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8/12/2019 01 Accounting Principles
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01ACCOUNTING
PRINCIPLES
CHE40: Engineering Economy
Engr. Elisa G. Eleazar
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Outline
Accounting Fundamentals
Accounts
Financial Statements
Financial Ratios
2
Accounting
Principles
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Learning Objectives
Identify and classify the different
accounts.
Prepare financial reports.
Calculate financial ratios.
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Accounting
Principles
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Accounting Fundamentals
Accounting Procedure
recording of financial events related to the
investment determination of financial performance
Objectives of Accounting Procedure
to determine the cost of products or services
to provide a rational basis for pricing goods orservices
to provide means for controlling expenditures
to provide information on which operatingdecisions may be based and the results evaluated
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Accounting
Principles
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Accounts
Asset Accounts Liability Accounts Owners Equity
AccountsCash Short-term debt Capital stock
Receivables Payables Retained earnings
Inventories Long-term debt
Equipment
Buildings
Land
SuppliesPrepaid Expenses
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Accounting
Principles
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Accounts
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Accounting
Principles
Assets - things of monetary value that the
organization possessesCurrent Assets assets that may
reasonably be expected to be realizedwithin a year through normal operations
Cash anymedium of
exchange that abank will accept
at face value
AccountsReceivablesclaims against
debtors
Prepaid Expenses supplies on hand
and advancepayments of
expenses
Plant/FixedAssets of
a permanentor relativelyfixed nature
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Liabilities debts owed tooutsiders
Current Liabilitiesdue within a short time
(usually one year)
Long-term / FixedLiabilities not due for acomparatively long time
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Capital ownersequity in the
business
Revenue gross
increase in capitaldue to businessactivities
Expenses costsconsumed in the
process
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Cash Flow Statementshows the cash
transactions of anenterprise for a given
period of time
Income Statementshows the profits or
losses of an enterprisefor a given period of
time
Statement of RetainedEarnings identifieschanges in retainedearnings from one
accounting period to thenext
Balance Sheet showsthe financial position or
condition of anenterprise as of a given
date
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Source/Author: David M. Cottrel
Balance Sheet 12/31/X0
Cash $ 80,000
Other 4,550,000Total $4,630,000
Liabilities $2,970,000Cap. Stock 900,000R/E 760,000Total $4,630,000
Revenues $12,443,000Expenses 11,578,400Net Income $ 864,600
Income Statement
Cash $ 110,000Other 4,975,000Total $5,085,000
Liabilities $2,860,400Stock 1,000,000R/E 1,224,600Total $5,085,000
Cash Flow Statement
Cash--Op. Act. $ 973,000Cash--Inv. Act. (1,188,900)
Cash--Fin. Act. 245,000Net Increase $ 30,000
Beg. Cash 80,000End. Cash $ 110,000
Statement of
Retained Earnings
R/E 12/31/X0 $ 760,000
Net Income 864,600Dividends (400,000)R/E 12/31/X1 $1,224,600
Balance Sheet 12/31/X1
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Presented are the amounts of Servpro Corporations assets andliabilities during the end of the current year, and of its revenuesand expenses for the year ended. Servpro had capital stock of$350,000 and retained earnings of $250,000 at the beginning ofthe current year. During the current year, the corporation paid
cash dividends of $150,000.Accounts Payable $145,000Accounts Receivable 224,200Advertising Expense 57,600Cash 112,900
Insurance Expense 7,500Land 520,000Miscellaneous Expense 31,500Notes Payable 75,000Prepaid Insurance 3,750
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Rent Expense $111,000Salaries Payable 10,000Salary Expense 402,000Sales 1,054,950Supplies 24,150
Supplies Expense 18,350Taxes Expense 105,400Utilities Expense 116,600
Prepare the financial statements for Servpro Corporation.
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Elizabeth Jarme established a sole proprietorship to be known asJarme Decorators, on August 16 of the current year. During theremainder of the month she completed the following businesstransactions.
a) Transferred cash from a personal bank account to anaccount to be used for the business, $30,000
b) Paid rent, $2,250c) Purchased supplies for cash, $1,250d) Purchased office equipment on account, $4,000e) Purchased a used truck for $25,000, paying $10,000 cash
and giving a note payable for the remainderf) Received cash for job completed, $3,375g) Paid wages, $2,000h) Paid premiums on property and casualty insurance, $1,875i) Paid creditor, $4,000
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j) Purchased supplies on account, $475k) Recorded sales on account and sent invoices to
customers, $22,750l) Received an invoice for truck expenses, $675m) Received cash for job completed; this sale had not
been recorded previously, $3,600n) Paid utilities expense, $1,290o) Paid miscellaneous expense, $310p) Received cash from customers on account, $12,500
q) Paid wages, $2,375r) Withdrew cash fro personal use, $5,000
Prepare the financial statements for Jarme Decorators.
