its reallay use and awosme ajsgasdjksgdjksa sadbksadksah sadjksadh sadsadhgsdhhhshdjdjsadhsgjdhsgjdgsjdjsgdjsgdjsgjdgsadjsgdhsgdsgjdsahdsjdjsgdjsgjdsajdgsajdgsajhdgjshgdjshagdjsagjdsgjdgshdhshhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhhh

1. 201Lec01.PPTX
Introduction to Financial Accounting BUS ADM-201
1

2. INTRODUCTION
TEXTBOOK: Financial Accounting – Tools for Business Decision Making
Seventh Edition Sixth Edition Fifth Edition
2

3. DEFINITION OF ACCOUNTING
Accounting is a process used to
record economic (business)
activities of an organization in
order to generate reports for use
by decision makers.
3

4. 4
- System to accomplish a specific task
- Method provides uniform results
- Goal is to assemble, aggregate, organize and
analyze huge volumes of data
Related disciplines:
-Information Technology (IT)
- Industrial Engineering
- Corporate/securities Law
- Actuarial Science
Process

5. 5
Process
- Objective. Many rules.
• US rules are created by the Financial
Accounting Standards Board (FASB).
• US rules are called GAAP.
(Generally Accepted Accounting Principles)
• Companies whose stock is publically traded also
must follow laws enforced by a US agency
named the Securities andExchange
Commission (SEC).
• Note: International Financial Reporting Standards (IFRS)
and GAAP are close but not exactly the same (yet).

6. 1- Financing Activities
 Borrowing creates liabilities
(debts) owed to creditors.
 Notes or Bonds payable
(Another liability created in operating
businesses is accounts payable.)
 Issuing or Selling stock
creates stockholders’ equity
 Dividends are distributions of
profit to owners of stock.
6
Business Activities 3 types

7. 2 - Investing Activities
Note: There are other types of
assets needed in operating the
business (see next slide)
 Cash
 Inventory
 Supplies not used up
 Accounts receivable
 Prepaid Insurance
7
Business Activities 3 types
 Obtaining resources or
assets needed to run
the business
 Buildings
 Equipment, etc

8. Business Activities 3 types
 Day to day running the business
8
3 - Operating Activities
 Revenues are the increases in assets resulting from
the sale of a product or service
 Expenses are the cost of assets consumed or services
used in generating revenue.
 Advertising
 Cost of goods (inventory) sold to customers
 Paying employees, utilities, etc
 Other collect cash on accounts receivable, buy
and sell inventory, buy expenses with cash or on
accounts payable

9. Proprietorship Partnership Corporation
Owned by two or
more persons.
Same legal
liability to all
partners as
proprietorship.
(joint and several)
Separate legal
entity owned by
stockholders
Ownership divided
in shares of stock.
Stockholder’s risk
limited to their
investment in
shares of stock
Income tax paid by
company
Owned/controlled
by one person.
(sole proprietorship)
Easy to start
Considered a legal
extension of
owner
Owner personally
liable for debts
of the business
9
Forms of Business Organization

10. FOUR Reports required by GAAP
(called the Financial Statements)
Balance
Sheet
Income
Statement
Statement
of Cash
Flows
Retained
Earnings
Statement
* Detailed footnotes also required.
10
SEC requires audited 10 K annual report & 10 Q
quarterly reports be made available to the public.
Includes the above plus management comments.

11. Reports operating
success or failure for
a time period.
Net income (profit) if
revenues > expenses.
Net loss if
expenses > revenues.
Prepare this
statement first.
Illustration 1-4
11
First report required by GAAP
Income Statement (or Profit & Loss)

12. Second report required by GAAP
Retained Earnings Statement
Illustration 1-5
From income statement
Shows what a company
did with net profit
earned in prior periods
(reinvest in business or pay
out to owners)
Also see Stockholders’
equity on Balance Sheet
discussed next
Prepare this statement
second
12

13. Third report required by GAAP
Balance Sheet
Illustration 1-7
Specific date – one
point in time!
Reports assets owned
and claims against
assets by:
 Creditors (liabilities)
 Owners (stock
investment + retained
earnings = stockholders’
equity)
Ending Retained earnings
13

