Introduction to Accounting and Business Accounting, 21st Edition Warren Reeve Fess Materi Matrikulasi Pengantar Akuntansi Magister Manajemen Universitas BSI Bandung Maret 2013

1. Chapter 1
Introduction to Accounting
and Business
Accounting, 21st Edition
Warren Reeve Fess
© Copyright 2004 South-Western, a division
PowerPoint Presentation by Douglas Cloud of Thomson Learning. All rights reserved.
Professor Emeritus of Accounting
Pepperdine University
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3. Objectives
Objectives
1. Describe the nature studying this
After of a business.
After studying this
2. Describe the role of accounting in business.
chapter, you should
chapter, you should
3. Describe the importance of to:
business ethics and the
be able to:
be able
basic principles of proper ethical conduct.
4. Describe the profession of accounting.
5. Summarize the development of accounting
principles and relate them to practice.
6. State the accounting equation and define each
element of the equation.

4. Objectives
Objectives
7. Explain how business transactions can be
stated in terms of the resulting change in the
basic elements of the accounting equation.
8. Describe the financial statements of a
proprietorship and explain how they interrelate.
9. Use the ratio of liabilities to owner’s equity to
analyze the ability of a business to withstand
poor business conditions.

5. Types of Businesses
Manufacturing Business
Manufacturing Business
Product
Product
General Motors
General Motors Cars, trucks, vans
Cars, trucks, vans
Intel
Intel Computer chips
Computer chips
Boeing
Boeing Jet aircraft
Jet aircraft
Nike
Nike Athletic shoes and apparel
Athletic shoes and apparel
Coca-Cola
Coca-Cola Beverages
Beverages
Sony
Sony Stereos and television
Stereos and television

6. Types of Businesses
Merchandising Business
Merchandising Business
Product
Product
Wal-Mart
Wal-Mart General merchandise
General merchandise
Toys “R” Us
Toys “R” Us Toys
Toys
Circuit City
Circuit City Consumer electronics
Consumer electronics
Lands’ End
Lands’ End Apparel
Apparel
Amazon.com
Amazon.com Internet books, music, video
Internet books, music, video
retailer
retailer

7. Types of Businesses
Service Business
Service Business
Product
Product
Disney
Disney Entertainment
Entertainment
Delta Air Lines
Delta Air Lines Transportation
Transportation
Marriott Hotels
Marriott Hotels Hospitality and lodging
Hospitality and lodging
Merrill Lynch
Merrill Lynch Financial advice
Financial advice
Sprint
Sprint Telecommunication
Telecommunication

8. There are three types of
There are three types of
business organizations
business organizations
 Proprietorship
 Partnership
 Corporation

9. A proprietorship
A proprietorship Advantages
is owned by one
is owned by one • Ease in organizing
individual.
individual. • Low cost of
organizing
Disadvantage
Joe’s • Limited source of
financial resources
• Unlimited liability

10. Advantages
A partnership is
A partnership is • More financial
owned by two or
owned by two or resources than a
more individuals.
more individuals. proprietorship.
• Additional
management skills.
Joe and Marty’s Disadvantage
• Unlimited liability.

11. A corporation is
A corporation is
organized under state
organized under state Advantage
or federal statutes as a
or federal statutes as a • The ability to obtain
separate legal entity.
separate legal entity. large amounts of
resources by issuing
stocks.
J & M, Inc. Disadvantage
• Double taxation.

12. Business Strategies
Business Strategies
A business strategy is an integrated
set of plans and actions designed to
enable the business to gain an
advantage over its competitors, and
in doing so, to maximize its profits.

13. Business Strategies
Business Strategies
Under a low-cost strategy, a business
designs and produces products or
services of acceptable quality at a cost
lower than that of its competitors.
Wal-Mart
Southwest Airlines

14. Business Strategies
Business Strategies
Under a differential strategy, a business
designs and produces products or services
that possess unique attributes or
characteristics which customers are willing
to pay a premium price.
Maytag
Tommy Hilfiger

15. Value Chain of a Business
Value Chain of a Business
A value chain is the way a
business adds value for its
customers by processing inputs
into product or service.
Business Products or Customer
Inputs
Processes Services Value

16. Business Stakeholders
Business Stakeholders
A business stakeholder is a person or
entity having an interest in the
economic performance of the business.

17. The Process of
The Process of
Providing Information
Providing Information
STAKEHOLDERS
Internal: External:
Identify
Owners, Customers,
1 stake-
holders.
managers, creditors,
government
employees
Assess
stakeholders’
2 informational
needs.

18. The Process of
The Process of
Providing Information
Providing Information
Design the
Record accounting
economic Accounting
4 data about
business
Information
System
3 information
system to meet
stakeholders’
activities needs.
and events.

