Textbook Notes (368,125)
United States (205,946)
Accounting (115)
ACCT 1201 (75)
Chapter 1

Chapter 1 Condensed (Day 1)(1)(1).docx

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Department
Accounting
Course
ACCT 1201
Professor
Ronen Gal-or
Semester
Spring

Description
Chapter 1 Condensed (Day 1) I. What isAccounting? II. The Four Basic Financial Statements III. GenerallyAcceptedAccounting Principal (GAAP) IV. Management vs. Auditors V. Ethics, Reputation and Legal Liability VI. Types of Business Entities VII. Employment in theAccounting Profession I. What isAccounting? Accounting in the Language of Business A. The building block of any business is Transactions i. Examples of Transactions when starting a business. The business… 1. Receives Cash from investors and Provides Ownership Shares 2. Receives Cash from banks and Provides a Promissory Note agreeing to pay principal and interest at a future date. 3. Receives Property Plant and Equipment and Provides Cash or a Promissory (Mortgage) Note ii. Examples of Transactions in the ordinary course of a business 1. Receives Inventory and Provides Cash 2. Receives Cash from customers and Provides Goods or Services B. The classification, grouping, and summarization of these business transactions in a generally accepted manner is Accounting C. Accounting System – collects and processes financial information about an organization and reports that information to decision makers i. Managerial accounting – accounting for internal decision makers ii. Financial accounting – accounting for external decision makers (focus of this text) 1 II. The Four Basic Financial Statements (Balance Sheet, Income Statement, Statement of Retained Earnings, Statement of Cash Flows) - Financial Statements provide a summary of all a company’s transactions. WHO MAKES THE FINANCIAL STATEMENTS? WHO USES THE FINANCIAL STATEMENTS? A. BALANCE SHEET – reports the amount of assets, liabilities, and stockholders’ equity of an accounting entity at a point in time. MAXIDRIVE CORP. Balance Sheet At December 31, 2010 (in thousands of dollars) ASSETS Cash $ 4,895 Accounts receivable 5,714 Inventories 8,517 Plant and equipment 7,154 Land 981 Total assets $ 27,261 LIABILITIES Accounts payable $ 7,156 Notes payable 9,000 Total liabilities 16,156 STOCKHOLDERS' EQUITY Contributed capital 2,000 Retained earnings 9,105 Total stockholders' equity 11,105 Total liabilities and stockholders' equity $ 27,261 2 Structure a. Heading includes: 1) name of the entity, 2) title of the statement, 3) specific date of the statement, and 4) unit of measure b. Accounting entity – organization for which financial data are to be collected; must be precisely defined c. Basic accounting equation:MEMORIZE ) A = L + SE Assets = Liabilities + Stockholder’s Equity Assets represent the Economic Resources of a Business. Liabilities (Stockholder’s Equity) represent the Sources of Financing for Economic Resources from Creditors (Stockholders) Assets Liabilities Cash Accounts Payable Short-Term Investment Accrued Expenses Accounts Receivable Notes Payable Notes Receivable Taxes Payable Inventory (to be sold) Unearned Revenue Supplies Bonds Payable Prepaid Expenses Long-Term Investments Equipment Stockholders’Equity Buildings Land Intangibles Contributed Capital – the investment of cash and other assets in the business by the owners Retained Earnings – the amount of earnings (profits) reinvested in the business (and thus not distributed to stockholders in the form of dividends) 3 How is this Accounting Equation affected when the business A. Buys a car for cash? B. Borrows money from a bank? C. Pays back bank? D. Sells stock to shareholders? B. INCOME STATEMENT – reports the revenues less the expenses of the accounting period. MAXIDRIVE CORP. Income Statement For the Year Ended December 31, 2010 (in thousands of dollars) Revenues Sales revenue
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