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Chapter 1
Business Decisions and Financial
Accounting
PowerPoint Authors:
Susan Coomer Galbreath, Ph.D., CPA
Charles W. Caldwell, D.B.A., CMA
Jon A. Booker, Ph.D., CPA, CIA
Fred Phillips, Ph.D., CA
Learning Objective 1
Describe various
organizational forms and
business decision makers.
1-3
Organizational Forms
Sole
Proprietorship
Partnership
Corporation
1-4
Organizational Forms
Percentage of Organizational Forms in
the U.S.
5% 3%
Sole Proprietorships
20%
Corporations
72%
Partnerships
Limited Liability
Companies
1-5
Source: BizStats.com
Accounting
System
Accounting Reports
External users
(creditors, investors, etc.)
Financial
Managerial
Internal users
(managers, etc.)
Learning Objective 2
1-7
Resources Owed . . .
to creditors
to stockholders
Assets
Resources controlled by the
company that have
measurable value and are
expected to provide future
benefits to the company.
Cash
Equipment
Supplies
1-9
Furniture
Liabilities
Amounts owed by
the business to
creditors.
Notes
Payable
1-10
Accounts
Payable
Stockholders Equity
Owners claim to the
business resources.
Contributed
Capital
Retained
Earnings
Stock Certificate
1-11
1-12
Expenses
The costs of business
necessary to earn
revenues, including
wages to employees,
advertising, insurance,
and utilities.
Dividends
Distributions of a
companys earnings to its
stockholders as a return
on their investment.
Financial Statements
Income
Statement
Statement
of Retained
Earnings
Financial
statements are
typically prepared in
this order.
Balance
Sheet
Statement
of Cash
Flows
1-14
4,000
2,000
1,500
600
300
100
500
9,000
2,000
The unit of
measurethe
Reports
assumption
amount
of
states that
revenues
results of
less
business
expenses
activities
forshould
a period
be
reported
in an
of time.
appropriate
monetary
unit.
1-16
$ 14,000
1,000
3,000
40,000
$ 58,000
$
7,000
20,000
27,000
30,000
1,000
31,000
$ 58,000
1-18
10,000
(5,000)
5,000
(40,000)
(40,000)
30,000
(1,000)
20,000
49,000
14,000
14,000
Summarizes
how a
businesss
operating,
investing, and
financing
activities
caused its
cash balance
to change over
a particular
period of time.
1-19
4,000
2,000
1,500
600
300
100
500
9,000
2,000
Net income
flows from the
Income
Statement to
the Statement
of Retained
Earnings.
1
Ending Retained
Earnings flows from
the Statement of
Retained Earnings to
the Balance Sheet.
2
Assets
Cash
Accounts Receivable
Supplies
Equipment
Total Assets
Liabilities
Accounts Payable
Notes Payable
Total Liabilities
Stockholders' Equity
Contributed Capital
Retained Earnings
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
$ 14,000
1,000
3,000
40,000
$ 58,000
$
7,000
20,000
27,000
30,000
1,000
31,000
$ 58,000
10,000
(5,000)
5,000
(40,000)
(40,000)
30,000
(1,000)
20,000
49,000
14,000
14,000
Assets
Cash
Accounts Receivable
Supplies
Equipment
Total Assets
Liabilities
Accounts Payable
Notes Payable
Total Liabilities
Stockholders' Equity
Contributed Capital
Retained Earnings
Total Stockholders' Equity
Total Liabilities and Stockholders' Equity
$ 14,000
1,000
3,000
40,000
$ 58,000
$
7,000
20,000
27,000
30,000
1,000
31,000
$ 58,000
1-22
Learning Objective 3
1-23
Investors
(1)What immediate
return (through
dividends) on my
contributions? SRE
1-24
Learning Objective 4
1-25
Useful
Relevant
1-26
Faithful
Faithful
Representation
Accounting Standards
1-27
World
United
States
Where?
FASB
Who?
IASB
GAAP
What?
IFRS
Ethical Conduct
When faced with an ethical dilemma:
Identify who will
benefit from the
situation and how
others will be
harmed.
Identify the
alternative courses
of action.
