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Financial Accounting 1
Lecture 02: Financial Statements &
Accounting Transactions
Masud Jahan
Department of Science and Humanities
Military Institute of Science and Technology
Financial Statements
Transactions
identifying, measuring,
recording, possessing and
communicates
Financial
Statements
An entitys financial statements are the
end product of a process that starts with
transactions between the entity and
other organizations and individuals.
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Previewing Financial Statements
Income
Statement
Statement
of Ending
Beginning
Cash Flows Balance
Balance
Sheet Sheet
Statement
of Changes
in Owners
Equity
LO1
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A Starting Point: Balance Sheet
ABC COMPANY
Balance Sheet
December 31, 2009
Assets Liabilities & Owners' Equity
Cash $ 22,500 Liabilities:
Notes receivable 10,000 Notes payable $ 41,000
Accounts receivable 60,500 Accounts payable 36,000
Supplies 2,000 Salaries payable 3,000
Land 100,000 Total liabilities $ 80,000
Building 90,000 Owners' Equity:
Office equipment 15,000 Capital stock 150,000
Retained earnings 70,000
Total Assets $ 300,000 Total Liab. & O/Equity $ 300,000
ABC COMPANY
Balance Sheet
December 31, 2009
Assets Liabilities & Owners' Equity
Cash Assets are
$ 22,500 Liabilities:
Notes receivable
Accounts receivable
10,000
60,500
economic resources
Notes payable
Accounts payable
$ 41,000
36,000
Supplies 2,000 that are owned or
Salaries payable 3,000
Land 100,000 Total liabilities $ 80,000
Building
controlled by the
90,000 Owners' Equity:
Office equipment 15,000 business and are
Capital stock 150,000
Retained earnings 70,000
Total
expected to benefit
$ 300,000 Total $ 300,000
future operations.
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Liabilities
ABC COMPANY
Balance Sheet
December 31, 2009
Assets Liabilities & Owners' Equity
Liabilities are
Cash $ 22,500 Liabilities:
Notes receivable 10,000 Notes payable $ 41,000
debts owed to
Accounts receivable 60,500 Accounts payable 36,000
creditors that
Supplies 2,000 Salaries payable 3,000
Land 100,000 Total liabilities $ 80,000
represent negative
Building 90,000 Owners' Equity:
Office equipment 15,000 Capital stock 150,000
future cash flows Retained earnings 70,000
for the business.
Total $ 300,000 Total $ 300,000
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Owners Equity
ABC COMPANY
Balance Sheet
December 31, 2009
Assets Liabilities & Owners' Equity
Owners equity
Cash $ 22,500 Liabilities:
represents the
Notes receivable 10,000 Notes payable $ 41,000
Accounts receivable 60,500 Accounts payable 36,000
owners claims on
Supplies 2,000 Salaries payable 3,000
the assets of the
Land 100,000 Total liabilities $ 80,000
Building 90,000 Owners' Equity:
business.
Office equipment 15,000 Capital stock 150,000
Retained earnings 70,000
Total $ 300,000 Total $ 300,000
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Income Statement
An income statement presents revenues and expenses
and resulting net income or loss for a period of time.
Revenues are inflows
of assets resulting ABC COMPANY
from the sale of Income Statement
products or the For Year ended Dec 31, 2009
rendering of services
to customers. Revenues $ 95,000.0
Expenses (70,000.0)
Net income $ 25,000.0
Expenses are the
costs of assets and
services used up in Revenues > Expenses
the process of earning Net Income
revenue. Revenues < Expenses
Net Loss
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Statement of Changes in Owners Equity
ABC COMPANY
Statement of Changes in Owners' Equity
For Year ended Dec 31, 2009
Equity, Jan 1, 2009 $210,000.0
Add: Net Income 25,000.0
Less: Withdrawals (Dividends) (15,000.0)
Equity, Dec 31, 2009 $220,000.0
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Owners Equity
Changes in Owners
Equity
Owners Withdrawals
Investments by Owners
Net Income Net Loss
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Learning Objective
To analysis business
transactions
LO2
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Basic Accounting Equation
Assets = Claims
Claims are divided into two categories:
Creditors' claims that are called liabilities
Owners' claims that are called equity
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The Expressions
The accounting equation can be expressed
in 3 ways:
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Owners Equity
Effects of Revenues/Expenses on
Owners Equity
Revenues Expenses
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Expansion of Basic Equation
Owners Owners
Capital + Revenues Expenses Withdrawals
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Expanded Accounting Equation
Basic:
Assets = Liabilities + Owner's Equity
Expanded:
Assets = Liabilities + (Owner's Capital
+ Revenues Expenses Drawings)
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What is a business transaction?
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Effects of Business Transactions
Business transactions result in changes to
the three elements of the basic accounting
equation in either of 3 ways.
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Effects of Business Transactions
Business transactions result in changes to
the three elements of the basic accounting
equation in either of 3 ways.
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Effects of Business Transactions
Business transactions result in changes to
the three elements of the basic accounting
equation in either of 3 ways.
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Transaction Analysis
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Transaction Analysis
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Transaction Analysis
(1) Owners of Techno Consultants contributed
$20,000 cash to start the business.
$ 20,000 $ - $ - $ - $ - $ - $ 20,000
$ 20,000 = $ 20,000
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Transaction Analysis
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Transaction Analysis
(2) Purchased supplies paying $1,000 cash.
$ 20,000 = $ 20,000
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Transaction Analysis
Purchased equipment for $15,000 cash.
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Transaction Analysis
(3) Purchased equipment for $15,000 cash.
$ 20,000 = $ 20,000
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Transaction Analysis
Purchased supplies of $200 and
equipment of $1,000 on account.
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Transaction Analysis
(4) Purchased supplies of $200 and equipment
of $1,000 on account.
$ 21,200 = $ 21,200
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Transaction Analysis
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Transaction Analysis
$ 24,200 = $ 24,200
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Transaction Analysis
Paid salaries to employees, $800 cash.
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Transaction Analysis
(6) Paid salaries to employees, $800 cash.
$ 23,400 = $ 23,400
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Transaction Analysis
Borrowed $4,000 from bank.
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Transaction Analysis
(7) Borrowed $4,000 from bank.
$ 27,400 = $ 27,400
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Transaction Analysis
Rendered consulting services of $2,000 on
account.
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Transaction Analysis
(8) Rendered consulting services of $2,000
on account.
$ 29,400 = $ 29,400
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Transaction Analysis
Received telephone bill of $200.
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Transaction Analysis
(9) Received telephone bill of $200.
$ 29,400 = $ 29,400
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End of Lecture 02
Thank you all