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Principles
Young Dry Cleaners is owned and operated by R.C. Young.The actual work of dry cleaning is done by anothercompany at wholesale rates. The assets and liabilities ofthe business on April 1 of the current year are as follows:
Cash $28,000
Accounts receivable $9,000Supplies $2,200Land $75,000
Accounts payable $10,400
Business transactions during April are summarized on thenext slide. Prepare the financial statements for Young DryCleaners.
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a) Paid rent for the month - $7,000b) Received cash from customers for sales - $37,500c) Paid creditors on account - $9,600d) Purchased supplies on account - $1,750e) Charged customers for dry cleaning sales on
account - $18,250f) Received monthly invoice for dry cleaning expense
on account - $19,150g) Received cash from customers on account -
$15,950h) Determined the cost of supplies used - $950i) Paid wages - $9,900; truck expense - $3,350;
utilities - $1,750; miscellaneous expense - $1,900
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Presented below are the amounts (in $) of LaneCorporations assets and liabilities on January 31, 2009.
Lane Corporation had a retained earnings of $150,000 atthe beginning of the cycle.
Accounts Payable 12,050Accounts Receivable 194,850Cash 104,200Supplies 12,250
Land 375,000Prepaid Insurance 14,500Notes Payable 50,000
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Business transactions from February 1, 2009 to January 31,2010 are summarized below:a. Paid advertising expenses on account 36,250b. Received cash from customers 972,250c. Paid creditors (operational) 6,050
d. Charged customers for service on account 98,500e. Paid cash for miscellaneous expenses 24,800f. Received cash from customers account 94,850g. Paid the following expenses
i. Salary 401,000
ii. Rent 14,500iii. Taxes 12,300iv. Utilities 56,200
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h. Determined cost of supplies used 8,400i. Paid notes (investment) 50,000
j. Insurance that Expired 6,500k. Paid dividends 200,000
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Financial Ratios
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Accounting
Principles
Ratio Interpretation Calculation
LiquidityRatios
ability to meetcurrentobligations
ability to meetcurrentobligations usingreadilyconvertibleassets
sliabilitiecurrentassetscurrentRatioCurrent
sliabilitiecurrent
assetsquick
RatioTestAcid
sinventorieassetscurrentassetsquick *
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Financial Ratios
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Principles
Ratio Interpretation Calculation
Solvency /LeverageRatios
ability to meetlong runobligations; howthe organizationis financed and
the associatedrisk
EquitiesTotal
sLiabilitieTotalRatioEquitytoDebt
AssetsTotal
sLiabilitieTotalRatioAssetstoDebt
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Financial Ratios
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Accounting
Principles
Ratio Interpretation Calculation
AssetManagement /
ActivityRatio
efficiency inusing assets togeneraterevenues
AssetsTotal
SalesRatioTurnoverAssets
AssetsTotal
EquityTotalRatioEquity
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Financial Ratios
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Accounting
Principles
Ratio Interpretation Calculation
ProfitabilityRatios
rate of profitsalesincomenetSalesonturn Re
equitytotal
incomenet
Equityonturn Re
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Outline
Accounting Fundamentals
Accounts
Financial Statements
Financial Ratios
24
Accounting
Principles
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References
Sullivan, W., Wicks, E. and Luxhoj, J.,Engineering Economy, 12th ed, USA:
Pearson Education, Inc., 2003
Blank, L. and Tarquin, A., Engineering
Economy, 4th ed, Singapore: McGraw-Hill Book Co, 1998
Eschenbach, T., Engineering EconomyApplying Theory to Practice, USA: 1995
25
CostCo
nceptsandDesignE
conomics
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Outline
Accounting Fundamentals
Accounts
Financial Statements
Financial Ratios
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Accounting
Principles
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ACCOUNTING
PRINCIPLES
CHE40: Engineering Economy
Engr. Elisa G. Eleazar