CHAPTER 1 T.Haya Alajaji BUSINESS DECISIONS BUSINESS DECISIONS And FINANCIAL ACCOUNTING

CHAPTER 1

T.Haya Alajaji

BUSINESS DECISIONS And FINANCIAL ACCOUNTING ..

1. ACCOUNTING FOR BUSINESS DECISIONS

2. Users of accounting.

3. Generally Accepted Accounting Principles (GAAP).

4. THE BASIC ACCOUNTING EQUATION

5. FINANCIAL STATEMENTS

Objectives:

Objectives

user of accounting

Accounting

Financial Statement

4 Bisic Accounting equationA= L + OE

Form of Business

3

GAAP

kinds of Reports

ACCOUNTING FOR BUSINESS DECISIONS

Accounting (المحاسبة): A system of

(analyze, record, and summarize) the results of a

business’s activities and then reporting the results

to decision makers.

Users of accounting can be divided

into two groups: ( المستخدمون

(للمحاسبة

Internal Users

external users

This information can be presented in two kinds of

reports.

Managerial accounting reports. ( التق5ارير المحاس5بية

(اإلدارية

Include detailed financial plans and continually updated

reports about the operating performance of the

company. These reports are made available only to the

company’s employees (internal users).

1-

Financial accounting reports, called financial statements. (التقارير المالية)2-

Which are prepared periodically to provide information

to people not employed by the business. These

external financial statement users aren’t given

access to detailed internal records of the company.

Creditors and investors are the two primary external

user.

Generally Accepted Accounting Principles

GAAP

( عليها المتعارف المحاسبية ( المبادئ

accounting concept Principles ) المبادئ) 1 -cost

2 -Revenues recognition 3 -Matching

4 -Full Disclosure

Assumptions ) الفروض) 1 -unit of measure

2 -separate Entity 3 -Going Concern

4 -time period

Some of Accounting Concepts GAAP

Assets (األصول) •Assets are resources owned by the business.

1 -Cash 2 -Account

receivable 3 -Note Receivable

4 -Inventory

Cash and other resources that are expected to turn to cash or to be used up within one year of the balance sheet date

1- Current Assets

Type of assets

1- Land.2-Buildings.3-Cars4- Equipment.

A long-term, tangible asset held for business use and not expected to be converted to cash in the current fiscal year

2- Fixes Assets

3- Intangible Assets

LandLand

EquipmentEquipment

BuildingsBuildings

CashCash

Store SuppliesStore

Supplies

Notes Receivable

Notes Receivable

Accounts ReceivableAccounts

Receivable

Resources owned or

controlled by a company

Resources owned or

controlled by a company

AssetsA1

1-14

Liabilities ( االلتزامات – ( الخصوم•The rights of creditors .

Type of Liabilities

1- Long-Term Liabilities Bonds and Long-Term Loans.

2- Short-Term Liabilities

Accounts Payable = is liability created by a purchase on account.

Notes Payable

Accrued Expenses = is expense which has been incurred but not yet paid.

Unearned Revenues. = the customer pays in advance for services that have not

yet been performed by the recipient of the payment

• Liability accounts will normally have credit balances

owner’s Equity ( حقوق. It is the right of the owners •( الملكية

1. Capital .

2. Drawing : account represents the amount of withdrawals

made by the owner.

3. Net Income (Revenues – Expenses)

Owner's equity accounts will normally have credit

balances.

THE BASIC ACCOUNTING EQUATION

Assets=Liabilities + Owner’s Equity

Credit Accounts

If Credit, and if Debit

Debit Accounts

If Debit, and if Credit

AssetsLiabilities +

Equity

Accounting Equation

LiabilitiesLiabilities EquityEquityAssetsAssets = +

A1

1-18

FINANCIAL STATEMENTS

Order Prepare

d

Financial Statemen

t

Description of Statements

1 Income Statement

A summary of the revenue and expenses for a specific period of time, such as a month or a year.

2 Statement of Owner's

Equity

A summary of the changes in the owner's equity that have occurred during a specific period of time, such as a

month or a year.

3 Balance Sheet

A list of the assets, liabilities, and owner's equity as of a specific date, usually at the close of the last day of a

month or a year.

4 Statement of Cash

flows

A summary of cash receipts and cash payments for a specific period of time, such as a month or a year.

NetSolutionsIncome statement

For the Month Ended November 30, 2011

Fees earned.………………………………………………………………………………

  $7,500

Expenses:    

Wages expense.……………………………………………………………………

$2,125  

Rent expense..………………………………………………………………………

800  

Supplies expense.…………………………………………………………………

800  

Utilities expense.…………………………………………………………………

450  

Miscellaneous expense…………………………………………………………

275  

Total expense..………………………………………………………………

  4,450

Net Income..………………………………………………………………………………

$3,050

NetSolutionsStatement of Owner’s Equity

For the Month Ended November 30, 2011

Chris Clark, Capital, November 1, 2011 .………………………………

  $0

Investment on November 1, 2011 .…………………………………………

$25,000  

Net income for November.……………………………….……………………

3,050  

  $28,050  

Less withdrawals.……………………………… .……………………………………

2,000  

Increase in owner’s equity.……………………………… ……………………

  26,050

Chris Clark, Capital, November 30, 2011 ……………………………

  $26,050

NetSolutionsBalance Sheet

November 30, 2011

Assets   Liabilities  

Cash ………………………………

$5,900 Account payable ……………………………………

$400

Supplies ..………………………

550 Owner’s Equity  

Land ………………………………

20,000 Chris Clark, capital ………………………………

26,050

Total assets ..………………

$26,050 Total liabilities and owner’s equity..… 26,050$

Self-Study PracticeIn the space provided, indicate: (1) the type of account (A = asset, L = liability, OE = ownership equity, R = revenue, E = expense), and (2) whether it is reported on the income statement (I/S), statement of cash flows (SCF), or balance sheet (B/S). Account Title Type

Statement1. Land 2. Wages Expense3. Accounts

Receivable4. Rent Revenue5. Contributed

Capital6. Note Payable

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