Accounting in Business: Chapter 1 PDF

ACCOUNTING IN BUSINESS Chapter 1 Learning Objectives 1.Explain the purposes and importance of Accounting. 2.Explain the various Accounting Concepts. 3.Explain and interpret the Accounting Equation. 4.Prepare the financial statements. Learning Objectives 1.Explain the purposes and importa...

ACCOUNTING IN BUSINESS Chapter 1 Learning Objectives 1.Explain the purposes and importance of Accounting. 2.Explain the various Accounting Concepts. 3.Explain and interpret the Accounting Equation. 4.Prepare the financial statements. Learning Objectives 1.Explain the purposes and importance of Accounting. 2.Explain the various Accounting Concepts. Importance of Accounting is a Accounting Accounting Identifies Identifies system that Records Records information Relevant Relevant Communicates Communicates that is Reliable Reliable to tohelp helpusers usersmake make Comparable better betterdecisions. decisions. Comparable  Identifying Recording Communicating Select transactions Input, measure and Prepare, analyze and and events classify interpret  Users of Accounting Information Internal Users External Users Managers Sales Staff Lenders Tax authorities Officers/Directors Employees Shareholders External Auditors Internal Auditors Owners of business Governments Suppliers Generally Accepted Accounting Principles Financial Accounting practice is governed by concepts and rules known as generally accepted accounting principles (GAAP). Relevant Information Affects the decision of its users. Reliable Information Is trusted by users. Comparable Is helpful in contrasting Information organizations.  Accounting Concepts Business Entity Concept Monetary Concept  Owner and business considered as  Record transactions if it can be separate entity. measured in monetary terms.  Owners’ personal transactions are  Non-financial transactions not kept separate. recorded. (customer loyalty, qualifty  Only business transactions are of workforce) recorded.  Now Future Going-Concern Concept Historical Cost Concept  Reflects assumption that the business  Record transactions for based on will continue operating instead of being actual cost. closed or sold.  Actual cost is considered objective.  Assets valued at historical cost and not  Amount reorded from source at disposal value. documents.  Accounting Period Concept  Presumes that the life of a company can be divided into time periods, generally a month, quarter or a year.  Financial statements are prepared at the end of each accounting period.  Forms of Business Entities Sole Sole Partnership Partnership Company Company Proprietorship Proprietorship  Company Owners of a company are called shareholders. Shareholders are not personally liable for the debts of the business. When a company issues only one class of class, it is call it ordinary shares. Learning Objectives 3. Explain and interpret the Accounting Equation.  The Basic Accounting Equation Resources Owned... Resources Owed... by the company to creditors to shareholders Assets = Liabilities + Shareholders’ Equity Assets Resources own by the company that have measurable value and are expected to provide future benefits to the company. Cash Equipment Supplies Furniture Liabilities Amounts owed by the business to creditors. Loan Accounts Payable Payable Amounts owed to suppliers are called accounts payable anything with the word payable in its name is considered a liability. Shareholders’ Equity Owners’ claim to the business resources. Contributed Retained Capital Earnings Share Certificate  Transaction Analysis Equation The accounting equation MUST remain in balance after each transaction. Assets Assets = Liabilities Liabilities + Shareholders’ Shareholders’ Equity Equity Transaction A 1 Nov 2021 Allan Tan deposited $50,000 cash in ATany Pte Ltd in exchange for $50,000 ordinary shares at $1 per share. Shareholders' Assets = Equity Ordinary Share Cash = Capital (a) 50,000 50,000 Bal 50,000 = 50,000 Transaction B 2 Nov 2021 ATany paid $10,000 cash for office equipment. Shareholders' Assets = Equity Office Ordinary Share Cash + = Equipment Capital (a) 50,000 50,000 (b) - 10,000 10,000 Bal 40,000 + 10,000 = 50,000 Learning Objectives 3. Explain and interpret the Accounting Equation  Transaction C 9 Nov 2021 ATany bought inventory by cash, $1,000. s to efer y r Shareholders' r to at a ss Assets = e n Equity I n v s th sine. o od g bu sale Office Ordinary Share g i n r re Cash + + Inventory = d tra s fo Equipment Capital y bu (a) 50,000 50,000 (b) - 10,000 10,000 (c) - 1,000 1,000 Bal 39,000 + 10,000 + 1,000 = 50,000  Transaction D 11 Nov 2021 ATany sold inventory for cash, $6,000. The cost of inventory sold was $1,000. Revenue are amount earned from Assets = Shareholders' Equity the selling goods or providing a service. Ordinary Office Sales Cost of Amount earned from Cash + Equipment + Inventory = Share + Revenue - Sales selling inventory is Capital called Sales (a) 50,000 50,000 Revenue. (b) - 10,000 10,000 Expense are cost used (c) - 1,000 1,000 to earn the revenue. (d) 6,000 6,000 Eg, rent expense - 1,000 1,000 Cost of inventory sold is called Cost of Sales Bal 45,000 + 10,000 + 0 = 50,000 + 6,000 - 1,000 and is an Expense  Transaction E 15 Nov 2021 ATany bought inventory on credit from Neon for $20,000 Assets = Liabilities + Shareholders' Equity Accounts Ordinary “on ” Cash + Office + Inventory = Payable + Share + Sales - Cost of re d it Equipment Revenue Sales c Neon Capital e a ns m te r. (a) 50,000 50,000 l a pay ility (b) - 10,000 10,000 b A lia (c) - 1,000 1,000 is ed. (d) 6,000 6,000 a t cre - 1,000 1,000 (e) 20,000 20,000 Bal 45,000 + 10,000 + 20,000 = 20,000 + 50,000 + 6,000 - 1,000  Transaction F 22 Nov 2021 ATany sold inventory to on credit to Seng for $8,000. The cost of inventory sold was $3,000. Assets = Liabilities + Shareholders' Equity “ o n sol ”d Office Accounts Accounts Ordinary Sales Cost of Cash + + Inventory + Receivable = Payable + Share + - re d it Equipment Revenue Sales c Seng Neon Capital e a ns (a) 50,000 50,000 m (b) - 10,000 10,000 w e e i ved (c) - 1,000 1,000 rec (d) 6,000 6,000 c a sh - 1,000 1,000. later et (f) (e) 20,000 20,000 s A as 8,000 8,000 - 3,000 3,000 is ed. Bal 45,000 + 10,000 + 17,000 8,000 = 20,000 + 50,000 + 14,000 - 4,000 t crea  Transaction G 27 Nov 2021 ATany paid $5,000 cash to Accounts Payable, Neon. Assets = Liabilities + Shareholders' Equity Accounts Accounts Ordinary Office Sales Cost of Cash + + Inventory + Receivable = Payable + Share + - Equipment Revenue Sales Seng Neon Capital (a) 50,000 50,000 (b) - 10,000 10,000 (c) - 1,000 1,000 (d) 6,000 6,000 - 1,000 1,000 (e) 20,000 20,000 (f) 8,000 8,000 - 3,000 3,000 (g) - 5,000 - 5,000 Bal 40,000 + 10,000 + 17,000 + 8,000 = 15,000 + 50,000 + 14,000 - 4,000 Transaction H 29 Nov 2021 ATany received $3,000 cash from Accounts Receivable, Seng for partial settlement of amount owing. Assets = Liabilities + Shareholders' Equity Accounts Accounts Ordinary Office Sales Cost of Cash + + Inventory + Receivable = Payable + Share + - Equipment Revenue Sales Seng Neon Capital (a) 50,000 50,000 (b) - 10,000 10,000 (c) - 1,000 1,000 (d) 6,000 6,000 - 1,000 1,000 (e) 20,000 20,000 (f) 8,000 8,000 - 3,000 3,000 (g) - 5,000 - 5,000 (h) 3,000 - 3,000 Bal 43,000 + 10,000 + 17,000 + 5,000 = 15,000 + 50,000 + 14,000 - 4,000  Transaction I 30 Nov 2021 ATany paid the following expenses: salary $2,000; rent $3,000 and utilities $1,000. Assets = Liabilities + Shareholders' Equity Accounts Accounts Ordinary Office Sales Cost of Cash + Equipment + Inventory + Receivable = Payable + Share + Revenue - Sales - Expense Seng Neon Capital (a) 50,000 50,000 (b) -10,000 10,000 (c) -1,000 1,000 (d) 6,000 6,000 -1,000 1,000 (e) 20,000 20,000 (f) 8,000 8,000 -3,000 3,000 (g) -5,000 -5,000 (h) 3,000 -3,000 (i) -2,000 2,000 Salary -3,000 3,000 Rent -1,000 1,000 Utilities Bal 37,000 + 10,000 + 17,000 + 5,000 = 15,000 + 50,000 + 14,000 - 4,000 - 6,000 69,000 = 15,000 + 54,000 Learning Objectives 4. Prepare the financial statements.  Financial Statements Let’s prepare the financial statements reflecting the transactions we have recorded. 1.Statement of Profit or Loss 2.Statement of Financial Position  Statement of Profit ATany Pte Ltd or Loss Statement of Profit or Loss Shareholders' Equity For the Month Ended 30 November 2021 $ $ Ordinary Sales Cost of Sales revenue 14,000 Share + - - Expense Revenue Sales Less: Cost of sales 4,000 Capital 50,000 Gross profit 10,000 2,000 Salary Less: Operating expenes 3,000 Rent Salary expense 2,000 1,000 Utilities Rent expense 3,000 50,000 + 14,000 - 4,000 - 6,000 Utilities expense 1,000 Total operating expense 6,000 Net profit 4,000 The Statement of Profit or Loss shows a company’s revenues and expenses with the resulting net profit or loss over a period of time.  Statement of Financial Position ATany Pte Ltd Statement of Financial Position as at 30 November 2021 $ $ Assets Shareholders' Cash 37,000 Assets = Liabilities + Equity Office equipment 10,000 Inventory 17,000 Accounts Accounts Accounts receivable, Seng 5,000 Office Ordinary Share Cash + + Inventory + Receivable = Payable + Total assets 69,000 Equipment Capital Seng Neon Liabilities Bal 37,000 + 10,000 + 17,000 + 5,000 = 15,000 + 50,000 Accounts payable, Neon 15,000 Shareholders' Equity Ordinary share capital 50,000 The Statement of Financial Position shows a company’s Retained earnings 4,000 Total shareholders' equity 54,000 Total liabilities and shareholders' equity 69,000 financial position at a point in time. END OF CHAPTER 01 Summary of the chapter 1 Explain the importance of Accounting. The functions of accounting involve analyzing, recording, classifying, summarizing, reporting, and interpreting financial information. Forms of business organization: A sole proprietorship is a business owned by one person. A partnership is a business owned by two or more persons. A company is a business owned by shareholders. Summary of the chapter Explain the basic Accounting Equation. Assets = Liabilities + Equity Assets are resources owned by business. Liabilities represent amounts owed to external parties. Equity represent owners claims on the assets Seeing how revenue, expenses, expand the basic accounting equation. Revenue are amount earned from sale of inventory. Expenses are cost incurred to generate the revenue. Summary of the chapter Prepare the financial statements - Statement of Profit or Loss is report for a specific period of time lists earned revenue and expenses incurred NET PROFIT / NET LOSS - Statement of Financial Position is report for a specific point of time the ending balances of assets and liabilities from the accounting equation and the ordinary shareholders plus the net profit