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Chapter 1
Accounting Concepts and
Procedures
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Learning Objective 1
Defining and listing the functions of
accounting
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Accounting
Language of business
 Provides information to…

◦
◦
◦
◦
Managers
Owners
Investors
Governmental agencies
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Business Organizations
Sole proprietorship – one owner
 Partnership – at least two owners
 Corporation – owned by stockholders

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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Business Classifications
Service - businesses where actual services
are provided for clients, i.e. consulting
firms
 Merchandising - businesses that either
make their own products or sell products
made by another supplier, i.e. J.C. Penney
 Manufacturing - Companies that make
their own products, i.e. Ford Motor Co.

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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Accounting is a process
Analyze
Record
Classify
Interpret
Report
Summarize
Communicate
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
GAAP
Generally Accepted Accounting Principles –
Procedures and guidelines that must be
followed during the accounting process
 Used to ensure everyone prepares and
interprets financial reports the same way
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
The Capital Account
Capital - the owner’s investment in a
company
 Does not always mean cash
 Includes any assets the owner has put
into the business

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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Assets
Assets - properties of value owned by the
business
 Examples include cash, supplies, accounts
receivable, equipment
 Often assets are financed

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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Liabilities
Liabilities - Obligations that come due in
the future.
 Result in increasing the financial rights or
claims of creditors to assets.
 Examples include accounts payable
 Companies that are owed money are
called creditors. They have a claim to
assets.

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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Learning Objective 2
Recording transactions in the basic
accounting equation
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Accounting Equation
Assets = Equities
Properties (resources)
of value owned by a firm
Financial claims
against the assets
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Accounting Equation
Assets = Liabilities + Owner’s Equity
Rights of creditors
Rights of owner
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Accounting Equation
3 ways the accounting equation can be
stated are as follows:
 Assets = Liabilities + Owner’s Equity
 Assets – Liabilities = Owner’s Equity
 Assets – Owner’s Equity = Liabilities
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Shift in Assets
Indicates that the make-up of assets has
changed, but the total of assets remains
the same.
 Example: If a company buys a piece of
equipment with cash, equipment would
increase and cash would decrease.
 The total of assets would not change

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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Exercise 1-1
= Liabilities +
Owner’s
Equity
a. $19,000 =
$15,000
?
+
$4,000
b. $15,000
?
=
$6,000
+
$9,000
c. $10,000 =
$4,000
+
Assets
$6,000
?
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Exercise 1-2
Assets
= Liabilities + Owner’s Equity
a. +$120,000 =
b.
c.
+
-
$600 =
$600
+
$900 =
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
+
+$120,000
Equipment
+
Cash
+$900
+
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Balance Sheet
Reports financial position of a company as
of a particular date
 Presents ending balances in assets,
liabilities, and owner’s equity
 Assets must be equivalent to the sum of
liabilities and owner’s capital account
balance

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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Exercise 1-3
Range Co. Cleaners
Balance Sheet
November 30, 200X
Assets
Liabilities & Owner’s
Equity
Cash
$50,000
Liabilities
Equipment
7,000
Accounts payable $14,000
Assets - Liabilities =
Owner’s Equity
Owner’s Equity
43,000
B. Range, capital
$57,000 - $14,000 = ??
Total liabilities &
owner’s equity
Total Assets
$57,000
$57,000
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Learning Objective 3
Seeing how revenue, expenses, and
withdrawals expand the basic accounting
equation
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Revenue
Amount earned by performing services
for customers or selling goods to
customers
 Increases owner’s equity
 Recorded when earned

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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Expense
Cost incurred in running a business by
consuming goods or services in producing
revenue
 Decreases owner’s equity
 Recorded when incurred

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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Net Income/Net Loss
Revenues – Expenses
 If revenues > expenses = net income
 If expenses > revenues = net loss
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Withdrawals
Money or other assets an owner
withdraws from a business for personal
use
 Decreases owner’s equity
 Not an expense

