Bài giảng Fundamental Financial Accounting Concepts - Chapter 1: An Introduction to Accounting

Chapter OneAn Introduction to AccountingMcGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.Role of Accounting in Society1-*Accounting provides information that is useful in answering questions about resource allocation.Should I invest money in IBM or General Motors?Types of Accounting Information1-*Financial AccountingFocused on the needs of external usersManagerial AccountingFocused on the needs of internal usersElements of Financial Statements1-*Assets—Cash, Equipment, Buildings, LandLiabilitiesEquityContributed CapitalRevenueExpensesDistributionsNet IncomeGainsLossesSubclassifications of the elements are frequently called accounts.Accounts are reported in the financial statements.Accounting Equation1-*Assets = Liabilities + EquityCommon Stock + Retained Earnings Assets = Liabilities + Stockholders' Equity1-*Event 1: Rustic Camp Sites (RCS) was formed on January 1, 2013, when it acquired $120,000 cash from issuing common stock.RCS increases assets (cash).RCS increases stockholders’ equity (common stock).Asset Source TransactionDouble-Entry BookkeepingRecorded Twice1-*Event 2: RCS acquired an additional $400,000 of cash by borrowing from a creditor.RCS increases assets (cash).RCS increases liabilities (notes payable).Asset Source Transaction1-*Event 3: RCS paid $500,000 cash to purchase land.RCS decreases assets (cash).RCS increases assets (land).Asset Exchange Transaction1-*Event 4: RCS obtained $85,000 cash by leasing campsites to customers.RCS increases assets (cash).RCS increases stockholders’ equity (retained earnings).Asset Source Transactionrevenues1-*Event 5: RCS paid $50,000 cash for operating expenses such as salaries, rent, and interest.RCS decreases assets (cash).RCS decreases stockholders’ equity (retained earnings).Asset Use Transactionexpenses1-*Event 6: RCS paid $4,000 in cash dividends to its owners. RCS decreases assets (cash).RCS decreases stockholders’ equity (retained earnings).Asset Use Transactiondividends1-*Event 7: The land that RCS paid $500,000 to purchase had an appraised market value of $525,000 on December 31, 2013.Historical Cost ConceptRequires that most assets be reported at the amount paid for them (their historical cost) regardless of increases in market value.Reliability ConceptInformation is reliable if it can be independently verified. Appraised values are opinions and will vary from appraiser to appraiser.Summary of Transactions1-*Now, let’s prepare the financial statements for RCS using the data presented above. 1-*Preparing Financial Statements1-*Preparing Financial StatementsequalAssets are displayed in order of liquidity.1-*OperatingInvestingFinancingPreparing Financial StatementsTemporary and Permanent Accounts1-*Temporary accounts track financial results for a limited period of time.RevenuesExpensesDividendsTemporaryAccountsPermanent AccountsAssetsLiabilitiesEquityPermanent accounts track financial results from year to year.Annual Reports1-*Financial StatementsNotes Auditor’s Report –Chapter 6Management’s Discussion and Analysis (MD&A)Traditionally, large companies have distributed expensive annual reports with many color photographs. Increasingly, however, companies are issuing more modest annual reports or are simply distributing their 10-K reports.