Note for AC 210 with Professor Huang at UA-Chapter 1 Syncrosummary
Note for AC 210 with Professor Huang at UA-Chapter 1 Syncrosummary
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Date Created: 02/06/15
Ch 1 Synchronotes for Fundamentals of Financial Accounting 3e by PhillipsLibbyLibby Chapter 1 Business Decisions and Financial Accounting Organizational Forms Three main types of business organizations 1 Sole proprietorship a business organization owned by one person The owner is personally liable for all debts of the business Partnership a business organization owned by two or more people Each partner is personally liable for all debts of the business Corporation a separate entity from both a legal and accounting perspective Owners of corporations stockholders are not personally responsible for debts of the corporation The Accounting System Exhibit 11 Accounting is a system of analyzing recording summarizing and reporting the results of a business s activities Business and Financing Activities lt r 9 Accounting System I I I I I I I l Accounting Reports Financial Managerial I External users creditors investors etc Internal users managers etc Ch1p1 The Basic Accounting Equation Resources Owned Resources Owed by the company to creditors to stockholders Assets Liabilities Stockholders Equity Separate entity assumption Requires that a business s financial reports include only the activities of the business and not those of its stockholders Assets are resources controlled by the company that have measurable value and are expected to provide future benefits to the company Assets include cash supplies furniture and equipment Liabilities are amounts owed by the business to creditors Liabilities include notes payable and accounts payable Stockholders Equity represent owners claim to the business resources Stockholders equity includes contributed capital and retained earnings 0 Retained Earnings include the accumulated net income of the company Revenues Expenses Net Income 0 Revenues arise from sales of goods or services to customers They are measured at the amount the business charges the customer 0 Expenses are the costs of business necessary to earn revenues They include wages to employees advertising insurance and utilities Dividends are a distribution of a company s earnings to its stockholders as a return on their investment Assets Liabilities Stockholders Equity Contributed Capital Retained Earnings Revenues Expenses Net Income profit generated Dividends profit distributed Ch1p2 Dividends are not an expense The Financial Statements Refers to four accounting reports typically prepared in the following order Income Statement Statement of Retained Earnings Balance Sheet PWN Statement of Cash Flows The Income Statement Reports the amount of revenues less expenses for a period of time The unit of measure assumption states that results of business activities should be reported in an appropriate monetary unit The Statement of Retained Earnings PIZZA AROMA INC Income Statement For the Month Ended September 30 2010 Revenues Sales Revenue Total Revenue Expenses Supplies Expense Wages Expense Rent Expense Utilities Expense Insurance Expense Advertising Expense Income Tax Expense Total Expenses Net Income 11000 9000 2000 11000 4000 2000 1500 600 300 100 500 PIZZA AROMA INC Statement of Retained Earnings For the Month Ended September 30 2010 Reports the way that net income and the Retained Earnings Sept 1 2010 Add Net Income 2000 distribution of dIVIdends affected the finanCIal Subtract Dividends 1000 Rt39 dE 39 S t302010 1000 pOSItIon of the company during the period quotme ammgs ep The Balance Sheet PIZZA AROMA INC Balance Sheet At SeptemberSO 2010 Reports at a point in time 2 0 4000 Accounts Receivable l000 Supplies 3000 1 What a busmess owns assets Eqmpmem Total Assets 58000 Liabilities 39 39 39 39 39 39 A t P bl 7000 2 What It owes to creditors liabilities Ngfgsuggyagf 9 mm Total Liabilities 27000 3 What is left over for the owners of the 3 W some I Retained Earnings l000 company stock stockholders equity Totaistockhoidem Eqmw Total Liabilities and Stockholders EqLJity 39 58000 Ch1p3 The Statement of Cash Flows Summarizes how a business s operating investing and financing activities caused its cash balance to change over a particular period of time Notes to the Financial Statements