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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Expanded Accounting Equation
Assets
Cash
•
•
•
Liabilities
Owner's Equity
Accounts Computer Accounts
B. Bell,
B. Bell,
+
Rec.
+ Equip. = Payable + Capital W/D
+ Revenue - Expense
The expanded accounting equation lists the individual
accounts that fall under each classification.
All assets are added together.
Liabilities + Owner’s Equity is expanded to Liabilities +
Capital – Withdrawals + Revenue - Expenses
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Exercise 1-4
Assets
Liabilities
Accounts Computer Accounts
B. Bell,
Cash +
Rec.
+ Equip. = Payable + Capital a. $60,000
$60,000
b.
$7,000
$7,000
$60,000
$7,000
$7,000
$60,000
Assets = $67,000
Owner's Equity
B. Bell,
W/D
+ Revenue - Expense
Equities = $67,000
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Exercise 1-4
Cash
+
Assets
Accounts
Rec.
Computer
+
Equip.
Liabilities
Accounts
= Payable +
$7,000
$7,000
$60,000
c. - $200
$59,800
d. $14,000
$73,800
$7,000
$7,000
Assets = $80,800
$7,000
$7,000
Owner's Equity
B. Bell,
Capital
- B. Bell, W/D + Revenue
-
Expense
$60,000
$60,000
$60,000
-$200
- $200
- $200
$14,000
$14,000
Equities = $80,800
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Exercise 1-4
Cash
Liabilities
Assets
Accounts
Computer
Accounts
B. Bell,
Rec.
+
+ Equip. = Payable + Capital
$73,800
e.
$7,000
$60,000
- B. Bell, W/D + Revenue - Expense
- $200
$30,000
$73,800
f.
$7,000
Owner's Equity
$30,000
$14,000
$30,000
$7,000
$7,000
$60,000
- $200
$44,000
-$4,000
$69,800
-$ 4,000
$30,000
$7,000
Assets = $106,800
$7,000
$60,000
- $200
$44,000
-$4,000
Equities = $106,800
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Exercise 1-4
Assets
Liabilities
Accounts Computer Accounts
B. Bell,
Cash +
Rec.
+ Equip. = Payable + Capital
$69,800
$30,000
$7,000
$7,000
$60,000
g. - 1,500
$68,300
$30,000
$7,000
$7,000
$60,000
Assets = $105,300
Owner's Equity
B. Bell,
W/D
+ Revenue - Expense
-$200
$44,000 - $4,000
- 1,500
-$200
$44,000
- $5,500
Equities = $105,300
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Withdrawals

Let’s assume the owner withdrew $100
for personal use.
Assets
Liabilities
Owner's Equity
Accounts Computer Accounts B. Bell,
B. Bell,
Cash + Rec. + Equip. = Payable + Capital - W/D + Revenue - Expense
$68,300
$30,000
$7,000
$7,000
$60,000
-$ 100
$68,200
$44,000
- $5,500
$44,000
- $5,500
-$100
$30,000
$7,000
$7,000
$60,000
-$300
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Learning Objective 4
Preparing an income statement, a statement
of owner’s equity, and a balance sheet
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Financial Statements
Financial Statements MUST be done in the
correct order
1. Income Statement
2. Statement of Owner’s Equity
3. Balance Sheet
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Income Statement

Shows business results
◦ Revenues
◦ Expenses
◦ Net income/loss

Covers a certain period of time
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Statement of Owner’s Equity
Reports changes to owner’s equity for a
certain period of time
 Beginning capital balance
+Owner investment
+Net Income
-Owner withdrawals
-Net loss
.
Ending capital balance

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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Exercise 1-5
French Realty
Income Statement
For Month Ended June 30, 200X
Revenue
Professional fees
Operating Expenses:
Salaries Expense
Utilities Expense
Rent Expense
Total Operating Expenses
Net Income
$2,900
$500
360
500
1,360
$1,540
Net Income
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Exercise 1-5
French Realty
Statement of Owner’s Equity
For Month Ended June 30, 200X
S. French, Capital, June 1, 200X
$8,000
Net Income for June
$1,540
Less Withdrawals for June
40
Increase in Capital
1,500
S. French, Capital, June 30, 200X
$9,500
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
Exercise 1-5
French Realty
Balance Sheet
June 30, 200X
Assets
Cash
Accounts Receivable
Office Equipment
Total Assets
$3,310
1,490
6,700
$11,500
Liabilities & Owner’s Equity
Liabilities
Accounts Payable
$2,000
Owner’s Equity
S. French, Capital
9,500
Total Liabilities &
Owners’ Equity
$11,500
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
What Goes on Each Statement?
Income Statement
Statement of
Owner’s Equity
Revenues
Capital (beg)
Net Income
Assets
Withdrawals
Liabilities
Capital (end)
Capital (end)
Expenses
Net Income
Balance Sheet
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© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater
End of Chapter 1
© 2010 Prentice Hall Business
Publishing, College Accounting: A
Practical Approach, 11e by Slater