19. The Process of
The Process of
Providing Information
Providing Information
STAKEHOLDERS
Internal: External:
Owners, Customers,
managers, creditors,
employees government
Prepare
accounting
5 reports for
stakeholders.
Accounting
Information
System

20. Business Ethics
Business Ethics
1. Avoid small ethical lapses.
Sound
Sound 2. Focus on your long-term
Principles that
Principles that reputation.
form the
form the 3. You may expect to suffer
foundation for
foundation for adverse personal
ethical
ethical consequences for holding
behavior
behavior to an ethical position.

21. Profession of Accounting
Profession of Accounting
Accountants employed by a business firm or
Accountants employed by a business firm or
a not-for-profit organization are said to be
a not-for-profit organization are said to be
engaged in private accounting.
engaged in private accounting.
Accountants and their staff who provide
Accountants and their staff who provide
services on a fee basis are said to be
services on a fee basis are said to be
employed in public accounting.
employed in public accounting.

22. Generally Accepted
Generally Accepted
Accounting
Accounting
Principles (GAAP)
Principles (GAAP)

23. The business entity concept
The business entity concept
limits the economic data in
limits the economic data in
the accounting system to
the accounting system to
data related directly to the
data related directly to the
activities of the business.
activities of the business.
The cost concept is the
The cost concept is the
basis for entering the
basis for entering the
exchange price, or cost
exchange price, or cost
of an acquisition in the
of an acquisition in the
accounting records.
accounting records.

24. The objectivity concept
The objectivity concept
requires that the accounting
requires that the accounting
records and reports be based
records and reports be based
upon objective evidence.
upon objective evidence.
The unit-of-measure
The unit-of-measure
concept requires that
concept requires that
economic data be
economic data be
recorded in dollars.
recorded in dollars.

25. The Accounting Equation
The Accounting Equation
Assets = Liabilities + Owner’s Equity
The resources
The resources
owned by a
owned by a
business
business

26. The Accounting Equation
The Accounting Equation
Assets = Liabilities + Owner’s Equity
The rights of the
The rights of the
creditors, which
creditors, which
represent debts
represent debts
of the business
of the business

27. The Accounting Equation
The Accounting Equation
Assets = Liabilities + Owner’s Equity
The rights of the
The rights of the
owners
owners

28. What is a business
transaction?
A business transaction is an economic event or
condition that directly changes an entity’s financial
condition or directly affects its results of operations.

29. On November 1,
2005, Chris
Clark begins a
business that will
be known as
NetSolutions.

30. a. Chris Clark deposits $25,000 in a bank
a. Chris Clark deposits $25,000 in a bank
account in the name of NetSolutions.
account in the name of NetSolutions.
Assets = Owner’s Equity
Cash Chris Clark, Capital
= 25,000 Investment
a. 25,000
by Chris
Clark

31. b. NetSolutions exchanged $20,000 for land.
b. NetSolutions exchanged $20,000 for land.
Assets = Owner’s Equity
Cash + Land Chris Clark, Capital
Bal. 25,000 = 25,000
b. –20,000 +20,000
Bal. 5,000 20,000 25,000

32. c. During the month, NetSolutions purchased
c. During the month, NetSolutions purchased
supplies for $1,350 and agreed to pay the
supplies for $1,350 and agreed to pay the
supplier in the near future ((on account).
supplier in the near future on account).
Owner’s
Assets = Liabilities + Equity
Accounts Chris Clark,
Cash + Supplies + Land Payable Capital
=
Bal. 5,000 20,000 25,000
c. + 1,350 + 1,350
Bal. 5,000 1,350 20,000 1,350 25,000

33. d. NetSolutions provided services to
d. NetSolutions provided services to
customers, earning fees of $7,500 and
customers, earning fees of $7,500 and
received the amount in cash.
received the amount in cash.
Owner’s
Assets = Liabilities + Equity
Accounts Chris Clark,
Cash + Supplies + Land Payable Capital
Bal. 5,000 1,350 20,000 = 1,350 25,000
d. + 7,500 + 7,500 Fees
earned
Bal. 12,500 1,350 20,000 1,350 32,500

34. e. NetSolutions paid the following
e. NetSolutions paid the following
expenses: wages, $2,125; rent, $800;
expenses: wages, $2,125; rent, $800;
utilities, $450; and miscellaneous, $275.
utilities, $450; and miscellaneous, $275.
Owner’s
Assets = Liabilities + Equity
Accounts Chris Clark,
Cash + Supplies + Land Payable Capital
Bal. 12,500 1,350 20,000 1,350 32,500
e. – 3,650 = –2,125 Wages
– 800 Rent
– 450 Util.
– 275 Misc.
Bal.8,850 1,350 20,000 1,350 28,850

35. f. NetSolutions paid $950 to
f. NetSolutions paid $950 to
creditors during the month.
creditors during the month.
Owner’s
Assets = Liabilities + Equity
Accounts Chris Clark,
Cash + Supplies + Land Payable Capital
Bal. 8,850 1,350 20,000 = 1,350 28,850
f. – 950 – 950
Bal. 7,900 1,350 20,000 400 28,850