Choose the
alternative that is the
most ethical.
1-28
Chapter 1
Supplement
Accounting Careers
Multinational
Mid-sized
Small
Public Accounting
Type of Organization
CPA firm
Size of Organization
Chapter 1
Solved Exercises
M1-13, E1-3, E1-6, E1-8, S1-6 (Req. 1)
$ 36,000
45,000
15,000
20,000
125,000
242,000
1-32
11,888
Cash
45,570
Contributed Capital
Notes Payable
Other Assets
Other Liabilities
291,248
99,044
494,294
79,148
233,631
Retained Earnings
179,538
Total Assets
785,383
Required:
1. Prepare the balance sheet as of November 1, solving for the
missing amount.
2. As of November 1, did most of the financing for assets come
from creditors or stockholders?
1-34
$45,570
11,888
233,631
Other Assets
494,294
Total Assets
$785,383
Liabilities
Accounts Payable
$136,405
Notes Payable
99,044
Other Liabilities
79,148
Total Liabilities
314,597
Stockholders Equity
Contributed Capital
291,248
Retained Earnings
179,538
470,786
$785,383
455,700
Net Income
Concessions Expenses
25,500
Other Expenses
233,800
Concessions Revenues
188,900
Other Revenues
31,200
247,000
Rent Expense
90,000
65,700
Total Expenses
Required:
1. Solve for the missing amounts and prepare an Income Statement
for the quarter ended June 26, 2008. TIP: First put the items in the
order they would appear on the Income Statement and then solve for
the missing values.
2. What is Regals main source of revenue and biggest expense?
1-36
455,700
188,900
31,200
Total Revenues
$ 675,800
Expenses
Concessions Expenses
Film Rental Expenses
247,000
65,700
Rent Expense
90,000
Other Expenses
Total Expenses
Net Income
1-37
25,500
233,800
?
662,000
?
$ 13,800
455,700
188,900
31,200
Total Revenues
$ 675,800
Expenses
Concessions Expenses
Film Rental Expenses
247,000
65,700
Rent Expense
90,000
Other Expenses
Total Expenses
Net Income
1-38
25,500
233,800
662,000
$ 13,800
Total
Revenues
$
100,000 $
B
80,000
50,000
1-39
Net Income
(Loss)
82,000 $
80,000
C
E
Total
Expenses
$
12,000
86,000
81,000
Total Assets
Total
Liabilities
150,000 $
70,000 $
112,000
104,000
Stockholders'
Equity
60,000
26,000
13,000
22,000
77,000
(6,000)
73,000
28,000
R E = NI
Independent
Cases
A
1-40
Total
Revenues
$
Total
Expenses
100,000 $
Net Income
(Loss)
A = L + SE
Total Assets
Total
Liabilities
Stockholders'
Equity
82,000 $
18,000 $
150,000 $
70,000 $
80,000
92,000
80,000
12,000
112,000
52,000
60,000
80,000
86,000
(6,000)
104,000
26,000
78,000
50,000
37,000
13,000
99,000
22,000
77,000
75,000
81,000
(6,000)
101,000
73,000
28,000
R E = NI
Independent
Cases
A
1-41
Total
Revenues
$
Total
Expenses
100,000 $
Net Income
(Loss)
A = L + SE
Total Assets
Total
Liabilities
Stockholders'
Equity
82,000 $
18,000 $
150,000 $
70,000 $
80,000
92,000
80,000
12,000
112,000
52,000
60,000
80,000
86,000
(6,000)
104,000
26,000
78,000
50,000
37,000
13,000
99,000
22,000
77,000
75,000
81,000
(6,000)
101,000
73,000
28,000
1-42
Balance Sheet
ASSETS
What is owned
Cash
Console
Car
TOTAL
What is owed
LIABILITIES
Car loan
Tuition Payable
Student Loan
TOTAL
Net worth
EQUITY
TOTAL
1-43
Ashley
Jason
$1,000
-0800
$1,800
$6,000
350
-0$6,350
$ 250
-0-0250
1,550
$1,800
$ -0800
4,800
5,600
750
$6,350
End of Chapter 1