1、Ye and Sun Accounting English 20091Lesson 1An Introduction to AccountingAccountinginformationThe accounting processDecision makersEconomic activitiesActions(decisions)Accounting thinks decision makers with economic activities and with the results of their decisions.1.1 Accounting is an information s
2、ystemYe and Sun Accounting English 200921.2 Forms of organization nSole proprietorship nOwned by one person.nOwner is personally responsible for business debts.nPartnership nOwned by two or more persons.nPartners are personally responsible for all partnership debts.nCorporationnOwned by shares of st
3、ock.nA corporation is a separate legal entity.nIt is responsible for its own debts.Ye and Sun Accounting English 200931.3 Framework for Preparation and presentation of financial statementsnIASC since 1973nIASB since 2001nThere is a growing trend to adopt accounting standards that are in harmony with
4、 international accounting standards.Ye and Sun Accounting English 20094Ye and Sun Accounting English 20095nSome accounting concepts and principles:nbusiness entitynobjectivity ncost principlengoing-concernnmonetary unitntime period nrevenue recognition or realization principlenmatching principlenful
5、l-disclosure principlenconsistency principlenmateriality principlenconservatism principleYe and Sun Accounting English 200961.4 Understanding financial statementsnThe statement of comprehensive income(income statement)summarizes financial performance resulting from income(revenue and gains)less expe
6、nses(including losses).nThe statement of changes in equity reconciles changes in equity(increases are caused by owner investments and net income,while decreases result from owner withdrawals/dividends and net losses.nThe statement of financial position(balance sheet)details assets,liabilities,and eq
7、uity.nThe statement of cash flows shows the cash inflows and outflows from operating activities,investing activities,and financing activities.nUsers of accounting information investors and creditors etc.Ye and Sun Accounting English 200971.4 Understanding financial statementsnThe income statement su
8、mmarizes net profit(or net loss)resulting from revenues less expenses.nThe statement of owners equity reconciles changes in owners equity(increases are caused by owner investments and net profit,while decreases result from owner withdrawals and net losses).nThe balance sheet details assets,liabiliti
9、es,and equity.nThe statement of cash flows shows the cash inflows and outflows from operating,investing and financing activities.nUsers of accounting information investors and creditors etc.Ye and Sun Accounting English 20098 1.5 Accounting and its professionnThere are three basic types of accountan
10、ts:nPrivate accountants work for a single employer.nPublic accountants are available to the public.nGovernment accountants work for local,provincial,and federal government agencies.Ye and Sun Accounting English 20099n Fields of accountingnfinancialnmanagerialntaxationnaccounting-relatedYe and Sun Ac
11、counting English 2009101.6 Using the accounting equationnBusiness transactions always affect at least two elements in the accounting equation.nThe accounting equation is:Assets=Liabilities+EquitynAfter a transaction is recorded,the accounting equation must be in balance.Ye and Sun Accounting English
12、 200911Using the accounting equation(1)Recording (2)Reporting(Basic Steps of Accounting Processing)Example on textbookYe and Sun Accounting English 200912An example!Stockholders Equity Barones Repair Shop was started on May.Prepare a tabular analysis of the following transactions for the month of Ma
13、y.+10,0001.+10,000CashAccounts ReceivableEquipmentAccounts PayableCommon Stock+=+1.Stockholders invested$10,000 cash to start the repair shop.InvestmentAssetsLiabilities13Ye and Sun Accounting English 2009+10,0001.+10,000 2.Purchased equipment for$5,000 cash.-5,0002.+5,000InvestmentStockholders Equi
14、tyCashAccounts ReceivableEquipmentAccounts PayableCommon Stock+=+AssetsLiabilities14Ye and Sun Accounting English 2009+10,0001.+10,000 3.Paid$400 cash for May office rent.-5,0002.+5,000-4003.-400Stockholders EquityCashAccounts ReceivableEquipmentAccounts PayableCommon Stock+=+AssetsLiabilitiesRetain
