Products

Merchandising..

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When a corporation issues only one class of stock, we call

it common stock (or capital stock).

Owners of a corporation are called shareholders (or

stockholders).

Corporation

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Manufacturing .Products

Services

Service ..

Types of Businesses

Corporation

Partnership

Sole Proprietorship

Business Entity Forms

Introducing Financial
Accounting

Chapter

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Revenues
Profits
($ billions) ($ millions)
485.65
16,383
382.60
32,520
203.78
19,241
194.67
19,872
182.80
39,510
159.93
3,949
149.43
4,762
148.32
15,233
144.08
3,187
139.37
4,644

Accounting and Business

Company
Walmart
Exxon Mobil
Chevron
Berkshire Hathaway
Apple
General Motors
Philips 66
General Electric
Ford Motor
CVS Healthcare

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Company
Walmart
Exxon Mobil
Chevron
Phillips 66
Berkshire Hathaway
Apple
General Motors
General Electric
Valero Energy
Ford Motor

Revenues
Profits
($ billions) ($ millions)
469.2
16,999
449.9
44,880
233.9
26,179
169.6
4,124
162.5
14,824
156.5
41,733
152.3
6,188
146.9
13,641
138.3
2,083
134.3
5,665

RANK
1
2
3
4
5
6
7
8
9
10

Company
Walmart
Exxon Mobil
Chevron
Berkshire Hathaway
Apple
Phillips 66
General Motors
Ford Motor
General Electric
Valero Energy

Revenues
Profits
($ billions) ($ millions)
479.29
16,022
407.67
32,580
220.36
21,423
182.15
19,476
170.91
37,037
161.18
3,726
155.43
5,346
146.92
7,155
146.23
13,057
137.76
2,720

May 2014

Top 10 Corporations Fortune 500

RANK
1
2
3
4
5
6
7
8
9
10

May 2013

May 2015

RANK
1
2
3
4
5
6
7
8
9
10

Top 10 Corporations Fortune 500

Top 10 Corporations Fortune 500

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Bhandarkar 7e

Affects the decision

of its users.
Is trusted by
users.
Used in
comparisons across
years & companies.

Relevant
Information

Reliable
Information

Comparable
Information

Financial accounting practice is governed by

concepts and rules known as generally accepted
accounting principles (GAAP).

Generally Accepted Accounting

Principles(GAAP)

provides information to Internal users via internal reports.

Managerial accounting

provides information to External users via financial

statements.

Financial accounting

Types of Accounting

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that is

information

system that

is a

to help users make

better decisions.

Communicates

Records

Identifies

Consumer
Groups
Shareholders External
Auditors
Governments
Customers

Lenders

External Users

Sales Staff
Officers/Directors Budget
Officers
Internal Auditors
Controllers

Managers

Internal Users

Users of Accounting Information

Comparable

Reliable

Relevant

Accounting

Importance of Accounting

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A business is accounted for separately from its owner or other business entities.

BUSINESS ENTITY ASSUMPTION

The life of a business can be divided into divided into distinct time periods, such as
months and years.

TIME PERIOD ASSUMPTION

Transactions are expressed using money as a common denominator

MONETARY UNIT ASSUMPTION

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Accounting information reflects a presumption that the business will continue operating.

GOING-CONCERN ASSUMPTION

Principles and Assumptions

of Accounting- Assumptions

Requires a company to include all information in financial statements that would

impact users decisions.

FULL DISCLOSURE PRINCIPLE

Prescribes that a company must record its expenses incurred to generate the revenue.

MATCHING PRINCIPLE (EXPENSE RECOGNITION)

Provides guidance on when a company must recognize revenue.

REVENUE RECOGNITION PRINCIPLE

Accounting information should be based on actual cost.

MEASUREMENT PRINCIPLE (COST PRINCIPLE)

Principles and Assumptions

of Accounting-Principles

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Act passed by Congress in response to a number of

publicized accounting scandals (Enron, WorldCom,
Tyco, ImClone).
Aims at curbing financial abuses by companies that
issue their stock to the public.
Requires that public companies apply both
accounting oversight and stringent internal controls to
ensure more transparency, accountability, and
truthfulness in reporting transactions.

Sarbanes-Oxley Act(SOX) of
2002

The International Accounting Standards Board (IASB) issues international standards that identify preferred accounting practices
in other countries. More than 115 countries now require or permit
companies to prepare financial reports following IFRS.

The Financial Accounting Standards Board (FASB) is the

private group that sets both broad and specific principles.

