929

Unregulated marketplace

gulated marketplace

Down the tubes!

1.Governing Organizations

(SEC) Securities and Exchange Commission

(AICPA) American Institute of Certified Public Accountants

(FASB) Financial Accounting Standards Board

(IMA) Institute of Management Accountant

A governmental agency with oversight powers.

The private professional organization of practicing CPAs.

Private sector agency that formulate accounting standards

Public Sector(SEC)

Public Sector(SEC)

Private Sector(FASB)

Private Sector(FASB)

Private Sector(AICPA) (IMA)

Private Sector(AICPA) (IMA)

GAAPGAAP

The Authority Underlying Accounting in the U.S

International Accounting StandardsInternational Accounting Standards

The International Accounting Standards Committee (IASC) was formed in 1973 and recently renamed International Accounting Standards Board (IASB)

The objective is to narrow divergence in international financial reporting.

U.S standards determined by the FinancialU.S standards determined by the FinancialAccounting Standards Board (FASB); international Accounting Standards Board (FASB); international accounting standards under development by theaccounting standards under development by theInternational Accounting Standards Committee (IASC).International Accounting Standards Committee (IASC).

Accounting ProfessionalsAccounting Professionals

• Public Accountants– Work in public accounting– CPA’s specialize in tax preparation,

consultation, auditing, and management

• Private Accountants– Work for businesses/corporations– Prepare financial statements, internal audits,

and management reports

Accounting Jobs by Area

Government,not-for-profit,& education

15%

Publicaccounting

25%

Privateaccounting

60%

C 3

Key words

• Proprietorship 独资• Partnership 合伙• Corporation 公司• Liability 负债• The going-concern concept 持续经营概

念

1.3Types of Business Organizations

Sole Proprietorship

Sole Proprietorship

PartnershipPartnership CorporationCorporation

C 5

1. Sole Proprietorship

• A business is owned by a single individual.

2. Partnership• A business is owned by two or more

owners.

3. Corporation • A business is owned by stockholders• entity that legally functions separate

and apart from its owners.• Owners’ liability is limited to the

amount of their investment in the firm.• Owners hold common stock certificates,

and ownership can be transferred by selling the certificates.

Sole Proprietorship

• Advantages– Easiest to start

– Least regulated

– Single owner keeps all the profits

– Taxed once as personal income

• Disadvantages– Limited to life of

owner

– Equity capital limited to owner’s personal wealth

– Unlimited liability

– Difficult to sell ownership interest

http://www.nolo.com/encyclopedia/articles/sb/sps_defined.html

Partnership

• Advantages– Two or more owners

– More capital available

– Relatively easy to start

– Income taxed once as personal income

• Disadvantages– Unlimited liability

• General partnership

• Limited partnership

– Partnership dissolves when one partner dies or wishes to sell

– Difficult to transfer ownership

http://www.nolo.com/encyclopedia/articles/sb/partnerships.html

Corporation

• Advantages– Limited liability

– Unlimited life

– Separation of ownership and management

– Transfer of ownership is easy

– Easier to raise capital

• Disadvantages– Separation of

ownership and management

– Double taxation (income taxed at the corporate rate and then dividends taxed at personal rate)

http://www.nolo.com/encyclopedia/articles/sb/corp_faq.html

Who Are The Decision Makers In A Corporation?

• Chief Executive Officer CEO• Chief Operations Officer COO• Chief Financial Officer CFO

– Financial manager• Treasurer

• Controller

TreasurerCapital BudgetingCash ManagementCredit Management

Dividend DisbursementFin Analysis/PlanningPension ManagementInsurance/Risk MngmtTax Analysis/Planning

Organization of the Financial Management Function

VP of Finance

ControllerCost Accounting

Cost ManagementData ProcessingGeneral Ledger

Government ReportingInternal Control

Preparing Fin StmtsPreparing Budgets

Preparing Forecasts

Basic Business Forms

Type of Operations

Merchandising - a business that sells ready made merchandise (typical retailer).

Manufacturing - a business that converts raw materials to finished goods to sell to customers.

Service - a business that provides a service to customers.

PAUSE AND REFLECT

Can you think of a business that fits into each of these categories?

Wal-Mart is a merchandiser; General

Motors is a manufacturer; American Express is a

service business.

Wal-Mart is a merchandiser; General

Motors is a manufacturer; American Express is a

service business.

