Chapter -One

Introduction to Accounting and Business

Accounting developed as a branch of mathematics and finance. A mathematical reference book
published in 1494 by the Italian Franciscan Monk Luca Pacioli, who is known as the father of
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the already well known practice of recording each transaction twice (i.e. double entry system), since
each transaction must involve both a giver and a receiver.
1.1 Nature of Business
A business is an organization in which basic resources (inputs), such as materials and labor, are
assembled and processed to provide goods or services (outputs) to customers. Businesses come in all
sizes, from a local coffee house to Starbucks, which sells over $9 billion of coffee and related products
each year.
The objective of most businesses is to earn a profit. Profit is the difference between the amounts
received from customers for goods or services and the amounts paid for the in-puts used to provide the
goods or services. In this text, we focus on businesses operating to earn a profit. However many of the
same concepts and principles also apply to not-for-profit organizations such as hospitals, churches, and
government agencies.
1.2 Types of Business Organizations
Any organization established for the purpose of profit is called business organization.
Three types of businesses operated for profit include service, merchandizing, and manufacturing
businesses.
1. Service giving business: It is a type of business that provides technical and professional service to
customers. E.g. Hospitals, Schools, Transportation companies, Hotels etc.
2. Merchandizing business: It is a business organization that buys and resells goods to customer.
E.g. Stationery shops, Drug stores etc.
3. Manufacturing business: it is types of business organization that converts basic inputs such as
raw materials in to products or outputs. E.g. Sugar factory, Textile factory, Cement factory etc.
1.3 Forms of Business Organizations
There are three basic forms of business organizations: sole proprietorships, partnerships, and
corporations. Accountants recognize each form as an economic unit separate from its owners (Business
Entity Concept). In this course, we will begin by the accounting for sole proprietorships because it is the
simplest form of accounting.
1. Sole Proprietorships
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 A sole proprietorship is a business owned by one person and usually managed by the owner. No special
legal requirements must be met to start a sole proprietorship and usually only a limited investment is
required to begin operations.
A sole proprietorship is a separate entity for accounting purposes (Business entity Concept) but it is
not a separate legal entity from the owners. That is, from the legal point of view, the owner and the
business are treated as one and the same. The owner will be held personally responsible for the debts
and actions of the business.
For instance, assume Flower Laundry is a sole proprietorship owned by Ato Alemu. Assume also that
the business has borrowed Birr 10,000 from the Commercial Bank of Ethiopia and failed to pay its
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ver the amount it lent from the
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2. Partnerships
A Partnership is like a sole proprietorship in most ways except that it has more than one owner. A
partnership is not a legal entity separate from the owners but an association that brings together the
talents and resources of two or more people. The owners of a partnership are known as partners.
The partners share the profits and losses of the partnership according to an agreed ±on formula. That is,
each partner is personally responsible for the debts of the partnership. From an accounting standpoint,
however, a partnership is a business entity separate from the personal activities of the partners.
3. Corporations
A business organized as a separate legal entity with ownership divided into transferable units of capital is
called a corporation. The owners of a corporation are called stockholders or shareholders. The
corporation issues capital stock certificates to each stockholder showing the number of shares (stock) he
or she owns. The stockholders are free to sell all or part of these shares to other investors at any time.
This ease of transfer of ownership adds to the attractiveness of investing in a corporation. Since a
corporation is a separate legal entity, the owners (stockholders) are not personally liable for the debts of the
corporation. Their risk of loss is limited to the amount they paid (invested). Because of this limited
liability in a corporation shareholders are willing to invest in riskier, but potentially more profitable,
activities. Even though corporations are fewer in number than proprietorships and partnerships, they
contribute a lot to the economies of many countries in monetary terms.
1.4 The Role of Accounting in Business
What is the role of accounting in business? The simplest answer is that accounting pro-vides
information for managers to use in operating the business. In addition, accounting provides information
to other users in assessing the economic performance and condition of the business.