15、ed EarningsExpense+15Ye and Sun Accounting English 2009+10,0001.+10,000-5,0002.+5,000-4003.-400Stockholders EquityCashAccounts ReceivableEquipmentAccounts PayableCommon Stock+=+AssetsLiabilitiesRetained Earnings+5,1004.+5,100 4.Received$5,100 from customers for repair service.Revenue+16Ye and Sun Ac
16、counting English 2009+10,0001.+10,000-5,0002.+5,000-4003.-400Stockholders EquityCashAccounts ReceivableEquipmentAccounts PayableCommon Stock+=+AssetsLiabilitiesRetained Earnings+5,1004.+5,100 5.Paid dividends of$1,000 cash.-1,0005.-1,000+17Ye and Sun Accounting English 2009+10,0001.+10,000-5,0002.+5
17、,000-4003.-400Stockholders EquityCashAccounts ReceivableEquipmentAccounts PayableCommon Stock+=+AssetsLiabilitiesRetained Earnings+5,1004.+5,100-1,0005.-1,000 6.Paid part-time employee salaries of$2,000.-2,0006.-2,000Expense+18Ye and Sun Accounting English 2009+10,0001.+10,000-5,0002.+5,000-4003.-40
18、0Stockholders EquityCashAccounts ReceivableEquipmentAccounts PayableCommon Stock+=+AssetsLiabilitiesRetained Earnings+5,1004.+5,100-1,0005.-1,000-2,0006.-2,000Expense 7.Incurred$250 of advertising costs,on account.+250-2507.+19Ye and Sun Accounting English 2009+10,0001.+10,000-5,0002.+5,000-4003.-40
19、0Stockholders EquityCashAccounts ReceivableEquipmentAccounts PayableCommon Stock+=+AssetsLiabilitiesRetained Earnings+5,1004.+5,100-1,0005.-1,000-2,0006.-2,000Revenue+250-2507.8.Provided repair services on account to customers$750.+7508.+750+20Ye and Sun Accounting English 2009 6,820 +630 +5,000 =25
20、0 +10,000 +2,200+10,0001.+10,000-5,0002.+5,000-4003.-400Stockholders EquityCashAccounts ReceivableEquipmentAccounts PayableCommon Stock+=+AssetsLiabilitiesRetained Earnings+5,1004.+5,100-1,0005.-1,000-2,0006.-2,000+250-2507.+7508.+750 9.Collected$120 cash for services previously billed.+1209.-120+21
21、Ye and Sun Accounting English 2009Companies prepare four financial statements from the summarized accounting data:Balance SheetIncome StatementStatement of Cash FlowsRetained Earnings Statement22Ye and Sun Accounting English 2009 Income StatementReports the revenues and expenses for a specific perio
22、d of time.Net profit revenues exceed expenses.Net loss expenses exceed revenues.23Ye and Sun Accounting English 2009 Income StatementRetained Earnings StatementNet profit is needed to determine the ending balance in retained earnings.24Ye and Sun Accounting English 2009Retained Earnings StatementSta
23、tement indicates the reasons why retained earnings has increased or decreased during the period.25Ye and Sun Accounting English 2009 Balance SheetRetained Earnings StatementThe ending balance in retained earnings is needed in preparing the balance sheet.26Ye and Sun Accounting English 2009Reports th
24、e assets,liabilities,and stockholders equity at a specific date.Assets listed at the top,followed by liabilities and stockholders equity.Total assets must equal total liabilities and stockholders equity.Balance Sheet27Ye and Sun Accounting English 2009Cash flow from OperationsCash receipts from cust
25、omers5,220$Cash paid for expenses(2,400)Cash provided by operations2,820 Cash flow from InvestingPurchase of equipment(5,000)Cash flow from FinancingInvestment by owners10,000 Drawings by owners(1,000)Cash provided by financing9,000 Net increase in cash6,820 Cash balance,May 1-Cash balance,May 316,8
26、20$Statement of Cash FlowsBarones Repair Shop For the Month Ended May 31,2007Statement of Cash Flows Balance Sheet28Ye and Sun Accounting English 2009Cash flow from OperationsCash receipts from customers5,220$Cash paid for expenses(2,400)Cash provided by operations2,820 Cash flow from InvestingPurch
27、ase of equipment(5,000)Cash flow from FinancingInvestment by owners10,000 Drawings by owners(1,000)Cash provided by financing9,000 Net increase in cash6,820 Cash balance,May 1-Cash balance,May 316,820$Statement of Cash FlowsBarones Repair Shop For the Month Ended May 31,2007Statement of Cash FlowsIn
28、formation for a specific period of time.Answers the following:1.Where did cash come from?2.What was cash used for?3.What was the change in the cash balance?29Ye and Sun Accounting English 2009Ye and Sun Accounting English 200930 1.7 Ethics in accountingnAccountants must perform their responsibilities according to the highest ethical standards because many users rely on financial reports.nSome of the basic ethical standards expected of professional accountants include:nIntegritynConfidentialitynCompetencenObjectivityYe and Sun Accounting English 200931End of Lesson 1
