chapter 1 financial accounting

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  • 1. to ion ct du tro ing and In unt iness cco Bus A r1 pt e ha C c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 2. Learning Objectives 1. 2. 3. 4. 5. 6. Describe the nature of a business and the role of accounting and ethics in business. Summarize the development of accounting principles and relate them to practice. State the accounting equation and define each element of the equation. Describe and illustrate how business transactions can be recorded in terms of the resulting change in the elements of the accounting equation. Describe the financial statements of a corporation and explain how they interrelate. Describe and illustrate the use of the ratio of liabilities to stockholders equity in evaluating a companys financial condition.
  • 3. Lear ning Obje ctive Desc r ibe the n and at tu t he r ole o re of a b usine f ac c ethic ounting ss and s in b usine ss. 1 c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 4. Nature of Business and Accounting o 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. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 5. Nature of Business and Accounting o The objective of most businesses is to earn a profit. o Profit is the difference between the amounts received from customers for goods or services and the amounts paid for the inputs used to provide the goods or services. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 6. TYPES OF BUSINESSES Service Business Service Delta Air Lines Transportation services The Walt Disney Company Entertainment services Merchandising Business Product Walmart General merchandise Amazon.com Internet books, music, videos Manufacturing Business Product Ford Motor Company Cars, trucks, vans Dell, Inc. Personal computers
  • 7. The Role of Accounting in Business o Accounting can be defined as an information system that provides reports to users about the economic activities and condition of a business. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 8. The Role of Accounting in Business o The process by which accounting provides information to users is as follows: Identify users. Assess users information needs. Design the accounting information system to meet users needs. Record economic data about business activities and events. Prepare accounting reports for users. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 9. THE ROLE OF ACCOUNTING IN BUSINESS
  • 10. Managerial Accounting o The area of accounting that provides internal users with information is called managerial accounting or management accounting. o Managerial accountants employed by a business are employed in private accounting. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 11. Financial Accounting o o o The area of accounting that provides external users with information is called financial accounting. The objective of financial accounting is to provide relevant and timely information for the decision-making needs of users outside of the business. General-purpose financial statements are one type of financial accounting report that is distributed to external users. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 12. Role of Ethics in Accounting and Business o The objective of accounting is to provide relevant, timely information for user decision making. o Accountants must behave in an ethical manner so that the information they provide users will be trustworthy and, thus, useful for decision making. o Ethics are moral principles that guide the conduct of individuals. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 13. ROLE OF ETHICS IN ACCOUNTING AND BUSINESS
  • 14. ROLE OF ETHICS IN ACCOUNTING AND BUSINESS The answer to Failure of individual character What went wrong for these companies? Firm culture of greed and ethical indifference involves one or both of these factors. (Exhibit 2)
  • 15. ROLE OF ETHICS IN ACCOUNTING AND BUSINESS
  • 16. Opportunities for Accountants o Accountants and their staffs who provide services on a fee basis are said to be employed in public accounting. o Accountants employed by a business firm or a not-for-profit organization are said to be employed in private accounting. o Public accountants who have met a states education, experience, and examination requirements may become Certified Public Accountants (CPAs). c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 17. OPPORTUNITIES FOR ACCOUNTANTS
  • 18. Lear ning Obje ctive Su m acco marize th u e e dev nting el op pr i n men ciple t of s an d them r to pr elate actic e. 2 c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 19. Generally Accepted Accounting Principles o Financial accountants follow generally accepted accounting principles (GAAP) in preparing reports. o Within the U.S., the Financial Accounting Standards Board (FASB) has the primary responsibility for developing accounting principles. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 20. Generally Accepted Accounting Principles o The Securities and Exchange Commission (SEC), an agency of the U.S. government, has authority over the accounting and financial disclosures for companies whose shares of ownership (stock) are traded and sold to the public. o Many countries outside the United States use generally accepted accounting principles adopted by the International Accounting Standards Board (IASB). c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 21. Business Entity Concept o Under the business entity concept, the activities of a business are recorded separately from the activities of its owners, creditors, or other businesses. c. 2014 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, or posted to a publicly accessible website, in whole or in part.
  • 22. PROPRIETORSHIP A proprietorship is owned by one individual. 70% of business entities in the U.S. are proprietorships. They are easy and cheap to organize. Resources are limited to those of the owner. Used by small businesses.
  • 23. PARTNERSHIP A partnership is similar to a proprietorship except that it is owned by two or more individuals. 10% of business organizations in the U.S. (combined with limited liability companies) are partnerships. Combines the skills and resources of more than one person.
  • 24. CORPORATION A corporation is organized under state or federal statutes as a separate legal taxable entit