2
 Thus, accounting can be defined as an information system that provides reports to users about the
economic activities and condition of a business. <RXPD\WKLQNRIDFFRXQWLQJD
language of
business´7KLVLVEHFDXVHDFFRXQWLQJLVWKHPHDQVE\
communicated to users. The better you understand the language, the better your decisions will be, and the
better you can manage your finances.
Accounting consists of three basic activities²it identifies, records, and communicates the economic
events of an organization to interested users.
As a starting point to the accounting process, a company identifies the economic events relevant to its
business. Once a company identifies economic events, it records those events in order to provide a history
of its financial activities. Recording consists of keeping a systematic, chronological diary of events,
measured in dollars and cents. Finally, it communicates the collected information to interested users by
means of accounting reports. The most common of these reports are called financial statements.
We can also define in this way
Accounting is the process of recording, summarizing, analyzing, reporting financial (money-related)
activities and interpreting financial information to different parties to make informed judgments and
decisions.
Accounting is an art of correctly recording the day to day business transactions. It is a science of keeping
the business records in a regular and most systematic manner so as to know the business results.
Therefore, it is an information system that provides reports to stakeholders about the economic activities
and condition of a business.
Bookkeeping vs. accounting
People often fail to understand the difference between accounting and bookkeeping. Bookkeeping is the
process of recording business activities, and keeping the records. It is the record- making phase of
accounting. The recording of transactions in Bookkeeping tends to be mechanical and repetitive; it is only
a small and probably the simplest but important part of accounting.
Accounting, RQWKHRWKHUKDQGLQFOXGHVWKHGHVLJQRI
major goals of accounting are the analysis, interpretation, and use of information. Accounting
includes system design, budgeting, cost analysis, auditing and tax planning and preparation. A person
might become a reasonably proficient bookkeeper in a few weeks or months; however, to become a
professional accountant requires several years of study and experience.
Users of Accounting Information
In short the goal of the accounting system is to provide useful information to decision makers. Thus,
accounting is the connecting link between decision makers and business operations.
3
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, whether the
users are inside or out side the business. Accounting is not an end by itself. The information that
accounting provides allows users to make ³UHDVRQDEOHFKRLFHVDPRQJDOWH
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The people who use accounting information basically fall in to two categories:
1. External Users, and
2. Internal Users
1) External Users: External Users of accounting information are parties which are not directly
involved in running the business enterprise. These include lenders, shareholders (stock holders),
suppliers, employees and their Unions, government (regulatory bodies) and others. External users rely
(depend on) accounting information to help them make better decisions in trying to achieve their goals.
The area of accounting aimed at serving external users is called Financial Accounting. Its main
objective is to provide information to external users through financial statements.
Each external user has its own specified information-need depending up on the decisions to be made.
That is to say, all external users do not have the same intentions (objectives) when they use the
information. In the following paragraphs we will try to discuss how some external users use accounting
information.
a) Lenders / Creditors
Creditors lend money or other resources to an organization. Lenders include banks, mortgage and
finance companies. Lenders look for information to help them assess the ability of borrowers to repay
their debts.
b) Share- holders (Stockholders)
Shareholders have legal control over part or all of a corporation. When it comes to a corporation,
shareholders are not directly involved in the management of the corporation. However, as owners, they
have claims over the properties of the organization. )LQDQFLDOUHSRUWVKHOSWR
questions such as:
- What is the income of the organization for the current and past periods?
- will the business continue to be profitable in the future?
c) Employees and labor Unions
Employees and labor unions are interested in judging the fairness of their wages and assessing future
job prospects. They also use accounting reports as evidence to ask for bonuses, when the organization is
successful.
d) Government
4
The Inland Revenue Authority requires organizations to prepare financial reports, in order to compute
taxes.
2) Internal Users: These are persons that are directly involved in managing and operating an
organization. They include managers and other important decision makers. The internal role of
accounting is to provide information to help improve the efficiency and effectiveness of an organization.