PIZZA AROMA INC Statement of Cash Flows For the Month Ended September 30 2010 cash Flows from Operating Activities Cash collected 39om customers 3 Cash paid to suppliers and employees Cash Provided by Operating Activities Cam Flows from Investing Activities Cash paid to buy equipment Cash Used in Investing Activities Cash Flowsfrom Financing Activities Capital contributed by stockholders Cash dividends paidto stockholders Cash borrowed 39om the bank Cash Provided by Financing Activities change in cash Beginning Cash Balance Sept 1 2010 Blding Cash Balance Sept 30 2010 10000 5000 5000 40000 40000 30000 1 000 20000 49000 14000 14000 Notes help financial statement users understand how the amounts were derived and what other information may affect their decisions Relationships among the Financial Statements 1 Net income flows from the Income Statement to the Statement of Retained Earnings 2 Ending Retained Earnings flows from the Statement of Retained Earnings to the Balance Sheet 3 Cash on the Balance Sheet and Cash at End of Year on the Statement of Cash Flows agree PIZZA AROMA INC Income Statement For the Month Ended September30 2010 Revenues sales Revenue as 11000 Total Revenue 11000 Expenses supplies Expense 4000 Wages Expense 2000 Rent Expense 1500 Utilities Expense 000 insurance Expense 300 Advertising Expense 100 income Tax Expense 500 Total Exienses 9000 PIZZA AROMA INC Statement of Retained Earnings Forthe Month Ended September30 2010 Retained Earnln s Set 1 2010 Subtract Dividends 1 00 Retained Earnings Sept 30 2010 1000 PIZZA AROMA INC Balance Sheet At Septemberao 2010 Assets Casn Accounts Receivable Supplies Equipment Total Assets Liabilities Accounts Payable Notes Rayaole Total Liabilities Stockholders39 Equity Contributed Ca ital Total stocxnoloers Equity Total Liabilities and Stockholders Equity SI 58000 9 40000 58000 9 9 27000 14000 1000 3000 7000 20000 30 000 31000 PIZZA ARO MA INC Statement at Cash Flows For the Month Ended September 302010 Cash nnws from Operating Activities oasn cullected trcim customers oasn paig to suppliers and employees oasn Pruvlded by Operating Activities ash Flaws trnm investing Anivnies oasn paig to buy eguipment oasn Used in investing Activities Cash nnws Ilnm Financing Activities Capital cuntrlbuted by stuckhulders oasn giyigengs paig tci stgcxnglgers oasn burruwed trcim tne bank oasn Pruvlded by Financing Activities change In Cash is asn aatance se it 1 n 000 5 000 5 000 AD 000 AD 000 30 000 1 000 20 000 Ch1p4 Using Financial Statements Creditors are primarily interested in assessing 1 Is the company generating enough cash to make payments on its loans 2 Does the company have enough assets to cover its liabilities Investors are primarily interested in assessing 1 What immediate return through dividends on my contributions 2 What is the longterm return through stock price increases resulting from the company s profits External Financial Reporting Financial statements used for these assessments Statement of Cash Flows Balance Sheet Statement of Retained Earnings Income Statement The main goal is to provide useful financial information to external users for decision making The factors that affect whether information is useful are Relevant Faithful Representation Comparable Verifiable Timely Understandable Ch1p5 Accounting Standards The accounting rules in the United States are similar for the most part to those used elsewhere in the world but some important differences exist The following organizations are responsible for developing accounting rules that are known by the abbreviations shown below United States Where World FASB Who IASB Financial Accounting International Accounting Standards Board Standards Board GAAP What IFRS Generally Accepted International Financial Accounting Principles Reporting Standards Ethical Conduct When faced with an ethical dilemma follow these three steps 1 Identify who will benefit from the situation and how others will be harmed 2 Identify the alternative courses of action 3 Choose the alternative that is the most ethical Overview of Career Choices in Accounting Private Accounting Public Accounting Public company Private company Nonpro t organization Type of Organization CPA rm nte rnati o nal partnersni39ps litte Touche Ernstampyoung Size 6 f qrgeulzat on iwrhveseiiwpers Regglona l oc alpartnersnip