Instructor's Resource Manual for
College Accounting: A practical Approach
College Accounting Fifteenth Edition
Jeffrey Slater Mike Deschamps
Chapter 1 Accounting Concepts and Procedures Chapter Overview The chapter begins with an introduction to accounting and the organizational forms of business: sole proprietorships, partnerships, corporations, and limited liability companies. Learning Unit 1-1 has assets, liabilities, and equities defined and explained through examples and the accounting equation. Learning Unit 1-2 illustrates the steps necessary to prepare a balance sheet. Learning Unit 1-3 expands the accounting equation to include revenues, expenses, and withdrawals. Each element of the equation is further defined. A variety of transactions are analyzed along with their impact on the accounting equation. Learning Unit 1-4 discusses the income statement, the statement of owner’s equity, and the balance sheet. The accounting equation is used to illustrate how three of the financial statements: income statement, statement of owner’s equity, and balance sheet are developed and interrelated. The net income from the income statement is carried to the statement of owner’s equity, and the ending capital is carried from the statement of owner’s equity to the balance sheet. The demonstration problem and the solution tips help students record the effect of transactions on the accounting equation and to ultimately prepare financial statements.
Learning Objectives After studying Chapter 1, your students should gain proficiency in the following: 1. Explain Accounting, Business, and the Accounting Equation. 2. Prepare a Balance Sheet. 3. Record Transactions into the Expanded Accounting Equation. 4. Prepare the Three Financial Statements.
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Chapter 1 Assignment Grid Assignment Topic(s) Discussion Questions and Critical Thinking/Ethical Case 1 Functions of Accounting 2 Types of Businesses 3 Business Classifications 4 Bookkeeping and technology 5 Accounting equation 6 Capital 7 Accounting equation 8 Balance sheet 9 Account categories 10 Account categories 11 Account categories 12 Expenses 13 Income statement 14 Statement of owner’s equity 15 Ethical case 16 Pandemic impact on operations Concept Checks 1 Classifying Accounts 2 The Accounting Equation 3 Shift versus Increase in Assets 4 The Balance Sheet 5 The Accounting Equation Expanded 6 Identifying Assets 7 The Accounting Equation Expanded 8 Preparing Financial Statements 9 Preparing Financial Statements Exercises (Set A) 1A-1 Accounting Equation 1A-2 Accounting Equation 1A-3 Balance Sheet 1A-4 Accounting Equation – Expanded 1A-5 Financial Statements Exercises (Set B) 1B-1 Accounting Equation 1B-2 Accounting Equation 1B-3 Balance Sheet 1B-4 Accounting Equation – Expanded 1B-5 Financial Statements Problems (Set A) 1A-1 Accounting Equation 1A-2 Balance Sheet 1A-3 Accounting Equation Expanded 1A-4 Financial Statements 1A-5 Financial Statements .
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Learning Unit(s)
Estimated Time in Minutes
Level of Difficulty
1 1 1 1 1 1 1 2 3 3 3 3 4 4 4 4
5 5 5 5 5 5 5 10 5 5 5 5 5 5 5 10
Easy Medium Medium Easy Easy Easy Easy Medium Easy Easy Easy Medium Easy Easy Medium Medium
1 1 1 2 3 2 3 4 4
5 5 5 5 5 5 5 5 5
Easy Medium Medium Easy Easy Easy Medium Easy Easy
1 1 2 3 4
5 5 10 15 20
Easy Easy Easy Medium Medium
1 1 2 3 4
5 5 10 15 20
Easy Easy Easy Medium Medium
1 2 3 4 3, 4
15 15 20 30 45
Easy Medium Medium Medium Hard
Learning Objective(s)
Estimated Time in Minutes
Level of Difficulty
Problems (Set B) 1B-1 Accounting Equation 1B-2 Balance Sheet 1B-3 Accounting Equation Expanded 1B-4 Financial Statements 1B-5 Financial Statements
1 2 3 4 3, 4
15 15 20 30 45
Easy Medium Medium Medium Hard
Financial Report Problem Reading Amazon’s Annual Reports/Internet Project
2
5
Easy
Keeping It Real Suarez Digital Services
3, 4
45
Medium
Assignment Topic(s)
Learning Unit 1-1: Accounting, Business, and the Accounting Equation Summary: Accounting is the language of business. It provides financial information to users and helps the decision making process. The accounting process analyzes, records, classifies, summarizes, reports, and interprets financial information for decision makers. The four main categories of business organizations are (1) sole proprietorships, (2) partnerships, (3) corporations, and limited liability companies. Business organizations can also be classified into service, merchandise, or manufacturing businesses according to the need that they fulfill. Generally accepted accounting principles are the set of procedures and guidelines developed to assure the consistent preparation and interpretation of the accounting reports. The main difference between