Internal users of accounting information are managers who plan, organize, and run the business. These
include marketing managers, production supervisors, finance directors, and company officers. The area
of accounting aimed at serving the decision-making needs of internal users is called Management
Accounting. Internal users often have access to a lot of private and valuable information.
1.4 The Accounting profession
If you just joined the accounting profession, you may be wondering what job you will be doing in the
future. You probably would apply your expertise in one of three major fields:
 Public Accounting
 Private Accounting or
 Not ±for ±profit Accounting
i) Public accounting
In Public Accounting you would offer expert service to the general public in much the same way that a
doctor serves patients and a lawyer serves clients. A major portion of public accounting practice is
involved with Auditing. In this area, a certified Public Accountant (CPA) examines the financial
statements of companies and expresses opinion as to the fairness of presentation. When presentation is
fair, users consider the statements to be reliable.
Management consulting is another area of public accounting. In this case, the accountant consults the
management generally about the growth and development of the business enterprise.
ii) Private Accounting
Instead of working in public accounting, an accountant may be an employee of a business enterprise. In
private accounting, you would be involved in one of the following activities:
1. Cost Accounting: Determining the cost of producing specific products.
2. General Accounting: recording daily transactions and preparing financial statements and related
information.
3. Accounting information systems: designing both manual and computerized data processing
systems.
4. Tax Accounting: preparing tax returns (-forms to be filled by a company and returned to a taxing
authority) and engaging in tax planning for the company.
5
 5. Internal AuditingUHYLHZLQJDFRPSDQ\¶VRSHUDWLRQVWR
policies and evaluating efficiency of operations.
iii) Not for Profit Accounting
Like businesses that exist to make a profit, not - for-profit organizations also need sound financial
reporting and control. Donors to such organizations want information about how well the organization
has met its objectives and whether continued support is justified. In each of these cases, accounting
expertise is highly valued.
1.5. Accounting Principles and Concepts/IFRS/
Accounting, as it is true for other disciplines, has got its own principles and practices. One must be able
to understand these principles and practices to understand and prepare financial statements and reports.
The principles and concepts used in accounting are called International financial reporting standards
(IFRS). These principles guide accountants how to record and report business activities.
IFRS are developed in recent years by the accounting profession in place of GAAP. The main purpose
of these basic rules is to guide accountants in measuring and reporting financial events of business
enterprises. IFRS is short for International Financial Reporting Standards. IFRS is the
international accounting framework within which to properly organize and report financial information.
IFRS is used primarily by businesses reporting their financial results anywhere in the world except the
United States. Generally Accepted Accounting Principles, or GAAP, is the accounting framework used
in the United States. GAAP is much more rules-based than IFRS. IFRS focuses more on general
principles than GAAP, which makes the IFRS body of work much smaller, cleaner, and easier to
understand than GAAP.
IFRS are not like the unchangeable laws of nature found in biology and chemistry. They can be
changed as better methods are developed or as circumstances change. Generally, it is from research,
practice, and pronouncements of professional bodies that IFRS evolve.
In this unit, we will discuss some of the accounting principles/standards as follows:
1. Business Entity Concept
Accountants frequently refer to a business organization as an accounting or business entity. A business
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as an economic unit. For accounting purposes, each business enterprise has a separate existence from its
owners, creditors, employees, customers and other businesses.
This separate existence of the business enterprise is known as the business entity concept. Thus, the
business entity should have a completely separate set of records and its financial records and reports
should refer only about the business enterprises.
6
For example, W/o Muna Mamo has got her own two business enterprises one called Munaye Super
Market, and another hotel called Budena Hotel. Each Business would be considered as an independent
economic business unit. The activities of each business are kept separately from each other and from
the RZQHU¶VSHUVRQDOUHFRUGV/HWVD\:20XQDE
recorded and reported in the records of either the supermarket or the hotel. The personal saving account
she has will not as well be included in the financial reports of either one of the businesses. She must
have to open separate bank accounts for the two businesses. The super market should not record the
payment of salary to employees of the hotel. Economic entity concept explains the basic accounting
equation. i.e asset ,liability and the capital of the owner listed separately.
