– Payment of taxes – Distribution of profits – Declaration of dividends – Payoff of borrowings
• Withdrawals and changes of funds
– Decrease of assets – Decrease of liabilities or owners’equity
12
Movements of Material Resources in an Enterprise
• An example-Beauty Photo Store
13
Movements of Material Resources in an Enterprise
– Movements in a manufacturing enterprise
17
Operating Activities
• Operating activities and changes of asset
– Changes of assets in Beauty Photo Store
2 cameras lens ＋producing equipment ＋ supplies
• External funding
– State, legal persons, privates or foreign investors； – Financing from banking institutions, other legal persons or privates • Owners’equity and liabilities
4
Enterprises
• Concept of Enterprise – Definition of “enterprise” – Functions of an enterprise – Characteristics of an enterprise
5
Forms of Enterprise
• Circulation of funds: – Uses of funds
• Beauty Photo Store
– Cost of equipment – Cost of supplies – Human costs？
– Uses and payoff of funds
• What are the operating purposes for Beauty Photo Store？
• Accounting Equation
2
Opening Story
• Funding and Spending at College
– Assets of a college student
• Cash • CD player • Computer
– Funding these assets
• Sponsored by parents • Sponsored by relatives • Borrowed from relatives and acquaintance
cash
photos
cash
– Connections between Beauty Photo Store and Suppliers, clients, etc.
18
Liquidation of Enterprise
• Liquidation of enterprise and payoff of funds
Corporations
• Legally separate and financially separate from the owners • Ownership in a corporation is divided into units called shares of capital stock • Owners are called shareholders or stockholders • Corporations are separate legal entities
24
Accounting Transactions
• Accounting transactions-Economic exchange between two different accounting entities
11
Resources in an Enterprise
• Major resources： – Human resources – Properties,plant and equipment,supplies, raw materials, finished products or inventories – Financing • In cash or bank deposits • In material forms
• cash/bank deposit→raw materials →work-inprocess→finished products→fin→cash/bank deposit
– Movements in a merchandising enterprise
• cash/bank deposit→inventory→ cash/bank deposit
9
Characteristics of Enterprise
Characteristics Business entity Legal entity Limited liability Unlimited life Business taxed One owner allowed
Proprietorship yes no no no no yes
14
Activities of Enterprise
• Three major phases of business activities: – Inception – Operating – Liquidation
15
Inception of Enterprise
– Inception and investment of funds
7
Partnership
• Owned by two or more people • Similar to a sole proprietorship • Not separate from the owners in terms of responsibility and liability
8
Investment of owners Financing of creditors Total funds of a firm
16
Inception of Enterprise
– Forms of Investment • Monetary(cash/bank deposits) • Property, plants and equipm. – Sources and changes of funds • Increase of owners’equity or liabilities • Increase of assets
Lesson 2 Business Transactions and Accounting Equation
Task Team of FUNDAMENTAL ACCOUNTING
School of Business, Sun Yat-sen University
Outline
• Enterprises • Accounting Transactions, Accounting Events, and Accounting Circumstances • Economic Activities and Accounting Elements
23
Payoff of Funds
– Payoff of Funds and Revenues
• Cash receptions and revenues by Beauty Photo Store
– Net increase of funds and profit
• Difference between uses and payoff of cash？ • Nature of profit?
19
Accounting Transactions
• A business transaction is an event that affects the financial position of a business and may be reliably recorded
20
Economic Activities and Accounting Elements • Accounting element： – Uses of funds and assets
• cash • equipment,etc.
– Resources of funds and equity
• Borrowings and equity of creditors-liabilities • Investments and owners’equity
21
Uses of Funds
• Uses and changes of funds – Beauty Photo Store
• From cash to equipment • Using equipment to produce photos • From photos to cash
22
Circulation of Funds
• There are three major forms of enterprise: – Sole-proprietorship – Partnership – Corporations