Objective 2

Apply accountingconcepts and

principles

To provide information usefulfor making investment and

lending decisions

To provide information usefulfor making investment and

lending decisions

1.4 Generally AcceptedAccounting Principles

• What is the primary objective of financial reporting?

Information must be • Relevant

• Reliable

• Comparable

GAAP Accounting guidelines that govern how

accountants measure, process, and communicate financial information

G A PA

Formulated by FASB

1.The Entity Concept

Organization that stands apart as a separate economic unit

Although a proprietor is not legally distinct from the business activities of the proprietorship, the Entity Concept requires that the transactions of the business (proprietorship) are accounted for separately from the transactions of the proprietor.

Business Entity AssumptionBusiness Entity Assumption• The economic entity can be identified with

a particular unit of accountability.• The economic entity assumption is an

accounting concept, and not a legal construct.

Business Entity Concept• Accounts are kept for entities, rather than for

the persons who own, operate, or otherwise are associated with those entities.

• Eg. Suppose Green Company is a business entity, and Sue Smith is its owner.

• Sue Smith withdraws $100 from the business.• In preparing financial accounts for Green

Company, we should record the effect of this withdrawal on the accounts of ... ..[Sue Smith / the entity].

The Entity Concept Example

• Assume that John decides to open up a gas station and coffee shop.

• The gas station made $250,000 in profits, while the coffee shop lost $50,000.

The Entity Concept Example

• How much money did John make?

• At a first glance, we would assume that John made $200,000.

• However, by applying the entity concept we realize that the gas station made $250,000 while the coffee shop lost $50,000.

2.The Reliability/Objectivity Principle

Accounting information is based on the most reliable data available

3.The Cost Principle

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

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

Historical Cost Principle

All transactions are recorded at historical cost.

Historical cost is assumed to represent the fair market value of the item at the

date of the transaction because it reflects the actual use of resources by

independent parties.

All transactions are recorded at historical cost.

Historical cost is assumed to represent the fair market value of the item at the

date of the transaction because it reflects the actual use of resources by

independent parties.

Eg. The fair value of most assets is known on the date the assets was acquired because the buyer and the seller agreed on the amount.If Garsden Company purchased a plot of land in 2003 for $100000,this land would have been reported on its December 31,2003 balance sheet as $100000.What was its fair value on December 31,2004?

A.$100000

B.More than $100000

C.Gardson doesn’t know.

Eg. The fair value of most assets is known on the date the assets was acquired because the buyer and the seller agreed on the amount.If Garsden Company purchased a plot of land in 2003 for $100000,this land would have been reported on its December 31,2003 balance sheet as $100000.What was its fair value on December 31,2004?

A.$100000

B.More than $100000

C.Gardson doesn’t know.

Eg. The two reasons why accounting focuses on costs,rather than on fair values for some assets are:

1.Fair values are difficult to estimate;that is ,they are ________,whereas costs are_________. [objective/subjective]

2.The __________ concept makes it unnecessary to know the market value of many assets;the assets will be used in future operations rather than being sold immediately.

Eg. The two reasons why accounting focuses on costs,rather than on fair values for some assets are:

1.Fair values are difficult to estimate;that is ,they are ________,whereas costs are_________. [objective/subjective]

2.The __________ concept makes it unnecessary to know the market value of many assets;the assets will be used in future operations rather than being sold immediately.

GOING CONCERN CONCEPT

0

5

10

15

20

25

30

35

Food Gas Motel

Jan

Feb

Mar

Apr

May

Jun

The foreseeable future

The business at work today

Assumes that the entity will remain in operation for the foreseeable future

Assumes that the entity will remain in operation for the foreseeable future

4.The Going Concern Concept

Going Concern Assumption• The business is assumed to continue

indefinitely unless terminated by owners.

• The basis of recording financial elements is historical accounting.

• Liquidation accounting (based on liquidation values) is not followed unless so indicated.

Eg. The ______________ concept states that accounting assumes that an entity will continue to operate indefinitely unless there is evidence to the contrary.

Eg. The ______________ concept states that accounting assumes that an entity will continue to operate indefinitely unless there is evidence to the contrary.

Eg. On December 31,2004,the balance sheet of Hamel Company reported total assets of $500000.If Hamel Company ceases to operate now,

A.its assets could be sold for $500000.

B. its assets could be sold for approximately $500000.

C. its assets could be sold for at least $500000.

D.we don’t know what its assets could be sold for.