2. The historical cost principle
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For example, Modern Advertising Company is considering the purchase of a building. The seller of
the building offered a price of Birr 10,000 while the buyer first offered a price of Birr 8000. However,
after certain bargaining, the seller agreed to sell the building for Birr 9000 and the buyer paid that
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the actual amount paid to get the building.
In an exchange between a buyer and a seller, both attempt to get the best price. Only amounts agreed up
on and paid are objective enough for accounting purposes.
3. Monetary Unit Assumption
All business activities (events) are recorded in terms of money (-Birr, Dollar, Pound or any other
currency). Of course, information of a non -financial nature can be recorded, but it is only through the
recording of dollar (Birr) amounts that the activities of a business can be measured. Money is the only
factor common to all business activities. Therefore, it is the only practical unit of measurement that can
produce financial data that can be compared.
The monetary unit used by a business depends on the country in which it exists. For example, in
Ethiopia the basic unit of measurement is the birr, as is the dollar in the U.S.A, and Pound Sterling in the
United Kingdom.
4. Fair value principle
The fair value principle states that assets and liabilities should be reported at fair value (the price
received to sell an asset or settle a liability). Fair value information may be more useful than historical
cost for certain types of assets and liabilities. For example, certain investment securities are reported at
fair value because market value information is usually readily available for these types of assets.
7
In determining which measurement principle to use, companies weigh the factual nature of cost
figures versus the relevance of fair value. In general, most companies choose to use cost. Only in
situations where assets are actively traded, such as investment securities, do companies apply the fair
value principle extensively.
5. The Specific Time Period Principle:
Financial statements always pertain to a specific time. Income statements have a start date and an end
date. Balance sheets are reported as on a certain date. This way the readers know during which period
the business transactions were conducted in.
6. The Full Disclosure Principle:
The full disclosure principle is always in keen focus what with all the accounting information must
present reliably and perfectly. It is required that companies reveal every aspect of the functioning in
their financial statements.
7. The Recognition Principle:
There is also the recognition principle which states that companies reveal their income and expenses in
the same time period in which they were accrued.
8. The Non-Death Principle of Businesses:
The accounting principles assume that businesses will continue to function eternally and have no end
date as such.
9. The Matching Principle:
The matching principle states that the accrual system of accounting be used and for every debit there
should be a credit and vice versa. Shows matching of revenues and expenses during the period.
10. The Principle of Materiality:
There are a couple of principles which require the bookkeepers to use their judgment rather than sure
shot rules. There are inaccuracies in all accounting records. This principle tells use objective evidence
for the preparation of financial statements.
11. The Principle of Conservative Accounting:
Conservative accounting is another principle to be adopted for the good of the company. When expenses
happen they are to be recorded immediately, but incomes are to be recorded only when the actual cash
has been received.
1.6 The Accounting Equation
The resources owned by a business are its assets. Examples of assets include cash, land, buildings, and
equipment. The rights or claims to the assets are divided into two types: (1) The rights of creditors and
(2) the rights of owners. The rights of creditors are the debts of the business and are called liabilities.
8
The rights of the owners are called RZQHU¶VHTXLW\
. The following equation shows the relationship
among assets, liabilities, and RZQHU¶VHTXLW\
Assets = Liabilities + 2ZQHU¶V(TXLW\
This equation is called the accounting equation/LDELOLWLHVXVXDOO\DUH
in the accounting equation because creditors have first rights to the assets.
