Post on 20-Dec-2015
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Chapter 1 Chapter 1 Business: What’s It All About?Business: What’s It All About?
Part 1
Chapter 1:Business:
What’s it allabout?
Chapter 2: Qualitiesof FinancialInformation
Chapter 3: Timingis Everything:Accruals and
Deferrals
Chapters 4:Keeping theBooks: The
Mechanics ofan Accounting
System
Chapter 5:BusinessRisks andControls
The Business Cycle:Basic Business Processes
Chapter 8:Sales/Collection:Cash, Accounts
Receivable
Chapters 9 & 10:Obtain Financing:Debt and Equity
Chapter 6:Acquisition/Payment:
PPEReturn
toOwners Chapter 7:
Acquisition/Payment:
Inventory andHuman Resources
Chapter 11:Statement ofCash Flows
The cycle startshere…
Fundamental Financial Accounting:A Business Process Approach
…but we’ll start thecycle here and finishup with financing.
Chapter 1:Business:
What’s it allabout?
Chapter 2: Qualitiesof FinancialInformation
Chapter 3: Timingis Everything:Accruals and
Deferrals
Chapters 4:Keeping theBooks: The
Mechanics ofan Accounting
System
Chapter 5:BusinessRisks andControls
The Business Cycle:Basic Business Processes
Chapter 8:Sales/Collection:Cash, Accounts
Receivable
Chapters 9 & 10:Obtain Financing:Debt and Equity
Chapter 6:Acquisition/Payment:
PPEReturn
toOwners Chapter 7:
Acquisition/Payment:
Inventory andHuman ResourcesChapter 11:
Statement ofCash Flows
The cycle startshere…
Fundamental Financial Accounting:A Business Process Approach
…but we’ll start thecycle here and finishup with financing.
Purpose of a BusinessPurpose of a Business
ADD VALUE Make a PROFIT
A Simple Model of a BusinessA Simple Model of a Business
“The Firm”
INPUTS OUTPUTS
Acquisition/Payment Cycle Sales/Collection Cycle
Value-added
conversion
A Simple Model of a BusinessA Simple Model of a Business
“The Firm”
INPUTS OUTPUTS
Capital (financing)Property, Plant, EquipmentRaw MaterialsLaborInventoryGoods & Services
Acquisition/Payment Cycle Sales/Collection Cycle
Value-added
conversion
A Simple Model of a BusinessA Simple Model of a Business
“The Firm”
INPUTS OUTPUTS
Capital (financing)Property, Plant, EquipmentRaw Materials Delivery of product orLabor serviceInventoryGoods & Services
Acquisition/Payment Cycle Sales/Collection Cycle
Value-added
conversion
What are business processes ?What are business processes ?
A series of activities that a company performs to achieve its goals.
What are business processes?What are business processes?
A series of activities that a company performs to achieve its goals.
ACQUISITION / PAYMENT: acquire, maintain, and pay for the resources needed by the organization.
What are business processes? What are business processes?
A series of activities that a company performs to achieve its goals.
CONVERSION: covert the resources acquired into goods and services.
What are business processes? What are business processes?
A series of activities that a company performs to achieve its goals.
SALES / COLLECTIONS: sell and deliver goods and services to customers and to collect payment.
Types of BusinessesTypes of Businesses
Service company-- provides a service for customers Special case: financial services--
Sales Company-- Merchandising--buys goods and resells
them to other businesses (wholesale) or to final customers (retail)
Types of BusinessesTypes of Businesses
Service company-- provides a service for customers Special case: financial services--
Sales Company-- Merchandising--buys goods and resells
them to other businesses (wholesale) or to final customers (retail)
Manufacturing--makes a product and sells it
Examples:Examples: Service
accountants, attorneys, physicians Financial Service
Citicorp, Merrill Lynch, American Express
Merchandising Wal-Mart, Safeway, The Gap
Manufacturing General Motors, 3M, Reynolds Metals
[Obviously, some businesses provide more than one of the functions listed above]
Ownership Structure of BusinessesOwnership Structure of Businesses
Sole Proprietorship--a single owner business
Partnership--a multiple-owner business Corporation--a business whose
ownership is divided into "shares" and may be owned by a large number of people
CorporationsCorporations
A corporation is a popular form of business because . . .
