Lesson 2Business Transactions and Accounting EquationTask Team of FUNDAMENTAL ACCOUNTING School of Business, Sun Yat-sen University1OutlinetEnterprises tAccounting Transactions, Accounting Events, and Accounting Circumstances tEconomic Activities and Accounting Elements t Accounting Equation2Opening StorytFunding 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 acquaintance3Opening Story (continued）t We could deal with the above-mentioned financial issues from the following perspectives： How do we fund our daily expenditures and possessions ？ How do we spend the “funds” which we have sourced？ What about the relationship between the “funds”which we have sourced and our daily expenditures and possessions？4EnterprisestConcept of Enterprise Definition of “enterprise” Functions of an enterprise Characteristics of an enterprise 5Forms of EnterprisetThere are three major forms of enterprise: Sole-proprietorship Partnership Corporations 6Sole proprietorships tSingle person owns the business tNot separate from its owner in terms of responsibility and liability tThe business is the owner and the owner is the business 7PartnershiptOwned by two or more people tSimilar to a sole proprietorship tNot separate from the owners in terms of responsibility and liability 8CorporationstLegally separate and financially separate from the owners tOwnership in a corporation is divided into units called shares of capital stock tOwners are called shareholders or stockholders tCorporations are separate legal entities 9Characteristics of Enterprise10Four Types of Enterprise t Service organization provides services (does something for you) rather than selling something t Merchandising business buys goods, adds value to them, then sells them to customers t Manufacturer makes the products it sells t Financial services company doesnt make tangible products and doesnt sell products made by other companies; deals in services related to money 11Resources in an Enterpriset Major resources： Human resources Properties,plant and equipment,supplies, raw materials, finished products or inventories Financing In cash or bank deposits In material forms12tAn example-Beauty Photo StoreMovements of Material Resources in an Enterprise13Movements of Material Resources in an Enterprise Movements in a manufacturing enterprise cash/bank depositraw materials work-in- processfinished productsfincash/bank deposit Movements in a merchandising enterprise cash/bank depositinventory cash/bank deposit14Activities of EnterprisetThree major phases of business activities: Inception Operating Liquidation15Inception and investment of fundsExternal fundingState, legal persons, privates or foreign investors；Financing from banking institutions, other legal persons or privatesOwnersequity and liabilitiesInception of EnterpriseInvestmentInvestment of ownersof ownersFinancing ofFinancing of creditorscreditorsTotal funds of a firmTotal funds of a firm16Inception of Enterprise Forms of Investment Monetary(cash/bank deposits) Property, plants and equipment Raw materials and goods,etc. Sources and changes of funds Increase of ownersequity or liabilities Increase of assets17t Operating activities and changes of asset Changes of assets in Beauty Photo StoreConnections between Beauty Photo Store and Suppliers, clients, etc.Operating Activitiescashcash2 cameras2 cameras lenslens producing producing equipmentequipment suppliessuppliesphotosphotoscashcash18Liquidation of EnterprisetLiquidation of enterprise and payoff of funds Payment of taxes Distribution of profits Declaration of dividends Payoff of borrowings tWithdrawals and changes of funds Decrease of assets Decrease of liabilities or ownersequity19Accounting TransactionstA business transaction is an event that affects the financial position of a business and may be reliably recorded 20Economic Activities and Accounting ElementstAccounting element： Uses of funds and assets cash equipment,etc. Resources of funds and equityBorrowings and equity of creditors- liabilities Investments and ownersequity21Uses of FundstUses and changes of funds Beauty Photo Store From cash to equipment Using equipment to produce photos From photos to cash22Circulation of FundstCirculation 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？23Payoff 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?24Accounting TransactionstAccounting transactions-Economic exchange between two different accounting entities Mutual exchange A purchase