In the United States, the Securities and Exchange

Commission, a government agency, has the legal authority
to establish reporting requirements and set GAAP for
companies that issue stock to the public. The SEC accepts
the pronouncements of the FASB.

Setting Accounting Principles

Retained Earnings
Income that is not distributed
to shareholders

RETAINED EARNINGS

Owners
claim on
assets

Equity

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Creditors
claims on
assets

Liabilities

Resources
owned or
controlled
by a
company

Assets

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Liabilities
& Equity

Liabilities

Assets

=
Equity

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Assets

Liabilities

+
Equity

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The accounting equation MUST remain in balance after

each transaction.

Transaction Analysis Equation

Assets

Accounting Equation

Income that is not distributed to shareholders

RETAINED EARNINGS:

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Revenues: Assets earned from a companys

earnings activity Ex. Fees, Service Revenue,
Sales, Rent Revenue, Interest Revenue
Expenses: Assets used up in the process of
earning Revenues Ex. Wages Expense, Rent
Expense, Utilities Expense.
Net Income/Net Loss =
Revenues Expenses
Dividends: Distribution of corporations assets
to shareholders

REVENUES, EXPENSES,
DIVIDENDS, Net Income/Net Loss

Bhandarkar 7e

4. Statement of Cash Flows

3. Balance Sheet

2. Statement of Retained Earnings

1.Income Statement

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Communicating information to External users

Financial Statements

Moonpie Consulting Services

Transactions..

Transaction Analysis

+ OWNERS EQUITY

Determining Equity

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COMMON STOCK + REVENUES EXPENSES - DIVIDEND

COMMON STOCK + RETAINED EARNINGS

ASSETS = LIABILITIES

RESOURCES = BORROW + INVEST + OPERATE BUSINESS

The Accounting Equation..

$
$

50,000
14,000
85,000

11,000
10,000
21,000

50,000
10,000
(1,000)

(4,000)

$ 17,000
(2,000)
(3,000)

Moonpie Consulting Services

Statement of Cash Flows
For Month Ended August 31, 2012

59,000
67,000
67,000

(4,000)

12,000

Statement of Cash Flows

85,000

67,000
2,000
1,000
15,000

Liabilities
Accounts payable
Notes payable
Total liabilities
Equity
Common stock
Retained earnings
Total liabilities and equity

Cash flows from operating activities:

Cash received from clients
Purchase of supplies
Cash paid to employees
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of equipment
Net cash used in investing activities
Cash flows from financing activities:
Investment by Shareholders
Borrowed at bank
Dividends Paid
Net cash provided by financing activities
Net increase in cash
Cash balance, August 1, 2012
Cash balance, August 31, 2012

Total assets

Cash
Supplies
Accts Receiv
Equipment

Assets
$

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(1,000)
14,000

Retained Earnings, Aug 31, 2012

Less: Dividends

15,000

Plus: Net incom e

Moonpie Consulting Services

Statement of Retained Earnings
For Month Ended August 31, 2012
Retained Earnings, August 31, 2012

Moonpie Consulting Services

Balance Sheet
August 31, 2012

The Balance Sheet

describes a companys
financial position at a
point in time.

Balance Sheet

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18,000
3,000
15,000

The net income of

$15,000 increases
Retained Earnings by
$14,000.

Retained Earnings, August 1, 2012

Plus: Net income
Less: Dividends
Retained Earnings, Aug 31, 2012

Moonpie Consulting Services

Statement of Retained Earnings
For Month Ended August 31, 2012

14,000

Revenues:
Consulting revenue
Expenses:
Salaries expense
Net income

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3,000
$ 15,000

$ 18,000

Moonpie Consulting Services

Income Statement
For Month Ended August 31, 2012

The Statement of
Retained Earnings
explains the
changes in
- Retained Earnings
15,000 over a period of
1,000 time

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Net income is the

difference
between
Revenues and
Expenses.

Statement of Retained Earnings

Revenues:
Consulting revenue
Expenses:
Salaries expense
Net income

Moonpie Consulting Services

Income Statement
For Month Ended August 31, 2012

The Income Statement describes a companys

revenues and expenses along with the resulting net
income or loss over a period of time due to earnings
activities.

Income Statement

End of Chapter 1

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During the year, Finnese Companys Assets increased

by $28,000 and were $214,000 at the end of the year.
Liabilities decreased by $20,000 during the year, and
were $63,000 at year end. Determine the
increase/decrease in equity during the year as well as
the beginning and ending balances of Equity.

COMPUTE