Given any two amounts, the accounting equation may be solved for the third unknown amount. To
illustrate, if the assets owned by a business amount to $100,000 and the liabilities amount to $30,000,
WKHRZQHU¶VHTXLW\LVHTXDOWRDVVKRZ

Assets = Liabilities + 2ZQHU¶V(TXLW\

$100,000 $30,000 $70,000
The Elements of Accounting Equation
Assets: are resources with money value that a business owns. The business uses its assets in carrying out
such activities as production and sales. The common characteristic possessed by all assets is the capacity
to provide future services or benefits. In a business, that service potential or future economic benefit
eventually results in cash inflows (receipts). Some examples are: cash, accounts receivable (selling
goods or services on credit), plant, property & equipment, and supplies (office, store, delivery, etc.).
Liabilities: are debts owed by the business. They are claims against assets²that is, existing debts and
obligations. Businesses of all sizes usually borrow money and purchase merchandise on credit. These
economic activities result in payables of various sorts. Some examples are: accounts payable, notes
payable, wage or salary payable, tax payable etc.
2ZQHU¶V equity: is the ownership claim on total assets is RZQHU¶V HTXLW\
. It is equal to total assets
minus total liabilities. Here is why: The assets of a business are claimed by either creditors or owners.
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²WKH RZQHU¶V
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HTXLW\
WKH DVVHWV
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al, F
proprietorship, or net worth.
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and expenses GHFUHDVHRZQHU¶VHTXLW\.
Investments by owner: are the assets the owner puts into the business. These investments increase
RZQHU¶VHTXLW\7KH\DUHUHFRUGHGLQDFDWHJRU\
RZQHU¶VFDSLWDO.
Revenues: are the JURVVLQFUHDVHVLQRZQHU¶VHTXLW\UHVXO
the purpose of earning income. Generally, revenues result from selling merchandise, performing
services, renting property, and lending money.
Drawings: An owner may withdraw cash or other assets for personal use. We use a separate
classification called drawings to determine the total withdrawals for each accounting period.

9
Expenses are the cost of assets consumed or services used in the process of earning revenue. They are
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. For example, wages expense; utility
expense, supplies expense, rent expense; interest expense; and property tax expense.
The Accounting equation is therefore:
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This equation must always balance!
Each transaction increases or decreases (or both) the basic elements in the accounting equation. The
effect of recording a business transaction must always leave the two sides of the accounting equation in
balance.
Business transactions and the Accounting Equation
All business transactions can be stated in terms of changes in the elements of the accounting equation.
Transactions (business transactions) DUHDEXVLQHVV¶VHFRQRPLFHYHQW
that affect the financial position
of the business and can be recorded realizably. Transactions may be external or internal. External
transactions involve economic events between the company and some outside enterprise. For example,
ABC Company purchase of equipment from a supplier, payment of monthly rent to the landlord, and
sale of goods and services to customers are external transactions. Internal transactions are economic
events that occur entirely within one company. For example, the use of supplies is internal transactions.
A transaction is any activity that chDQJHVWKHYDOXHRIDILUP¶VDVVH
transaction has a dual effect on the basic accounting elements. A transaction may affect more than two
accounts in a transaction. This is called a combined entry.
Example
Consider the following business transactions and determine the effect of the transactions on the basic
accounting equation:
a. ,QYHVWHG%UFDVKLQWKHEXVLQHVV ,
b. Purchased supplies on account, Br. 600. (Increase both asset and liability)
c. 5HFHLYHGFDVKIRUSURYLGLQJDVHUYLFH
d. 3DLG%UH[SHQVHVLQFDVK 'HFUHDVHERW
e. :LWKGUDZDORI%UFDVKE\RZQHU 'HFU
f. Received Br. 1,000 cash from a customer who had previously been billed for services provided.
(Increase one asset and decrease another asset)
1.7 Financial Statements
After transactions have been recorded and summarized, reports are prepared for users. The accounting
reports providing this information are called financial statements. Summaries of financial activities
10
are called financial statements which are prepared on a regular basis at the end of an accounting period.
The accounting period typically is one year; however, it can be any length of time for which records are
maintained. Usually the minimum is one month and the maximum length of time is one year for
financial statements.