o39r39proprietorsnip Auditing assurance services Taxation 59mm a quotquotquot9 Consulting SJCI39I asforensic Ezigae lcnoguming fraud accounting computer Taxation Functions and Specializations Stems sewmyt 5 39 39quot9v bookkeeping services and industry specialization eg high tech banking mergers and acquisitions and communications internal auditing others eg nance information wstems forecasting 33000347 500quot depending 39 Starting Salaries Chief Financial Of cer CFO Controller Treasurer Director of Accounting Senior Accountant Manager Partner Typical Senior Positions Ch1p6 Exercises M113 Preparing a Statement of Retained Earnings Stone Culture Corporation was organized on January 1 2009 For its first two years of operations it reported the Net income for 2009 s 36 000 following Net Income for 2010 45000 On the basis of the data given prepare a DiVidendS for 2009 15000 statement of retained earnings for 2009 Dividends for 2010 20000 Its flrSt year Of faperatlonsl and 201039 Total assets at the end of 2009 125000 Show computations Total assets at the end of 2010 242000 Ch1p7 E13 Preparing a Balance Sheet DSW is a designer shoe warehouse selling some of the most luxurious and fashionable shoes at prices that people can actually afford ts balance sheet at November 1 2008 contained the following items in thousands Accounts Receivable 11888 Cash 45570 Contributed Capital 291248 Notes Payable 99044 Other Assets 494294 Other Liabilities 79148 Property Plant and Equipment 233631 Retained Earnings 179538 Total Assets 785383 Total Liabilities amp Stockholders39 Equity Required 1 Prepare the balance sheet as of November 1 solving for the missing amount or stockholders As of November 1 did most of the financing for assets come from creditors Ch1p8 E16 Preparing an Income Statement and Inferring Missing Values Regal Entertainment Group operates movie theaters and food concession counters throughout the United States Its income statement for the quarter ended June 26 2008 reported the following amounts in thousands Admissions Revenues 455700 Net Income Concessions Expenses 25500 Other Expenses 233800 Concessions Revenues 188900 Other Revenues 31200 Film Rental Expenses 247000 Rent Expense 90000 Gen amp Admin Expenses 65700 Total Expenses Required 1 Solve for the missing amounts and prepare an Income Statement for the quarter ended June 26 2008 TIP First put the items in the order they would appear on the Income Statement and then solve for the missing values 2 What is Regal s main source of revenue and biggest expense Ch1p9 E18 Inferring Values Using the Income Statement and Balance Sheet Equations Review the chapter explanations of the income statement and the balance sheet equations Apply these equations in each of the following independent cases to compute the two missing amounts for each case Assume that it is the end of the first full year of operations for the company TIP First identify the numerical relations among the columns using the balance sheet and income statement equations Then compute the missing amounts Total Revenues Total Liabilities 150000 70000 112000 104000 Stockholde rs39 Equity Total Net Income Expenses Loss Total Assets 82 000 80 000 12 000 86 000 Independent Cases 100 000 60 000 80 000 50000 26 000 22 000 73 000 13000 6000 77000 81000 28 000 Ch lp 10 516 Req 1 Critical Thinking Developing a Balance Sheet On September 30 Ashley and Jason started arguing about who is better off Jason said he was better off because he owned a PlayStation console that he bought last year for 350 He figures that if needed he could sell it to a friend for 280 Ashley argued that she was better off because she had 1000 cash in her bank account and a vintage car that she bought two years ago for 800 but could now sell for 1400 Jason countered that Ashley still owed 250 on her car loan and that Jason s dad promised to buy him a Porsche if he does really well in his accounting class Jason said he had 6000 cash in his bank account right now because hejust received a 4800 student loan Ashley knows that Jason also owes a tuition installment of 800 for this term Required 1 Prepare a financial report that compares what Ashley and Jason each own and owe on September 30 Make a list of any decisions you had to make when preparing your report Ch lp 11
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