Eg. On December 31,2004,the balance sheet of Hamel Company reported total assets of $500000.If Hamel Company ceases to operate now,

A.its assets could be sold for $500000.

B. its assets could be sold for approximately $500000.

C. its assets could be sold for at least $500000.

D.we don’t know what its assets could be sold for.

The dollar’s purchasingpower is stable.

The dollar’s purchasingpower is stable.

5.The Stable-Monetary-Unit Concept

Monetary Unit• Money is the common unit of measure of

economic transactions.• Use of a monetary unit is relevant,

simple to understand and universally available.

• Price level changes are ignored in accounting, leading to the assumption that the dollar remains relatively stable.

money-measurement Concept

• Eg. If a fruit store owned $200 in cash, 100 dozen oranges, and 200 apples,

could you add up its total assets from this information? ... [Yes / No]

• If you knew that the 100 dozen oranges cost $5 a dozen and the 200 apples cost $0.40 each, you could then add these amounts to the

• $200 cash, and find the total assets to be $

• To add together objects as different as apples, oranges, automobiles, shoes, cash, supplies, etc.;

• they must be stated in . . …….. [different /

similar] units.

• Can you add the amounts of apples and oranges if they are stated in terms of money? . . . [Yes / No]

• The money-measurement concept states that accounting reports only those facts that can be stated as m___________ amounts.

The main concepts and principles

• The entity concept

• The reliable principle

• The cost principle

• The going-concern concept

• The stable-monetary-unit concept

Objective 3Objective 3

Use the accounting equation

Key words• Assets 资产• Liabilities 负债• Owner’s equity 所有者权益• Accounts receivable 应收账款• Accounts payable 应付账款• Notes payable 应付票据

1.5 Accounting Elements

The key elements of a business balance sheet.

• Assets 、 Liabilities and Owner’s equity

The key elements of a business income statement.

• Revenues and expenses

1. Assets

• Asset are economic resources owned or controlled by a business that are expected to benefit future operations.

Something a business owns.

Or

Eg. For an item to be listed as an assets,it must meet three requirements:

1.It must be ______ed or c_______ed by the entity;

2.It must be v_________to the entity;

3.It must have been acquired at a m________ cost.

Eg. For an item to be listed as an assets,it must meet three requirements:

1.It must be ______ed or c_______ed by the entity;

2.It must be v_________to the entity;

3.It must have been acquired at a m________ cost.

owned ontroll

aluable

onetary

PAUSE AND REFLECT

Can you List the assets of your business ?

Cash, inventory,building,equipments,

Accounts receivable…

Cash, inventory,building,equipments,

Accounts receivable…

2. Liability

• Economic obligations payable to an individual or organization outside the business

Something a business owes

Or

Accounts payableNotes payableSalary payable

3.Owner’s Equity (capital) • Claim of business owner to the assets of

the business

– the same as net assets

4.Revenues

• Amounts earned by delivering goods or services to customers– Sales revenue– Service revenue– Interest revenue– Dividend revenue

• Decrease in owner’s equity that occurs from using assets or increasing liabilities in the course of delivering goods or services to customers– Salary expense– Rent expense– Utilities expense– Interest expense

5. Expenses

Expenses

• Cost of doing business

• A firm cannot generate revenue without expenses.

1.6 Accounting Equation

balance sheet equation

(basic accounting equation)

Assets = Liabilities + Owners’ Equity

Slide 2.8

EconomicResources

Claims toEconomicResources

The Accounting Equation

Assets = Liabilities + Owner’s Equity

Accounting Equation• Assets = Liabilities + Owners’ Equity

Sources of Funding

Creditors’claimsagainst

resources

= + Owners’claimsagainst

resources

Resources

Resources to use to generate revenues

Other forms of accounting equation

Assets - Liabilities

= Owners’ Equity

Keep in mind the fundamental accounting equation:

___________=__________+____________.

Keep in mind the fundamental accounting equation:

___________=__________+____________.

Exercise 1-18

Assets Liabilities Owner’s Equity

Pep Boys $ ? $60,000 $21,000

Eddie Bauer 72,000 ? 40,000

Benbrook Exxon

100,000 79,000 ?

$81,000

32,000

21,000

PAUSE AND REFLECT

If a business has $200,000 in assets and $50,000 in liabilities, what is the total of its owners equity?

If the business borrows $20,000 and uses it to purchase a piece of equipment, how does owners’ equity change?