The primary financial statements of a proprietorship are the income statement, the statement of
RZQHU¶V HTXLW\ WKH EDODQFH VKHHW
. The order thatDQG WKH VWD
the financial
statements are prepared and the nature of each statement is described as follows.
1. Income Statement
The income statement reports the revenues and expenses for a period of time, based on the matching
concept. This concept is applied by matching the expenses with the revenue generated during a period
by those expenses. The excess of the revenue over the expenses is called net income or net profit. If the
expenses exceed the revenue, the excess is a net loss.
The revenue and expenses for the company were shown in the equation as separate increases and
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QHW ORVV GHFUHDVHV WKH RZQHU¶V HTXLW\
.The income statement FDSLWDO
holds one of the
most important pieces of information about a business.
2. 6WDWHPHQWRI2ZQHU¶V(TXLW\
It is a summary of the changes WKDW KDYH RFFXUUHG LQ WKH
specific RZQHU¶V
period of
time. It is prepared after the income statement because the net income or net loss for the period must be
reported in this statement. Similarly, it is prepared before WKHEDODQFHVKHHWVLQFH
equity at the end of the period must be reported on the balance sheet. Because of this, the statement of
ownHU¶VHTXLW\LVRIWHQYLHZHGDVWKHFRQQHFWLQJ
This statement will show either an increase or decrease in the capital account.
,QFUHDVHVLQRZQHU¶VHTXLW\FRPHIURP
 Owner investments
 Net income
Decreases LQRZQHU¶VHTXLW\UHVXOWIURP
 Owner withdrawals
 Net loss
3. Balance Sheet:
This statement is a OLVWLQJRIWKHILUP¶VDVVHWVOLDELOL
at a specific date,
usually the end of a month or a year. Total Assets must equal the addition of Liabilities and

11
 2ZQHU¶V (TXLW\
Sometimes called the statement of financial Position. There are two commonly
used formats of the balance sheet:
1. The account format
Which lists assets on the left side and equities (i.eOLDELOLW\DQGRZQHU¶VH
UHVHPEOHVDEDVLFDFFRXQWLQJIRUPDWFDOOHGDQ
Assets Liability
2ZQHU¶V(TXLW\
2. The Report Format
-/LVWVDVVHWV/LDELOLW\DQG2ZQHU¶VHTXLW\YH
Assets
Liability
2ZQHU¶V(TXLW\
You can choose either of the two formats for your balance sheet preparation.
4. Statement of cash flow:
Shows the cash inflow and cash out flow during a given period of time. There are three sections in
this statement. These are; (1) operating activities, (2) investing activities, and (3) financing activities.
Each of these sections is briefly described below.
Cash flow from operating activities: This section reports a summary of cash receipts and cash
payments from operations. The net cash flow from operating activities normally differs from the
amount of net income for the period. Under this section, cash received from customer and cash
paid to creditors and expenses are included.
Cash flow from investing activities: This section includes cash received from sale of relatively
long term assets and cash paid to acquire plant assets.
Cash flow from financing activities: Investment by owners and drawings are included under this
section.
Illustration:
Assume that on September 1, 2014, Hannon Maze established a sole proprietorship business under the
name Hannon Maze. Hanno completed the following transactions during the month of September.
a. Open a business bank account with a deposit of $11,500
b. Purchase computer equipment for $5,200 on cash
c. Purchase supplies on account, $650
d. Hannon Maze earns service revenue by providing various services to customers, earning fee of
birr 3,200 and received the amount in cash

12
 e. Paid creditors on account, $450
f. Received cash from Hanno Maze as an additional investment, $1,050
g. Charged customers for service rendered on account, $1,600
h. Paid the following: wage expense, $1,200; rent expense, $ 750; utilities expense, $180;
miscellaneous expense, $70
i. Determined by taking an inventory, the cost of supplies on hand is $350
j. Withdraw cash for personal use, $1,500
Instruction:
1. Identify the effects of each transaction and the balance after each transaction in tabular form.
2. Prepare i) Income statement for September
LL 6WDWHPHQWRIRZQHUV¶HTXLW\IRU6HS
er
iii) Balance sheet as of September 30, and
iv) Statement of cash flow for September
solution
Assets = Liabilities + Owner's
Equity
Cash Supplies Accounts Computer Accounts Hannon
Receivable Equipment Payable Capital
a. 11,500 - - - - 11,500 Initial Capital
b. (5,200) - - 5,200 - -
Bal. 6,300 - - 5,200 - 11,500
c. - 650 - - 650
Bal. 6,300 650 - 5,200 650 11,500
d. 3,200 - - - - 3,200 Fees Earned
Bal. 9,500 650 - 5,200 650 14,700
e. (450) - - - (450) -
Bal. 9,050 650 - 5,200 200 14,700
f. 1,050 - - - - 1,050 Additional Inv't
Bal. 10,100 650 - 5,200 200 15,750
g. - - 1,600 - 1,600 Fees Earned
Bal. 10,100 650 1,600 5,200 200 17,350
h. (2,200) - - - - (1,200) Wage Expenses
(750) Rent Expenses
(180) Utilities
(70) Expenses
Misc. Expenses
Bal. 7,900 650 1,600 5,200 200 15,150
i. - 300 - - - 300 Supplies
Expense
13
Bal. 7,900 350 1,600 5,200 200 14,850
j. (1,500) - - - (1,500) Withdrawal
Bal. 6,400 350 1,600 5,200 200 13,350

2 (1). The income statement for Hannon Maze Company is shown below:
Hannon Company
Income statement
For the month ended September 30, 2014
Revenue (Fees earned)................................ $4,800
Less Operating Expenses
Wages expenses............... 1,200
Rent expense.................... 750
Supplies expense.............. 300
Utilities expense............... 180
Misc. expense................... 70
Total Operating Expenses........................... 2,500
Net Income................................................ $2,300

(2). The statement of Owners equity for Hannon Company is shown below:
Hannon Company
Statements of Owner's Equity
For the month ended September 30, 2014
Hannon Maze, Capital September 1, 2014......................... $11,500
Additional investment................................. 1,050
Net Income for the month........................... 2,300 3,350
$14,850
Less withdrawal during the month......................... (1,500)
Hannon Maze, Capital, September 30, 2014..................... $13,350
(3). The balance sheet for Hannon is shown below
Hannon Maze Company
Balance Sheet
September 30, 2014
Assets Liabilities and Owner's equity
Cash 6,400 Liabilities:
Supplies 350 Accounts Payable 200
Accounts Receivables 1,600 Owner's Equity
Computer Equip. 5,200 Hannon Maze, Capital 13,350
Total Asset $13,550 Total Liabilities & Owner's equity 13,550
(4). The cash flow statement for Hannon is prepared as follows:
Hannon Maze Company
Statements of Cash Flow

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 For the month ended September 30, 2014
Cash flow from operating activities:
Cash received from customers «««««««««««««
Cash paid to creditors and expenses (2,200+450)«««««««««« (2,650)
1HWFDVKIORZIURPRSHUDWLQJDFWLYLWLHV««««« 550
Cash flow from investing activities:
&DVKUHFHLYHGIURPVDOHRISODQWDVVHWV«««««
&DVKSDLGWRDFTXLUHSODQWDVVHWV «« (5,200) PDFKLQH «
1HWFDVKIORZIURPLQYHVWLQJDFWLYLWLHV««««« ($5,200)
Cash flow from financing activities:
Cash received from owners investment (beginning cap)««««««««
Cash received as an additional Investment «««««« .............................1,050
Cash withdrawal by owners «««« ««««««««««««« (1,500)
1HWFDVKIORZIURPILQDQFLQJDFWLYLWLHV««««« $11,050
Ending cash balance, September 30, 2014««««««««««««« $6,400

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