CorporationsCorporations
A corporation is a popular form of business because . . . It is simple for individuals to purchase
small amounts of stock.
CorporationsCorporations
A corporation is a popular form of business because . . . It is simple for individuals to purchase
small amounts of stock. It allows for an easy transfer of
ownership through established markets, like the New York Stock Exchange.
CorporationsCorporations
A corporation is a popular form of business because . . . It is simple for individuals to purchase small
amounts of stock. It allows for an easy transfer of ownership
through established markets, like the New York Stock Exchange.
It provides stockholders with limited liability.
CorporationsCorporations
Because a corporation is a separate legal entity, it can . . .
CorporationsCorporations
Because a corporation is a separate legal entity, it can . . . Own assets.
CorporationsCorporations
Because a corporation is a separate legal entity, it can . . . Own assets. Incur liabilities.
CorporationsCorporations
Because a corporation is a separate legal entity, it can . . . Own assets. Incur liabilities. Sue and be sued.
CorporationsCorporations
Because a corporation is a separate legal entity, it can . . . Own assets. Incur liabilities. Sue and be sued. Enter into contracts independent of the
stockholder owners.
CorporationsCorporations
Because a corporation is a separate legal entity, it can . . . Own assets. Incur liabilities. Sue and be sued. Enter into contracts independent of the
stockholder owners.
Many Americans own stock through a mutual fund or pension program.
Issues in deciding between sole proprietorship, partnership, or corporation
Personal liability Taxation Transfer of ownership Ability to raise capital Government regulation
Characteristics of Different Forms Characteristics of Different Forms of Business Organizationof Business Organization
Ownership of a CorporationOwnership of a Corporation
Owners of common stock generally receive the following rights:
Ownership of a CorporationOwnership of a Corporation
Owners of common stock generally receive the following rights: Voting (in person or by proxy).
Ownership of a CorporationOwnership of a Corporation
Owners of common stock generally receive the following rights: Voting (in person or by proxy). Distributions of profits.
Ownership of a CorporationOwnership of a Corporation
Owners of common stock generally receive the following rights: Voting (in person or by proxy). Distributions of profits. Distributions of assets in a liquidation.
Ownership of a CorporationOwnership of a Corporation
Owners of common stock generally receive the following rights: Voting (in person or by proxy). Distributions of profits. Distributions of assets in a liquidation. Offers to purchase shares of a new stock
issue (pro rata basis).
Creating a CorporationCreating a Corporation
State laws govern the creation of corporations.
An application for a charter (or articles of incorporation) must include the corporation’s name and purpose, kinds and amounts of capital stock authorized, and other detailed information.
Creating a CorporationCreating a Corporation
Once the state issues a charter, the stockholders elect a board of directors.
What do all businesses have in What do all businesses have in common?common?
No matter what the ownership structure of a business, they all have at least two main business processes:
What do all businesses have in What do all businesses have in common?common?
No matter what the ownership structure of a business, they all have at least two main business processes:
Acquisition/Payment Sales/Collection
Acquisition/payment processAcquisition/payment processActivityActivity Possible Documents Possible Documents
Identify need for goods/ services
Purchase requisition
Acquisition/payment processAcquisition/payment processActivityActivity Possible Documents Possible Documents
Identify need for goods/ services
Identify vendor
Purchase requisition
Purchase orderOrder goods/ services
Acquisition/payment processAcquisition/payment processActivityActivity Possible Documents Possible Documents
Identify need for goods/ services
Identify vendor
Order goods/ services
Receive and inspect goods
Purchase requisition
Purchase order
Receiving report
Acquisition/payment processAcquisition/payment processActivityActivity Possible Documents Possible Documents
Identify need for goods/ services
Identify vendor
Order goods/ services
Receive and inspect goods
Pay for goods or services
Purchase requisition
Purchase order
Receiving report
Check requisition Check
Sales/collection processSales/collection process
Customer places an order (Customer order)
Sales/collection processSales/collection process
Customer places an order (Customer order)
Customer’s credit is approved
Sales/collection processSales/collection process
Customer places an order (Customer order)
Customer’s credit is approved Warehouse selects goods for shipment
(Picking slip)
Sales/collection processSales/collection process
Customer places an order (Customer order)
Customer’s credit is approved Warehouse selects goods for shipment
(Picking slip) Goods are shipped (Packing slip)
(Shipping notice)
Sales/collection processSales/collection process
Customer places an order (Customer order)
Customer’s credit is approved Warehouse selects goods for shipment
(Picking slip) Goods are shipped (Packing slip)
(Shipping notice) Customer is billed for goods (Invoice)
Sales/collection processSales/collection process
Customer places an order(Customer order)
Customer’s credit is approved Warehouse selects goods for shipment
(Picking slip) Goods are shipped (Packing slip) (Shipping
notice) Customer is billed for goods (Invoice) Payment for goods is received(Check)
Business TransactionsBusiness Transactions
Business transactions are exchanges. The two transactions that make up an
“exchange” are the GIVE part and the GET part.