Owners’ equity is $150,000. When the

business borrows $20,000 to buy the equipment, liabilities

also go up by $20,000. Owners’ equity is unchanged.

Owners’ equity is $150,000. When the

business borrows $20,000 to buy the equipment, liabilities

also go up by $20,000. Owners’ equity is unchanged.

Income statement equation:

• Revenues – expenses=net income( net loss)

Transactions that AffectOwner’s Equity

OWNER’S EQUITY

INCREASES

OWNER’S EQUITYDECREASES

Owner Investments

Revenues Expenses

Owner Withdrawals

Owner’s Equity

• Capital

• - owner’s withdrawal

• + net income

• +new additional capital

Summary You should remember:Assets are economic resources owned by a

business that are expected to be of benefit in the future.

Liabilities are creditor’s claims to the assetsOwner’s equity is the owner’s claim to the

assets. It’s the amount of assets that remains after subtracting the liabilities.

SummaryOwner’s equity is increased by

owner investments and revenues

owner withdrawals and expenses.

Owner’s equity is decreased by

Objective 4

Analyze business transactions

1.7Accounting for Business Transactions

• What is a transaction?

• An event that affects the financial position of a particular entity and can be recorded reliably

Business Transactions

An economic event Examples of Transactions

Investment of cash by owner Purchase of office equipment Purchase of office supplies for cash Payment of a liability Sale of merchandise

Accounting for Business Transactions

1 Gay Gillen invests $30,000 to begin Gay Gillen eTravel.

2 Gillen purchases an office location, paying $20,000 in cash.

3 She buys office supplies, agreeing to pay $500 in 30 days.

4 She earns and collects $5,500 revenues.


5 Gillen performs services, and the client agrees to pay $3,000 within one month.

6 During the month, she pays $3,100 for expenses incurred.

7 Gillen pays $300 to the store from which she purchased $500 worth of supplies.

• What is the effect of these transactions on the accounting equation?

Owner’s Assets = Liabilities + Equity

1) Cash + $30,000 + $30,0002) Cash – 20,000

Land + 20,0003) Supplies + 500 + 5004) Cash + 5,500 + 5,5005) Receivable + 3,000 + 3,0006) Cash – 3,100 – 3,1007) Cash – 300 – 300 Totals + $35,600 + 200 + $35,400



• Other transactions that took place were as follows:

8.The business collected $1,000 from the client.

9.She sold some land at cost for $9,000.

10.She withdraw $2,100 from the business.

conclusion

• Notice that the equation always stays in balance.

• Each transaction affects at least two accounts, sometimes more.

• Some transactions affect only one side of the equation; some affect both sides.

Exercise 1-22Maria Lange opened a medical practice. During July,

the first month of operation, the business, titled Maria Lange, M.D., experienced the following events.

July 6 Lange invested $45,000 in the business by opening a bank account in the name of M. Lange, M.D.

July 9 Paid $35,000 cash for land.

July 12 Purchased medical supplies for $2,000 on account

July 15-31 During the rest of the month, Lang treated patients and earned service revenue of $7,000, receiving cash.

July 15-31 Paid cash expenses: employees’ salaries, $1,700; office rent, $1,000; utilities, $300.

July 28 Sold supplies to another physician for the cost of those supplies, $500.

July 31 Paid $1,500 on account.

Date Assets Liabilities Owner’s Equity

July Cash Medical Supplies

Land Accounts Payable

M.Lange, Capital

Type of Transaction

Exercise 1-22

45,000 Investment

Assets = $45,000 Liabilities & Owner’s Equity = $45,000

45,0006




M.Lange, Capital

Type of Transaction

Exercise 1-22

45,000 Investment

35,000


45,0006

-35,0009

45,00035,00010,000Bal




M.Lange, Capital

Type of Transaction

Exercise 1-22

2,000


2,00012

45,00035,00010,000Bal

45,00035,00010,000Bal 2,0002,000




M.Lange, Capital

Type of Transaction

Exercise 1-22


7,00015-31 7,000 Revenue

52,00035,00017,000Bal 2,0002,000

45,00035,00010,000Bal 2,0002,000




M.Lange, Capital

Type of Transaction

Exercise 1-22


52,00035,00017,000Bal 2,0002,000

-1,70015-31 -1,700 Salaries Exp

-1,000 Rent Exp-1,000

- 300 Utilities Exp- 300

49,00035,00014,000Bal 2,0002,000




M.Lange, Capital

Type of Transaction

Exercise 1-22


500 28 -500

49,00035,00014,500Bal 2,0001,500

49,00035,00014,000Bal 2,0002,000




M.Lange, Capital

Type of Transaction

Exercise 1-22


-1,500 31 -1,500

49,00035,00014,500Bal 2,0001,500

49,00035,00013,000Bal 5001,500

Exercise 1-17Jake’s Roasted Peanuts, a proprietorship,

supplies snack foods. The business experienced the following events. State whether each event (1) increased, (2) decreased, or (3) had no effect on the total assets of the business. Identify any specific asset affected.