14. More on the Balance Sheet
Formula of Balance sheet:
Assets = Liabilities + Stockholders’ Equity
Known as the “Accounting Equation”
14
An equivalent common view is “Net Worth”
Net worth = Assets – Liabilities
Net worth + Liabilities = Assets
Assets = Liabilities + Net Worth

15. Fourth report required by GAAP
Statement of Cash Flows
Illustration 1-8
Provides information
where a company gets
cash and spends cash
Summarizes for a
time period like an
income statement.
3 groups: Cash from
operating, investing,
and financing
activities.
15

16. Users and Uses of Financial Information
Management
Common Questions
Internal Users
Individuals
(you and I)
Finance
Marketing
IRS
Bankers
SEC
Investors
Creditors
Customers External
Users
16

17. INTERNAL Users need: EXTERNAL Users require:
 Help to evaluate past
decisions. Learn from
successes and failures.
Make better decisions in
the future.
 Analyze and evaluate
current options. Assist
in choosing best option.
 Discover new courses of
action. Assurance that
important options aren’t
missed.
 Help to plan ahead. Set
and achieve goals.
Anticipate potential
problems in the future.
Critical Factor: Users must have TRUST in information
and need trustworthy help analyzing it
17
 Accurate unbiased data
about success or failure
of past operations.
 Provide reasonable basis
for believing claims
about the future.
 Disclosure of current
financial condition. Is it
healthy or in distress?
 Defense of positions
taken. Prove it!
 Reports as required by
law.

18. Do It Problem: CSU Corporation In text, page 18
Accounts receivable 1,800
Accounts payable 2,000
Rent expense 9,000
Notes payable 5,000
Common stock 10,000
Retained earnings-Beginning ????
Equipment 16,000
Insurance expense 1,000
Service revenue 17,000
Supplies 4,000
Supplies expense 200
Cash 1,400
Dividends 600
 CSU begins on
Jan. 1, 2014
 For year ended
Dec. 31, 2014,
prepare
 Income
statement
 Retained
earnings
statement
 Balance sheet
18

19.  Step 1: Prepare
the Income
Statement
Accounts receivable 1,800
Accounts payable 2,000
Rent expense 9,000
Notes payable 5,000
Common stock 10,000
Retained earnings-Beginning
Equipment 16,000
Insurance expense 1,000
Service revenue 17,000
Supplies 4,000
Supplies expense 200
Cash 1,400
Dividends 600
19
Do It

20. CSU Corporation
Income Statement
For the Year Ended December 31, 2014
Revenues
Service revenue $17,000
Expenses
Rent expense $9,000
Insurance expense 1,000
Supplies expense 200
________
Total expenses 10,200
________
Net Income $ 6,800
20
Do It
________________

21.  Step 2: Prepare
the Retained
Earnings
Statement
Need net income
from previous
statement.
Do It
Accounts receivable 1,800
Accounts payable 2,000
Rent expense 9,000
Notes payable 5,000
Common stock 10,000
Retained earnings-Beginning 0
Equipment 16,000
Insurance expense 1,000
Service revenue 17,000
Supplies 4,000
Supplies expense 200
Cash 1,400
Dividends 600
21

22. CSU Corporation
Retained Earnings Statement
For the Year Ended December 31, 2014
Do It
Retained earnings, January 1 $ 0
Add: Net income 6,800
6,800
Less: Dividends 600
Retained earnings, Dec. 31 $ 6,200
22
________
________
________________

23.  Step 3: Prepare
the Balance
Sheet
Need ENDING
Retained
earnings from
previous
statement!
Do It
Accounts receivable 1,800
Accounts payable 2,000
Rent expense 9,000
Notes payable 5,000
Common stock 10,000
Retained earnings-Beginning 0
Equipment 16,000
Insurance expense 1,000
Service revenue 17,000
Supplies 4,000
Supplies expense 200
Cash 1,400
Dividends 600
23

24. CSU Corporation
Balance Sheet
December 31, 2014
Assets
Do It
Cash $ 1,400
Accounts receivable 1,800
Supplies 4,000
Equipment 16,000
Total Assets $23,200
Liabilities and Stockholders’ Equity
Liabilities
Notes payable $5,000
Accounts payable 2,000
Total liabilities $7,000
Stockholders’ equity
Common stock $10,000
Retained earnings 6,200
Total stockholders’ equity 16,200
Total liabilities and stockholders’ equity $23,200
24