1、Lesson One:Introduction to Accounting Aims:1.Use accounting vocabulary.2.Explain what accounting is.3.Describe the financial accounting and managerial accounting.4.Use the accounting equation to describe an organizations financial position.5.Prepare and use the financial statements.6.Use the account
2、ing equation to analyze business transactions.7.Explain what the accounting elements are.1.1What Is Accounting?Accounting provides financial information for decision-making in the business world.Accounting is a service-based profession that provides reliable and relevant financial information useful
3、 in making decisions.Accounting is“language of business.”1.2Financial Accounting v.s Managerial Accounting Accounting information that is intended to satisfy the needs of resource owners(external users)is called financial accounting.Managerial accounting provides useful information that is needed in
4、 operating an organization by internal users.1.3Financial Statements The four widely-used financial statements a business enterprise uses are:(1)Income statement;(2)Statement of Changes in Equity;(3)Balance Sheet;(4)Statement of Cash Flows.1.4Income Statement ABC Company Income Statement For the Per
5、iod Ended 2012 Revenue$10 000 Expenses 4 000 Net Income$6 0001.5Revenue Revenues are increases in retained earnings from delivering goods or service to customers or clients.1.6Expense Expense are decreases in retained earnings that result from operations.Expense are the cost of doing business and ar
6、e the opposite of revenues.Expenses include office rent,salaries,and utility payments etc.1.7The Statement of Changes in Equity ABC Company Statement of Changes in Equity For the Period Ended 2012 Beginning Contributed Capital$0Plus:Capital Acquisition20 000Ending Contributed Capital20 000 Beginning
7、 Retained Earnings0Plus:Net Income6 000Less:Distribution(4 000)Ending Retained Earnings2 000Total Equity$22 0001.8Balance Sheet ABC Company Balance Sheet as at December 31,2012Assets$30 000Total Assets30 000Liabilities8 000EquityContributed Capital20 000Retained Earnings2 000Total Equity22 000Total
8、Liability and Equity(Claims)$30 0001.9Assets Asset refers to any item of economic value owned by an individual or corporation.Assets are divided into the following categories:current,long-term,prepaid and deferred,and intangible assets1.10Liabilities Liability means an obligation that legally binds
9、an individual or company to settle a debt.Liability can include accounts payable,taxes,wages,accrued expenses,and deferred revenues.Current liabilities are debts payable within one year,while long-term liabilities are debts payable over a longer period.1.11Owners Equity(Capital)Owners equity refers
10、to ownership interest in a corporation in the form of common stock or preferred stock.It also refers to total assets minus total liabilities,in which case it is also referred to as shareholders equity or net worth or book value.1.12Statement of Cash FlowsABC CompanyStatement of Cash FlowsFor the Per
11、iod Ended 2012 Cash Flows from Operating ActivitiesCash Receipts from Revenue$14 000 Cash Payments for Expenses(9 000)Net Cash Flow from Operating Activities5 000Cash Flows from Investment Activities0Cash Flows from Financing ActivitiesCash Receipts from Borrowed Funds8 000Cash Receipts from Capital
12、 Acquisitions20 000Cash Payments for Distributions(3 000)Net Cash Flow from Financing Activities 25 000Net Increase in Cash30 000Plus:Beginning Cash Balance0Ending Cash Balance$30 0001.13Accounting Equation Assets=Claims Assets=Liabilities+Equity1.14Example for Assets=Claims Now lets see how the ele
13、ments of accounting equation change during an operating cycle.We will have a few transactions and will follow the relevant changes.(1)Tom Company is established when their owners pool$10 000 into the business.The effects of assets acquisition on the accounting equation are:ClaimsAssets=Liabilities+E
14、quity$10 000=$0+$10 000(2)Next,assume that Tom Company obtains an additional$4 000 of assets by borrowing them from creditors.This is also an asset source transaction.Note that the beginning balances are originated from the ending balances of the last transaction:ClaimsAssets=Liabilities+EquityBegin
15、ning Balances$10 000=$0+$10 000Effect of Borrowing+$4 000=+$4 000Ending Balances$14 000=$4 000+$10 000(3)Assume that Tom Company received$6 000 in exchange for services that it provided to its customers(note that while assets increase,retained earnings get bigger also):EquityContributedRetainedAsset
16、s=Liabilities+Capital+EarningsBeginning Balances$14 000=$4 000+$10 000+$0 Effect of Revenue+$6 000+$6 000Ending Balances$20 000=$4 000+$10 000+$6 000(4)Assume that Tom Company had been required to use$2 000 of its assets to earn$6 000 from the previous transaction.The effect of the asset use transac
17、tion on the accounting equation is shown as follows:EquityContributedRetainedAssets=Liabilities+Capital+EarningsBeginning Balances$20 000=$4 000+$10 000+$6 000Effect of Expenses($2 000)($2 000)Ending Balances$18 000=$4 000+$10 000+$4 000(5)Assume Tom Company transfers$500 of assets to the owners:Equ
18、ityContributedRetained Assets=Liabilities+Capital+EarningsBeginning Balances$18 000=$4 000+$10 000+$4 000Effect of Distribution($1 000)($1 000)Ending Balances$17 000=$4 000+$10 000+$3 0001.16Ending Balances As an accounting period is over,ending balances of the period change into beginning balances of the next period such as assets,liabilities.At the end of an accounting period,amounts in the revenue,expense,and distribution accounts are transferred to Retained Earnings.