bookkeeping and accounting is the level of analysis and scope of duties. The basic accounting equation is presented as: Assets = Liabilities + Owner’s Equities. The assets are properties (resources) of value that the firm or business owns. Examples are cash, land, supplies, office equipment, buildings, and other properties of value. Liabilities are obligations that come due in the future or claims of the creditors to assets. An example is accounts payable. The owner’s equity is the rights or financial claims to the assets of a business. The owner’s investment of equity is called capital. A shift in assets indicates that the makeup of the assets has changed, but the sum total of the assets remains the same. An increase of assets reflects an increase in the total amount of assets owned. Remember that the left-hand-side total of assets must always equal the right-hand-side total of liabilities and owner’s equity. Key Concepts: Accounting, sole proprietorship, partnership, corporation, limited liability company, service company, merchandise company, manufacturer, generally accepted accounting principles (GAAP), International Financial Reporting Standards (IFRS), bookkeeping, assets, equities, liabilities, creditor, owner’s equity, basic accounting equation, capital, supplies, shift in assets, accounts payable Lecture Outline: .
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1) Accounting is the language of business. It provides information to managers, owners, investors, government agencies, and others inside and outside the organization. 2) Businesses can be classified into one of four types of organizations: a) Sole Proprietorships are businesses that have one owner. i) Easy to form ii) Owner can lose personal assets to meet obligations of business iii) Ends with death of owner or closing of business b) Partnerships are businesses that have at least two owners. i) Easy to form ii) Partners could lose personal assets to meet obligations of partnership iii) Ends with death of partner or closing of business c) Corporations are businesses owned by stockholders. i) More difficult to form ii) Limited personal risk – stockholders’ loss is usually limited to their stock investment iii) Continues indefinitely d) Limited Liability Company (LLC) i) More difficult to form ii) Limited liability or limited personal risk – members’ loss is limited to their investment in the company iii) May end with death of member 3) Businesses can be classified into service, merchandise, and manufacturing businesses. a) Service company – Business that provides a service b) Merchandise company – Business that makes its own products or buys a product from a manufacturing company and sells it to its customers c) Manufacturer – Business that makes a product and sells it to its customers 4) Accounting (also called the accounting process) is a system that measures the activities of a business in financial terms, provides written reports and financial statements about those activities, and communicates these reports to decision makers and others. It does this by performing the following functions: a) Analyzing: looking at what happened in the past and how the business was affected b) Recording: Putting the information into the accounting system c) Classifying: Grouping all the same activities (e.g., all purchases) together d) Summarizing: Totaling the results e) Reporting: Issuing the statements that tell the results of the previous functions f) Interpreting: Examining the statements to determine how the various pieces of information they contain relate to each other g) Communication: Providing the reports and financial statements to people who are interested in the information, such as the business’s decision makers, investors, creditors, and government agencies 5) Difference between Bookkeeping and Accounting Bookkeeping is the recording function of the accounting process. Digital devices and software are used for routine bookkeeping operations. Bookkeepers need to be trained to use the latest software including QuickBooks and Excel. Accounting uses the bookkeeping prepared information to prepare the financial statements used to analyze the company’s financial position. An accountant prepares tax forms, prepares budgets, and performs further analysis of financial information. 6) The accounting equation illustrates the relationship between assets, liabilities, and equities. a) Assets are properties (resources) of value owned by a firm: Assets = Liabilities + Owner’s Equity b) Equities are the rights or financial claim of creditors (liabilities) and owners (owner’s equity) who supply the assets to the firm. c) Liabilities are obligations that come due in the future.
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