Accounting Process - Intermediate Accounting - Lecture Slides, Slides of Accounting

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The Accounting

Process

Learning Objectives

1. Analyze transactions based

upon the accounting equation

Accounting Equation

Assets = Liabilities + Equity

Assets

Have value

Will generate future

cash flows

Accounting Equation

Assets = Liabilities + Equity

Assets

Factory building Equipment

Accounts receivable

Accounting Equation

Assets = Liabilities + Equity

Liabilities

Accounts Payable Salaries Payable

Bonds Payable

Accounting Equation

Assets = Liabilities + Equity

Equity

Owner Claim to Assets

Assets - Liabilities

Transactions & Events

• Affect Balance Sheet only
• Affect Balance Sheet & Earnings

Transactions affecting the balance sheet

• Investments by owners
• Distributions to owners
• Use assets to acquire other assets
• Use assets to extinguish debt
• Acquire assets by incurring debt

Effect on Accounting Equation

Assets = Liabilities + Equity

Car $22,000 Note $17,

Cash ( 5,000)

Assets $17,000 = Liab $17,

Transactions affecting Earnings

• Earnings = Change in net assets, excluding investments by and distributions to owners
• Equity = Net assets
• Earnings increase equity
• Earnings = Revenues - Expenses + Gains - Losses
• Earnings increase equity through revenues, expenses, gains & losses

Financial Statements

1. Income statement
2. Statement of changes in

shareholders’ equity

3. Balance sheet
4. Statement of cash flows

Income Statement Elements

 Revenues

 Expenses

 Gains

 Losses

For the accounting

} period

Balance Sheet Elements

 Assets

 Liabilities

 Equity

At the end of the accounting

} period

Statement of cash flows

 Investing activities

 Financing activities

 Operating activities

For the accounting

}^ period