Acc 6 CH 01
Acc 6 CH 01
Acc 6 CH 01
Business Environment
Chapter 1
Objective 1
Use accounting
vocabulary
Accounting...
Financial Accounting
Management Accounting
The Authority Underlying
Accounting
Public Sector
(SEC)
GAAP
Standards of Professional
Conduct
Standards of
Ethical
AICPA’s Code of
Conduct of the
Professional
Institute of
Conduct
Management
Accountants
Types of Business Organizations
Proprietorships
Partnerships
Corporations
Proprietorships
What are some advantages?
– total undivided authority
– no restrictions on type of business – must
be legal
What are some disadvantages?
– unlimited liability
– limitation on size – fund raising power
Partnerships
What are some advantages?
better credit standing – possibly
– more brain power, but consultation with
partners required
What are some disadvantages?
– unlimited personal liability for general
partners
– need for written partnership agreement
Corporations
What are some advantages?
– separate legal existence
– limited liability of stockholders
– transferability of ownership relatively easy
What are some disadvantages?
– taxes – possible double taxation
– extensive governmental regulation
Objective 2
Apply Accounting
Concepts and Principles
Generally Accepted
Accounting Principles
What is the primary objective of financial
reporting?
Economic Claims to
Resources Economic
Resources
Assets
What is an asset?
It is something a company owns which has
future economic value.
– land
– building
– equipment
– goodwill
Liability
What is a liability?
It is something a company owes.
– money
– service – legal retainers
– product – magazines
Owner’s Equity
What is owner’s equity?
It is what’s left of the assets after liabilities
have been deducted.
– the same as net assets
– the owner’s claim on the entity’s assets
Transactions that Affect
Owner’s Equity
OWNER’S
EQUITY OWNER’S EQUITY
INCREASES DECREASES
Owner’s Equity
Revenues Expenses
Revenues
What are revenues?
They are amounts received or to be received
from customers for sales of products or services.
– sales
– performance of services
– rent
– interest
Expenses
What are expenses?
They are amounts that have been paid or will be
paid later for costs that have been incurred to
earn revenue.
– salaries and wages
– utilities
– supplies used
– advertising
Objective 4
Evaluate Business
Performance
Relationships Among the Statements:
Income Statement
Revenue:
Fees earned $8,500
Expenses:
Salary expense $1,200
Utilities and telephone expense 400
Equipment rental expense 600
Office rent expense 1,100 3,300
Net income $5,200
Relationships Among the Statements:
Statement of Owner’s Equity
Assets Liabilities
Cash $19,900 Accounts payable $ 200
Accounts receivable 2,000 Owner’s equity,
Supplies 500 G. Gillen, capital 33,200
Land 11,000 Total liabilities and
Total assets $ 33,400 owner’s equity $33,400
Relationships Among the Statements:
Statement Of Cash Flows