After you have mastered the material in this chapter, you will be able to: Explain the role of accounting in society; construct an accounting equation using elements of financial statement terminology; record business events in general ledger accounts organized under an accounting equation; classify business events as asset source, use, or exchange transactions; use general ledger account information to prepare four financial statements; record business events using a horizontal financial statements model. | Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education. 1 Role of Accounting in Society Accounting provides information that is useful in answering questions about resource allocation. Should I invest money in IBM or General Motors? 1-2 2 1-3 3 1-4 4 Elements of Financial Statements Assets—Cash, Equipment, Buildings, Land Liabilities Equity Contributed Capital Revenue Expenses Distributions Net Income Gains Losses Subclassifications of the elements are frequently called accounts. Accounts are reported in the financial statements. 1-5 5 Accounting Equation Assets = Liabilities + Equity Assets = Claims Claims on the assets are from two sources: Creditors (liabilities) Investors or owners (equity). 1-6 6 Event 1: RCS (formed on Jan. 1, 2014) acquired cash through $120,000 common stock issue. Increase assets (cash). Increase equity (common stock). Asset Source Transaction Event 2: RCS acquired $400,000 cash by borrowing from a creditor. Increase assets (cash). 2. Increase | Chapter One An Introduction to Accounting © 2015 McGraw-Hill Education. 1 Role of Accounting in Society Accounting provides information that is useful in answering questions about resource allocation. Should I invest money in IBM or General Motors? 1-2 2 1-3 3 1-4 4 Elements of Financial Statements Assets—Cash, Equipment, Buildings, Land Liabilities Equity Contributed Capital Revenue Expenses Distributions Net Income Gains Losses Subclassifications of the elements are frequently called accounts. Accounts are reported in the financial statements. 1-5 5 Accounting Equation Assets = Liabilities + Equity Assets = Claims Claims on the assets are from two sources: Creditors (liabilities) Investors or owners (equity). 1-6 6 Event 1: RCS (formed on Jan. 1, 2014) acquired cash through $120,000 common stock issue. Increase assets (cash). Increase equity (common stock). Asset Source Transaction Event 2: RCS acquired $400,000 cash by borrowing from a creditor. Increase assets (cash). 2. Increase liabilities (notes payable). Asset Source Transaction 1-7 7 Event 3: RCS paid $500,000 cash to purchase land. Decrease assets (cash). Decrease equity (selling expenses). Asset Exchange Transaction Event 4: RCS obtained $85,000 cash by leasing camp sites to customers. 1. Increase assets (cash) 2. Increase stockholders’ equity (revenue). Asset Source Transaction 1-8 8 Event 5: RCS paid $50,000 cash for operating expenses. Decrease assets (cash). Decrease equity (operating expenses). Asset Use Transaction 1. Decrease assets (cash). 2. Decrease stockholders’ equity (retained earnings). Asset Use Transaction Event 6: RCS paid $4,000 in cash dividends to its owners. 1-9 9 Event 7: The land that RCS purchased for $500,000 cash had an appraised value of $525,000 on Dec. 31, 2014. Not Recognized due to Historical Cost concept Non-Transaction Historical Cost Concept 1-10 10 Summary of Accounting Events 1-11 11 Two Views of the The Right Side of the Accounting Equation Sources of the company’s .
