1、Ye and Sun Accounting English 2009,1,Lesson 1,An Introduction to Accounting,Accounting information,The accounting process,Decision makers,Economic activities,Actions (decisions),Accounting thinks decision makers with economic activities and with the results of their decisions.,1.1 Accounting is an i

2、nformation system,Ye and Sun Accounting English 2009,2,1.2 Forms of organization,Sole proprietorship Owned by one person. Owner is personally responsible for business debts. Partnership Owned by two or more persons. Partners are personally responsible for all partnership debts. Corporation Owned by

3、shares of stock. A corporation is a separate legal entity. It is responsible for its own debts.,Ye and Sun Accounting English 2009,3,1.3 Framework for Preparation and presentation of financial statements,IASC since 1973 IASB since 2001 There is a growing trend to adopt accounting standards that are

4、in harmony with international accounting standards. ,Ye and Sun Accounting English 2009,4,Ye and Sun Accounting English 2009,5,Some accounting concepts and principles: business entity objectivity cost principle going-concern monetary unit time period revenue recognition or realization principle matc

5、hing principle full-disclosure principle consistency principle materiality principle conservatism principle,Ye and Sun Accounting English 2009,6,1.4 Understanding financial statements,The statement of comprehensive income (income statement) summarizes financial performance resulting from income (rev

6、enue and gains) less expenses (including losses). The 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. The statement of financial position (balance sheet) det

7、ails assets, liabilities, and equity. The statement of cash flows shows the cash inflows and outflows from operating activities, investing activities, and financing activities. Users of accounting information investors and creditors etc.,Ye and Sun Accounting English 2009,7,1.4 Understanding financi

8、al statements,The income statement summarizes net profit (or net loss) resulting from revenues less expenses. The 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). T

9、he balance sheet details assets, liabilities, and equity. The statement of cash flows shows the cash inflows and outflows from operating, investing and financing activities. Users of accounting information investors and creditors etc.,Ye and Sun Accounting English 2009,8,1.5 Accounting and its profe

10、ssion,There are three basic types of accountants: Private accountants work for a single employer. Public accountants are available to the public. Government accountants work for local, provincial, and federal government agencies. ,Ye and Sun Accounting English 2009,9,Fields of accounting financial m

11、anagerial taxation accounting-related,Ye and Sun Accounting English 2009,10,1.6 Using the accounting equation,Business transactions always affect at least two elements in the accounting equation. The accounting equation is: Assets = Liabilities + Equity After a transaction is recorded, the accountin

12、g equation must be in balance. ,Ye and Sun Accounting English 2009,11,Using the accounting equation,(1)Recording (2)Reporting (Basic Steps of Accounting Processing) Example on textbook,Ye and Sun Accounting English 2009,12,An example!,Stockholders Equity,1: Barones Repair Shop was started on May. Pr

13、epare a tabular analysis of the following transactions for the month of May.,+10,000,1.,+10,000,Cash,Accounts Receivable,Equipment,Accounts Payable,Common Stock,+,+,=,+,1. Stockholders invested $10,000 cash to start the repair shop.,Investment,Assets,Liabilities,13,Ye and Sun Accounting English 2009

14、,+10,000,1.,+10,000,2. Purchased equipment for $5,000 cash.,-5,000,2.,+5,000,Investment,Stockholders Equity,Cash,Accounts Receivable,Equipment,Accounts Payable,Common Stock,+,+,=,+,Assets,Liabilities,14,Ye and Sun Accounting English 2009,+10,000,1.,+10,000,3. Paid $400 cash for May office rent.,-5,0

15、00,2.,+5,000,-400,3.,-400,Stockholders Equity,Cash,Accounts Receivable,Equipment,Accounts Payable,Common Stock,+,+,=,+,Assets,Liabilities,Retained Earnings,Expense,+,15,Ye and Sun Accounting English 2009,+10,000,1.,+10,000,-5,000,2.,+5,000,-400,3.,-400,Stockholders Equity,Cash,Accounts Receivable,Eq

16、uipment,Accounts Payable,Common Stock,+,+,=,+,Assets,Liabilities,Retained Earnings,+5,100,4.,+5,100,4. Received $5,100 from customers for repair service.,Revenue,+,16,Ye and Sun Accounting English 2009,+10,000,1.,+10,000,-5,000,2.,+5,000,-400,3.,-400,Stockholders Equity,Cash,Accounts Receivable,Equi

17、pment,Accounts Payable,Common Stock,+,+,=,+,Assets,Liabilities,Retained Earnings,+5,100,4.,+5,100,5. Paid dividends of $1,000 cash.,-1,000,5.,-1,000,+,17,Ye and Sun Accounting English 2009,+10,000,1.,+10,000,-5,000,2.,+5,000,-400,3.,-400,Stockholders Equity,Cash,Accounts Receivable,Equipment,Account

18、s Payable,Common Stock,+,+,=,+,Assets,Liabilities,Retained Earnings,+5,100,4.,+5,100,-1,000,5.,-1,000,6. Paid part-time employee salaries of $2,000.,-2,000,6.,-2,000,Expense,+,18,Ye and Sun Accounting English 2009,+10,000,1.,+10,000,-5,000,2.,+5,000,-400,3.,-400,Stockholders Equity,Cash,Accounts Rec

19、eivable,Equipment,Accounts Payable,Common Stock,+,+,=,+,Assets,Liabilities,Retained Earnings,+5,100,4.,+5,100,-1,000,5.,-1,000,-2,000,6.,-2,000,Expense,7. Incurred $250 of advertising costs, on account.,+250,-250,7.,+,19,Ye and Sun Accounting English 2009,+10,000,1.,+10,000,-5,000,2.,+5,000,-400,3.,

20、-400,Stockholders Equity,Cash,Accounts Receivable,Equipment,Accounts Payable,Common Stock,+,+,=,+,Assets,Liabilities,Retained Earnings,+5,100,4.,+5,100,-1,000,5.,-1,000,-2,000,6.,-2,000,Revenue,+250,-250,7.,8. Provided repair services on account to customers $750.,+750,8.,+750,+,20,Ye and Sun Accoun

21、ting English 2009,6,820 + 630 + 5,000 = 250 + 10,000 +2,200,+10,000,1.,+10,000,-5,000,2.,+5,000,-400,3.,-400,Stockholders Equity,Cash,Accounts Receivable,Equipment,Accounts Payable,Common Stock,+,+,=,+,Assets,Liabilities,Retained Earnings,+5,100,4.,+5,100,-1,000,5.,-1,000,-2,000,6.,-2,000,+250,-250,

22、7.,+750,8.,+750,9. Collected $120 cash for services previously billed.,+120,9.,-120,+,21,Ye and Sun Accounting English 2009,Companies prepare four financial statements from the summarized accounting data:,Balance Sheet,Income Statement,Statement of Cash Flows,Retained Earnings Statement,22,Ye and Su

23、n Accounting English 2009,Income Statement,Reports the revenues and expenses for a specific period of time. Net profit revenues exceed expenses. Net loss expenses exceed revenues.,23,Ye and Sun Accounting English 2009,Income Statement,Retained Earnings Statement,Net profit is needed to determine the

24、 ending balance in retained earnings.,24,Ye and Sun Accounting English 2009,Retained Earnings Statement,Statement indicates the reasons why retained earnings has increased or decreased during the period.,25,Ye and Sun Accounting English 2009,Balance Sheet,Retained Earnings Statement,The ending balance in retained earnings is needed in preparing the balance sheet.,26,Ye and Sun Accounting English 2009,Reports the assets, liabilities, and stockholders equity at a specific date. Assets listed at the top, followed by liabilities