36. g. At the end of the month, the cost
g. At the end of the month, the cost
of supplies on hand is $550, so
of supplies on hand is $550, so
$800 of supplies were used.
$800 of supplies were used.
Owner’s
Assets = Liabilities + Equity
Accounts Chris Clark,
Cash + Supplies + Land Payable Capital
Bal. 7,900 1,350 20,000 = 400 28,850
g. – 800 – 800 Supplies
expense
Bal. 7,900 550 20,000 400 28,050

37. h. At the end of the month, Chris
h. At the end of the month, Chris
withdrew $2,000 in cash from the
withdrew $2,000 in cash from the
business for personal use.
business for personal use.
Owner’s
Assets = Liabilities + Equity
Accounts Chris Clark,
Cash + Supplies + Land Payable Capital
Bal. 7,900 550 20,000 = 400 28,050
h. –2,000 –2,000 With-
drawal
Bal. 5,900 550 20,000 400 26,050

38. Effects of Transactions on Owner’s Equity
Effects of Transactions on Owner’s Equity
Owner’s Equity
Decreased by Increased by
Owner’s Owner’s
withdrawals investments
Expenses Revenues
Net
income

39. Accounting reports, called
Accounting reports, called
financial statements,
financial statements,
provide summarized
provide summarized
information to the owner.
information to the owner.

40. Financial Statements
Financial Statements
• Income statement—A summary of the revenue
and expenses for a specific period of time.
• Statement of owner’s equity—A summary of
the changes in the owner’s equity that have
occurred during a specific period of time.
• Balance sheet—A list of the assets, liabilities,
and owner’s equity as of a specific date.
• Statement of cash flows—A summary of the
cash receipts and disbursements for a specific
period of time.

41. NetSolutions
Income Statement
For the Month Ended November 30, 2005
Fees earned $7 500 00
Operating expenses:
Wages expense $2 125 00
Rent expense 800 00
Supplies expense 800 00
Utilities expense 450 00
Miscellaneous expense 275 00
Total operating expenses 1 135 00
To the statement
To the statement
Net income $3 050 00
of owner’s equity
of owner’s equity

42. NetSolutions
Statement of Owner’s Equity
For the Month Ended November 30, 2005
Chris Clark, capital, November 1, 2005 $ 0
Investment on November 1 $25 000 00
From the income
Net income for From the income
November 3 050 00
statement
statement $28 050 00
Less withdrawals 2 000 00
Increase in owner’s equity 26 050 00
To the
Chris Clark, capital, November 30, 2005 the
To $26 050 00
balance sheet
balance sheet

43. NetSolutions
Balance Sheet From the
From the
November 30, 2005 statement of
statement of
Assets Liabilities owner’s equity
owner’s equity
Cash $ 5 900 00 Accounts Payable $ 400 00
Supplies 550 00 Owner’s Equity
Land 20 000 00 Chris Clark, cap. 26 050 00
Total liabilities and
Total assets $26 450 00 owner’s equity $26 450 00
This balance sheet presented
using the account form

44. When the balance sheet displays
When the balance sheet displays
the liabilities and owner’s equity
the liabilities and owner’s equity
below the assets, the report form
below the assets, the report form
is being used.
is being used.

45. NetSolutions
Statement of Cash Flows
For the Month Ended November 30, 2005
Cash flows from operating activities:
Cash received from customers $ 7 500 00
Deduct cash payments for expenses
and payments to creditors 4 600 00
Net cash flow from operating activities 2 900 00
Cash flows from investing activities:
Cash payment for acquisition of land (20 000 00 )
Cash flows from financing activities:
Cash received as owner’s investment $25 000 00
Deduct cash withdrawal by owner 2 000 00
Net cash flow from financing activities 23 000 00
Net cashShouldmatch Cash on thecash bal. sheet
Shouldand Nov. 30, 2005 balance sheet
flow match Cash on the balance $ 5 900 00

46. Statement of Cash Flows
Statement of Cash Flows
Cash Flows from Operating Activities—This section
reports a summary of cash receipts and cash payments
from operations.
Cash Flows from Investing Activities—This section
reports the cash transactions for the acquisition and sale
of relatively permanent assets.
Cash Flows from Financing Activities—This section
reports the cash transactions related to cash
investments by the owner, borrowings, and cash
withdrawals by the owner.

47. Tools for Financial
Tools for Financial
Analysis and Interpretation
Analysis and Interpretation
The ratio of liabilities to owner’s equity
The ratio of liabilities to owner’s equity
allows owners like Chris Clark to analyze
allows owners like Chris Clark to analyze
the firm’s ability to withstand poor
the firm’s ability to withstand poor
business conditions.
business conditions.
Ratio of liabilities Total Liabilities
=
to owner’s equity Total owner’s equity (or total
stockholders’ equity)

48. Tools for Financial
Tools for Financial
Analysis and Interpretation
Analysis and Interpretation
Ratio of
$400
liabilities to =
owner’s equity $26,050
Ratio of
liabilities to = 0.015
owner’s equity

49. Chapter 1
The End
The End