The exchange occurs between the business entity and a person or business external to the entity.
The business gives something and then gets something in return.
Resources, Events, and AgentsResources, Events, and Agents
We can model an exchange with these three components: the resources are the things being exchanged
(goods or services for money) the event describes the business action (e.g. cash
disbursement, sale, etc.) the agents are the people involved in the
exchange (e.g., the customer)
An example: a business sells an An example: a business sells an alarm clock for a cash:alarm clock for a cash:
Resources Events Agents
An example: a business sells an An example: a business sells an alarm clock for a cash:alarm clock for a cash:
Resources Events Agents
Sale
An example: a business sells an An example: a business sells an alarm clock for a cash:alarm clock for a cash:
Resources Events Agents
Sale
clock
An example: a business sells an An example: a business sells an alarm clock for a cash:alarm clock for a cash:
Resources Events Agents
Sale
clock
salesperson
customer
An example: a business sells an An example: a business sells an alarm clock for a cash:alarm clock for a cash:
Resources Events Agents
Sale
clock
salesperson
customer
Cash
collection
An example: a business sells an An example: a business sells an alarm clock for a cash:alarm clock for a cash:
Resources Events Agents
Sale
clock
salesperson
customer
Cash
collectioncash
An example: a business sells an An example: a business sells an alarm clock for a cash:alarm clock for a cash:
Resources Events Agents
Sale
clock
salesperson
customer
Cash
collectioncash
customer
An example: a business sells an An example: a business sells an alarm clock for a cash:alarm clock for a cash:
Resources Events Agents
Sale
clock
salesperson
customer
Cash
collectioncash
customer
cashier
Who needs accounting information?Who needs accounting information?
A) Management
Who needs accounting information?Who needs accounting information?
A) Management
B) Those with a direct financial interest Present or potential investors
Present or potential creditors
Who needs accounting information?Who needs accounting information?
C)Those with an indirect financial interest Tax Authorities Regulatory Agencies Economic Planners Labor unions, financial advisors, others.
Who needs accounting information?Who needs accounting information?
C)Those with an indirect financial interest Tax Authorities Regulatory Agencies Economic Planners Labor unions, financial advisors, others.
D) Employees
Financial Accounting InformationFinancial Accounting Information
Information related to:
Sales the company’s information system
Financial Accounting InformationFinancial Accounting Information
Information related to:
Sales
Purchases
the company’s information system
Financial Accounting InformationFinancial Accounting Information
Information related to:
Sales
Purchases
Collections
the company’s information system
Financial Accounting InformationFinancial Accounting Information
Information related to:
Sales
Purchases
Collections
Payments
the company’s information system
Financial Accounting InformationFinancial Accounting Information
Information related to:
Sales
Purchases
Collections
Payments
the company’s information system
Various views of the data:
Financial Accounting InformationFinancial Accounting Information
Information related to:
Sales
Purchases
Collections
Payments
the company’s information system
Various views of the data:
Financial data for external
reports
Financial Accounting InformationFinancial Accounting Information
Information related to:
Sales
Purchases
Collections
Payments
the company’s information system
Various views of the data:
Financial data for external
reports
Production information
Financial Accounting InformationFinancial Accounting Information
Information related to:
Sales
Purchases
Collections
Payments
the company’s information system
Various views of the data:
Financial data for external
reports
Production information
Customer and vendor information