Financial Accounting I

Chapter 1: Accounting and the Business

Environment
Pamela Gonzalez, MBA
Accounting and the Business
Environment
Accounting
Information system that
provides essential
information about the
financial activities of a
business entity to various
individuals or groups for their
use in making informed
decisions.
Financial Accounting
Outsiders
Managerial Accounting
Insiders
Accounting and the Business
Environment
Business Set goals and measure them

Investors Analyze potential earnings and
performance

Creditors Ability to make the loan payments

Taxing Authorities Figure income tax

CPA Certified Public
Accountans (serve general
public)

CMA Certified Management
Accountants (work for single
company)

Financial
Statement
s
Accounting and the Business
Environment
SEC
FASB
PCAOB --AICPA --
IMA
US Financial
Markets
Accounting
Standards
Guidelines
Accounting and the Business
Environment
Proprietorship Partnership Corporation LLP/LLC Not-for-profit
One Owner



Limited life

Propietor is
personally
liable
Two or more
Owners


Limited life

Partners are
personally
liable
Many
Owners
(stockholders)

Unlimited life

Stockholders
not personally
liable
Members



Unlimited life

Members not
personally
liable
None



Unlimited life

Fiduciary
liability
Accounting and the Business
Environment
PROPRIETORSHIP
Separate legal entity

No continuous life or transferability of ownership

Unlimited liability of owner

Unification of ownership and management

Business taxation

Government regulation
Accounting and the Business
Environment
GAAP
(Generally Accepted Accounting Principles)

Entity Concept
Faithful
Representarion
Principle
Cost Principle
Going
Concern
Principle
Stable
Monetary Unit
Concept
One business
separate from
its owners
Data faithfully
represents the
measurement or
description of that
data
Assets and services
should be recorded at
their actual cost
(amount paid).
Will remain in
operation for the
foreseeable future
Stable currency
buying power
Accounting and the Business
Environment
Assets Liabilities Equity
Everything the
business owns
that has value
Everything the
business owes
Net worth
Revenues
Expenses
Drawings
Accounting and the Business
Environment
Assets Liabilities Equity
Transactions affect what
the company owns, owes
or its net worth
1. The e-learning agency received $30,000 cash and gave capital to Sheena Bright.
2. Paid $20,000 cash for land.
3. Bought $500 of office supplies on account.
4. Received $5,500 cash from clients for service revenue earned.
5. Performed services for clients on account, $3,000.
6. Paid cash expenses: computer rent, $600; office rent, $1,100; employee salary, $1,200;
utilities, $400.
1. Paid $300 on the account payable created in transaction
2. Bright buys $200 of groceries. This is not a transaction of the business.
3. Collected $1,000 on the account receivable created in transaction
4. Sold land for cash at its cost of $9,000.
5. Owner withdrew cash of $2,000.

Income Statement
Statement of Owners Equity
Balance Sheet
Statement of Cash Flow
Accounting and the Business
Environment
Income
Statement
Statement
of Owners
Equity
Balance
Sheet
Statement
of Cash
Flow
Statement of Earnings or Statement of Operations

Presents a summary of revenues and expenses for a period of time;
it tells us whether the business enjoyed net income or suffered net
loss.
Accounting and the Business
Environment
Income
Statement
Statement
of Owners
Equity
Balance
Sheet
Statement
of Cash
Flow
Shows the changes in capital for a business entity during a time
period, such as month, quarter, or year.
Accounting and the Business
Environment
Income
Statement
Statement
of Owners
Equity
Balance
Sheet
Statement
of Cash
Flow
Statement of financial position

Lists a business entitys assets, liabilities and owners equity as of a
specific date, usually the end of a month, quarter or year.
Accounting and the Business
Environment
Income
Statement
Statement
of Owners
Equity
Balance
Sheet
Statement
of Cash
Flow
Reports the cash coming in and the cash going out during a period.
Business activities result in a net cash inflow or a net cash outflow.