Concepts Chapter 2 Learning Objectives After studying this chapter you should be able to Describe the basic elements of a financial accounting system Analyze record and summarize transactions for a corporations first period of operations ID: 573403
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Slide1
Basic AccountingConcepts
Chapter 2Slide2
Learning Objectives
After studying this chapter, you should be able to:
Describe the basic elements of a financial accounting system
Analyze, record, and summarize transactions for a corporation’s first period of operations
Prepare financial statements for a corporation’s first period of operations
Analyze, record, and summarize transactions for a corporation’s second period of operations
Prepare financial statements for a corporation’s second period of operations
Financial Analysis: Describe and illustrate
the use
of common-sized income statements
in assessing
a company’s financial
performanceSlide3
Describe the basic elements of a financial accounting system
Learning Objective 1Slide4
Basic Elements of a Financial Accounting System
The three elements of financial accounting system are:
________
to record each economic event
________
to prepare the financial statements
________
to detect the errors in the recording processSlide5
Rules of an Accounting System
Rules determine:
A
_________ is
an economic event that can affect one, two or more items in the financial statements
WHAT
transactions
are to be
recorded
WHEN
transactions
are to be
recorded
HOWtransactions are to be recorded
AMOUNT
of the
transaction
to be
recordedSlide6
Framework of an Accounting System
Accounting Equation:
__________
=
_____________
+
__________Slide7
Integrated Financial Statement Framework: Template
By expanding the accounting equation, transactions can be analyzed, summarized, and recorded within the integrated financial statement framework
Impact of
transaction on ______
Impact of
transaction on ______Slide8
Controls of an Accounting System
THE ACCOUNTING EQUATION
MUST
BALANCE
Ending Cash on
Statement of Cash Flows
=
Cash
on
_________________
Net Income on
Income Statement =
Net Effects of ___________/___________on ___________ ____________Slide9
Analyze, record, and summarize transactions for a corporation’s first period of operations
Learning Objective 2Slide10
Integrated Financial Statement Framework: Starting Family Health Care, P.C.
Dr. Landry deposits $6,000 in a bank account in the name of Family Health Care, P.C., in return for shares of stock in the corporationSlide11
Integrated Financial Statement Framework: Borrowing Money
Family Health Care, P.C. borrows $10,000 from First National Bank
finance its operationsSlide12
Integrated Financial Statement Framework: Buying Land
Family Health Care buys land for $12,000 cashSlide13
Integrated Financial Statement Framework: Earning of Fees
During the first month of operations, Family Health Care earned patient fees of $5,500, receiving the fees in cashSlide14
Integrated Financial Statement Framework: Paying of Expenses
Family Health Care paid expenses during September as follows: wages, $1,125; rent, $950; utilities, $450; interest, $100; and miscellaneous, $275Slide15
Integrated Financial Statement Framework: Paying of Dividends
Family Health Care paid $1,500 to stockholders (Dr. Lee Landry) as dividendsSlide16
Integrated Financial Statements: Family Health Care, P.C.Slide17
Observations from Family Health That Apply to All CompaniesSlide18
Prepare financial statements for a corporation’s first period of operations
Learning Objective 3Slide19
Preparation of Financial Statements
This exhibit lists Family Health’s transactions in the order they occurred; it does not group and summarize like transactions together
Income Statement
components
Balance Sheet
components
Statement of Cash Flow
componentsSlide20
Income StatementSlide21
Retained Earnings StatementSlide22
Balance SheetSlide23
Statement of Cash FlowsSlide24
Integrated Financial StatementsSlide25
Analyze, record, and summarize transactions for a corporation's second period of operations
Learning Objective 4Slide26
Summary of October TransactionsSlide27
Prepare financial statements for a corporation’s second period of operations
Learning Objective 5Slide28
Summary of October TransactionsSlide29
Income StatementSlide30
Retained Earnings StatementSlide31
Balance SheetSlide32
Statement of Cash FlowsSlide33
Integrated Financial Statements
for OctoberSlide34
Financial Analysis: Describe an illustrate the use of common-sized income statements in assessing a company’s financial performance
Learning Objective 6Slide35
Common-Sized Income Statements
Common-sized financial statements:
prepared by expressing financial statement amounts as a percent of a base amount
__________________________:
expresses income statement amounts as a percent of sales
__________________________:
expresses each asset as a percent of
total assetsSlide36
Common-Sized Income Statements
Data (in millions) adapted from recent financial statements of The Kroger Co.Slide37
Common-Sized Income Statements
Year 2
Year 1
Sales
Cost of sales
Gross profit
Operating expenses:
Selling and administrative
Total operating expenses
Other expenses
Operating income
Other income (expense)
Interest expenseTax expense
Other income (expense)Net income100.0%
100.0%
90,374
(71,494)
18,880
(15,345)
(2,257)
(17,602)
1,278
(435)
(247)
6
602
(79.1)
20.9
(17.0)
(2.5)
(19.5)
1.4
(0.5)
(0.2)
0.0
0.7
(77.8)
22.2
(16.9)
(2.7)
(19.6)
2.6
(0.7)
(0.5)
(0.0)
1.4
82,049
(63,803)
18,246
(13,823)
(2,241)
(16,064)
2,182
(601)
(448)
(17)
1,116
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Data (in millions) adapted from recent financial statements of The Kroger Co.Slide38
End of Chapter 2