a. Jake’s Roasted Peanuts received a cash investment from the owner.

b. Cash purchase of land for a building site.c. Paid cash on accounts payable.d. Purchased equipment; signed a note payable in

paymente. Performed service for a customer on account.f. The owner withdrew cash from the business for

personal useg. Received cash from a customer on account

receivable.h. Borrowed money from the bank.

Exercise 1-17

a. Increased assets (cash)

b. No effect on total assets

c. Decreased assets (cash)

d. Increased assets (equipment)

Exercise 1-17

e. Increased assets (accounts receivable)

f. Decreased assets (cash)

g. No effect on total assets

h. Increased assets (cash)

Objective 5Objective 5

Prepare the financial statements and evaluate business performance

1.8 Financial Statements

• Income statement

• Statement of owner’s equity

• Balance sheet

• Statement of cash flows

Financial Statement Headings

• Name of the business

• Name of the financial statement

• Date or time period covered by the statement

1.The Income Statement

• Basic Format:

• Revenues - Expenses = Net Income

(Net Loss)

Shows the results of a company’s operations over a period of time.

Gay Gillen eTravelIncome Statement

Month ended April 30,20xx

Revenue:

Fees earned $8,500

Expenses:

Salary expense $1,200

Utilities expense 400

Rental expense 1,100

total expense 2700

Net income $5,800

2.Statement of Owner’s EquityFormat:Owner’s capital, beginning of the periodAdd: Investments by owner Net incomeLess: Withdrawals by owner Net lossOwner’s capital, end of period

Changes in owner’s equity during a specific time period.

G. Gillen, capital, April 1, 20xx $ 0

Add ： Investment by owner 30,000

Net income $ 5,400

Less ： Withdrawals by owner – 2,100

G. Gillen, capital, April 30, 20xx $33,300

Gay Gillen eTravel Statement of Owner’s Equity

Month ended April 30,20xx

3.The Balance Sheet•Basic Format:

•Assets =liabilities + owner’s equity

Summary of the financial position of a company at a particular date.

What Are Classified and Comparative Balance Sheets?

• They distinguish between– current and non-current assets.– current and long-term liabilities.

• Listed in decreasing order of liquidity.

• Financial statement users can identify significant changes over time. They have more than one year on the Balance Sheet.

AssetsCash $ 40

Accounts receivable 100

Land 200

Total assets $340

LiabilitiesAccounts payable $ 50

Notes payable 150

$200Owners’ EquityCapital stock $100

Retained earnings 40

$140

Total liabilities and owners’ equity $340

Sample of Balance Sheet

Must Equal

4.Statement of Cash Flows

Reflect the cash receipts and cash payments during a period (covered in Chapter 16)

.

What Are The Three Primary Types Of Activities On A Statement Of Cash Flows?

Operating Activities: A company’s day-to-day activities.– Major operating cash inflow—cash receipts from selling

goods or from providing services.– Major operating cash outflow—payments to purchase

inventory and to pay operating expenses.

Investing Activities: Buying and selling long-term assets.

Financing Activities: Cash is obtained from or repaid to owners and creditors.

Statement of Cash Flows

CASH OUTFLOWS

OperatingActivities

FinancingActivities

InvestingActivities

CASH INFLOWS

FinancingActivities

OperatingActivities

InvestingActivities

The Example CompanyStatement of Cash Flows

Month Ended December 31, 2003

Cash Flows From Operating Activities:Receipts 48 Payments (43) 5

Cash Flows From Investing Activities:Receipts 0 Payments (4) (4)

Cash Flows Used By Financing Activities:Receipts 10 Payments (6) 4

Net Cash Flow 5

Sample Statement of Cash Flows

Relationships Among the Statements:

Income StatementRevenue:

Fees earned $8,500

Expenses:


Utilities and telephone expense 400

Equipment rental expense 400

Office rent expense 1,100 3,100

Net income $5,400

G. Gillen, capital, April 1, 20xx $ 0

Contribution of capital 30,000

Net income $ 5,400

Cash distributions – 2,100

G. Gillen, capital, April 30, 20xx $33,300


Statement of Owner’s Equity


Balance Sheet

Assets

Cash $ 20,000

Accounts receivable 2,000

Supplies 500

Land 11,000

Total assets $ 33,500

Liabilities

Accounts payable $ 200

Owner’s equity,

G. Gillen, capital 33,300

Total liabilities and

owner’s equity $33,500

Exercise 1-24

The account balances of Allen Samuel Road Service at November 30, 2009, follow.

Requirements:

1. Prepare the balance sheet of the business at November 30, 2009.

2. What does the balance sheet report-financial position or operating results? Which financial statement reports the other information?

Equipment $15,500 Service revenue $12,000

Supplies 500 Accounts receivable 6,000

Note payable 5,000 Accounts payable 3,500

Rent expense 800 Allen Samuel, capital ?

Cash 2,000 Salary expense 2,000

Cash $2,000


Supplies 500

Equipment 15,500

Total Assets $24,000

Allen Samuel Road ServiceBalance Sheet

November 30, 2009

Liabilities

Accounts payable $3,500

Note payable 5,000

Total liabilities $8,500

Owner’s Equity

A. Samuel, capital 15,500

Total liabilities and owner’s equity $24,000

Assets

Exercise 1-24

Exercise 1-25Ciliotta Design Studio

Income StatementYear Ended December 31, 2006

Service revenue $158,100Expenses:


Rent expense 24,000

Utilities expense 6,800

Supplies expense 4,000

Property tax expense 1,200

Total expenses 96,000

Net income $62,100

Exercise 1-25

2. Owner’s withdrawals:

Ciliottas, capital, beginning of year $ 0

Add: Net income 62,100

Investment by owner 15,000

Subtotal $77,100

Less: Owner withdrawal ?

Ciliotta, capital, end of year $27,100 50,000

Problems 1-29ABest Foot Forward

Income Statement

Month Ended September 30, 2007

Revenues:

Service revenue $3,700

Expenses:

Rent expense $900

Advertising expense 100


Net income $2,700

Continued Req. 3

Best Foot Forward


Month Ended September 30, 2007

Marilyn Crone, capital, August 31, 2007 $ 7,700

Add:Investments by owner ($20,000 + $1,000) 21,000

Net income for the month 2,700

31,400

Less: Withdrawals by owner (1,500)

Marilyn Crone, capital, September 30, 2007 $29,900

Continued Req. 4

Best Foot Forward

Balance Sheet

September 30, 2007

ASSETS LIABILITIES

Cash $14,500 Accounts payable $ 1,000


Supplies 900 OWNER’S EQUITY

Land 12,000 Marilyn Crone, capital 29,900


Total assets $30,900 owner’s equity $30,900

Problems 1-34A

Lone Star Landscaping

Balance Sheet

July 31, 2008

ASSETS LIABILITIES

Cash $ 4,000 Accounts payable $ 8,000

Accounts receivable 23,000 Note payable 36,000

Office supplies 1,000 Total liabilities 44,000

Office furniture 16,000 OWNER’S EQUITY

Land 50,000 Lynn Woodward, Capital 50,000*



End of chapter 1

Summary:

Gotcha Covered Security Systems

Income Statement

Year Ended December 31, 2007

Revenues:

Service revenue $189,000

Expenses:


Rent expense 23,000

Advertising expense 13,000

Interest expense 9,000

Property tax expense 4,000

Insurance expense 2,000


Net income $ 75,000



Year Ended December 31, 2007

Andrew Stryker, capital, December 31, 2006 $150,000

Add: Net income for the year 75,000

225,000

Less: Withdrawals by owner (40,000)

Andrew Stryker, capital, December 31, 2007 $185,000


Balance Sheet

December 31, 2007

ASSETS LIABILITIES

Cash $ 14,000

Accounts payable $ 19,000

Accounts receivable 12,000 Salary payable 1,000

Supplies 3,000 Note payable 35,000

Equipment 20,000

Total liabilities 55,000

Building 131,000 OWNER’S EQUITY

Land 60,000 Andrew Stryker, capital 185,000*



the basis for business decisions accounting accounting and the business environment chapter 1

Documents