Introduction%20to

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Introduction to Accounting and Business
Student Version
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Describe the nature of a business, the role of
accounting, and ethics in business.
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Types of Businesses
Service Business Service
Delta Air Lines Transportation services
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The Role of Accounting in Business
Accounting can be defined as an information
system that provides reports to users about the
economic activities and condition of a business.
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Managerial Accounting
The area of accounting that provides internal
users with information is called managerial
accounting.
The objective of managerial accounting is to
provide relevant and timely information for
managers and employees decision-making needs.
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Financial Accounting
The area of accounting that provides external
users with information is called financial
accounting.
The objective of financial accounting is to
provide relevant and timely information for the
decision-making needs of users outside of the
business.
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Role of Ethics in Accounting and Business
Ethics are moral principles that guide the
conduct of individuals.
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Summarize the development of accounting
principles and relate them to practice.
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Business Entity Concept
Under the business entity concept, the activities
of a business are recorded separately from the
activities of its owners, creditors, or other
businesses.
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Business Entity Concept
A proprietorship is owned by one individual.

• 70 of business entities in the United States.
• Easy and cheap to organize.
• Resources are limited to those of the owner.
• Used by small businesses.

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Business Entity Concept
A corporation is organized under state or federal
statutes as a separate legal taxable entity.

• Generates 90 of business revenues.
• 20 of the business organizations in the United
  States.
• Ownership is divided into shares called stock.
• Can obtain large amounts of resources by issuing
  stocks.
• Used by large businesses.

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Business Entity Concept
A limited liability company (LLC) combines
attributes of a partnership and a corporation.

• 10 of business organizations in the United
  States (combined with partnerships).
• Often used as an alternative to a partnership.
• Has tax and legal liability advantages for owners.

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Cost Concept
Under the cost concept, amounts are initially
recorded in the accounting records at their cost
or purchase price.
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Objectivity Concept
The objectivity concept requires that the amounts
recorded in the accounting records be based on
objective evidence.
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Unit of Measure Concept
The unit of measure concept requires that
economic data be recorded in dollars.
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State the accounting equation and define each
element of the equation.
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The Accounting Equation
Assets Liabilities Owners Equity
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Describe and illustrate how business transactions
can be recorded in terms of the resulting change
in the elements of the accounting equation.
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Business Transaction
A business transaction is an economic event or
condition that directly changes an entitys
financial condition or its results of operations.
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Transaction A
On November 1, 2009, Chris Clark deposits 25,000
in a bank account in the name of NetSolutions in
return for shares of stock in the corporation.
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Transaction A (continued)
Stockholders Equity
Assets

CAPITAL STOCK 25,000

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Transaction B
On November 5, 2009, NetSolutions paid 20,000
for the purchase of land as a future building
site.
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Transaction B (continued)
Stockholders Equity
Assets

CASH LAND 25,000
CAPITAL STOCK
25,000

Bal.
Bal. 5,000 20,000 25,000
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Transaction C
On November 10, 2009, NetSolutions purchased
supplies for 1,350 and agreed to pay the
supplier in the near future.
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Transaction C (continued)
Stockholders Liabilities
Equity
Assets

ACCOUNTS CAPITAL PAYABLE
STOCK
CASH SUPPLIES LAND 5,000
20,000
25,000

Bal.
c. 1,350
1,350
Bal. 5,000 1,350 20,000
1,350 25,000
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Transaction D
On November 18, 2009, NetSolutions received cash
of 7,500 for providing services to customers. A
business earns money by selling goods or services
to its customers. This amount is called Revenue.
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Transaction D (continued)
Assets
CASH SUPPLIES LAND
5,000 1,350 20,000
Bal.
d. 7,500
Bal. 12,500 1.350
20,000
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Transaction D (continued)
Liabilities Stockholders Equity
ACCOUNTS CAPITAL
FEES PAYABLE STOCK
EARNED 1,350
25,000
Bal.
d.
7,500
Bal. 1,350
25,000 7,500
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Transaction E
On November 30, 2009, NetSolutions paid the
following expenses during the month wages,
2,125 rent, 800 utilities, 450 and
miscellaneous, 275.
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Transaction E (continued)
Assets
CASH SUPPLIES LAND
12,500 1,350 20,000
Bal.
e. 3,650
Bal. 8,850 1.350
20,000
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Transaction E (continued)
Liabilities
Stockholders Equity
ACCOUNTS CAPITAL FEES
WAGES RENT UTIL. MISC. PAYABLE
STOCK EARNED EXP. EXP. EXP.
EXP. 1,350 25,000
7,500
Bal.
e.
2,125 800 450 275
Bal. 1,350 25,000
7,500 2,125 800 450 275
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Transaction F
On November 30, 2009, NetSolutions paid creditors
on account, 950.
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Transaction F (continued)
Assets
CASH SUPPLIES LAND
8,850 1,350 20,000

Bal.
f. 950
Bal. 7,900 1.350
20,000
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Transaction F (continued)
Liabilities
Stockholders Equity
ACCOUNTS CAPITAL FEES
WAGES RENT UTIL. MISC. PAYABLE
STOCK EARNED EXP. EXP. EXP.
EXP. 1,350 25,000
7,500
Bal.
f. 950
Bal. 400 25,000
7,500 2,125 800 450 275
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Transaction G
On November 30, 2009, Chris Clark determined that
the cost of supplies on hand at the end of the
period was 550.
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Transaction G (continued)
Assets
CASH SUPPLIES LAND
7,900 1,350 20,000
Bal.
g. 800
Bal. 7,900 550
20,000
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Transaction G (continued)
Liabilities
Stockholders Equity
ACCOUNTS CAPITAL FEES
WAGES RENT SUP. UTIL. MISC.
PAYABLE STOCK EARNED EXP.
EXP. EXP. EXP. EXP. 400
25,000 7,500 2,125 800
450 275
Bal.
g.
800

Bal. 400 25,000
7,500 2,125 800 800 450 275
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Transaction H
On November 30, 2009, NetSolutions pays 2,000 to
stockholders (Chris Clark) as dividends.
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Transaction H (continued)
Assets
CASH SUPPLIES LAND
7,900 550 20,000
Bal.
h. 2,000
Bal. 5,900 550
20,000
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Transaction H (continued)
Liabilities
Stockholders Equity
ACCTS. CAPITAL, DIVI- FEES
WAGES RENT SUP. UTIL. MISC.
PAY. STOCK DENDS EARNED EXP.
EXP. EXP. EXP. EXP. 400
25,000 7,500 2,125
800 800 450 275
Bal.
h. 2,000
Bal.400 25,000 2,000 7,500
2,125 800 800 450 275
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Describe the financial statements of a
corporation and explain how they interrelate.
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Income Statement
The income statement reports the revenues and
expenses for a period of time, based on the
matching concept.
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Matching Concept
The matching concept is applied by matching the
expenses with the revenue generated during a
period by those expenses.
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The excess of revenue over the expenses is called
net income or net profit. If the expenses exceed
the revenue, the excess is a net loss.
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Exhibit 6
Financial Statements for NetSolutions
Net income is carried to the retained earnings
statement.
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Exhibit 6
Financial Statements for NetSolutions (continued)
From the income statement
To the balance sheet
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Exhibit 6
Financial Statements for NetSolutions (continued)
This amount is compared to the net cash flow on
the statement of cash flows.
From the retained earnings statement
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Exhibit 6
Financial Statements for NetSolutions (continued)
This amount should match Cash on the balance
sheet.
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