Professional Documents
Culture Documents
Accounting
McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter 1
Introducing Accounting in
Business
Conceptual Chapter Objectives
1-3
Analytical Chapter Objectives
1-4
Procedural Chapter Objectives
1-5
C1
Importance of Accounting
is a
Accounting
Accounting Identifies
Identifies
system that
Records
Records
information
Relevant
Relevant Communicates
Communicates
that is
Reliable
Reliable
about
aboutan
an
organization’s
organization’s
Comparable
Comparable business
businessactivities.
activities.
1-6
C1
Accounting Activities
Identifying Recording
Business Business
Activities Activities
Communicating
Business
Activities
1-7
C2 Users of Accounting
Information
External Users Internal Users
Opportunities in Accounting
Managerial
Managerial Taxation
Financial
Financial Taxation
•General
•Generalaccounting
accounting •Preparation
•Preparation •Preparation
•Preparation •Cost
•Costaccounting
accounting •Planning
•Analysis •Planning
•Analysis •Budgeting
•Budgeting •Regulatory
•Auditing •Regulatory
•Auditing •Internal
•Internalauditing
auditing •Investigations
•Regulatory •Investigations
•Regulatory •Consulting
•Consulting •Consulting
•Consulting •Consulting
•Consulting •Controller
•Controller •Enforcement
•Planning •Enforcement
•Planning •Treasurer •Legal
•Criminal
•Treasurer •Legalservices
services
•Criminal •Strategy •Estate
investigation
•Strategy •Estateplans
plans
investigation
•Lenders
•Lenders •FBI
•FBIinvestigators
investigators
•Consultants
•Consultants •Market
•Marketresearchers
researchers
•Analysts
•Analysts •Systems
•Systemsdesigners
designers
Accounting-
Accounting- •Traders
•Traders •Merger services
•Merger services
•Directors •Business
•Businessvaluation
related
related •Directors
•Underwriters •Forensic
valuation
•Underwriters •Forensicaccountant
accountant
•Planners
•Planners •Litigation
•Litigationsupport
support
•Appraisers
•Appraisers •Entrepreneurs
•Entrepreneurs
1-10
C2
1-11
C3
Ethics
Beliefs that
Accepted
distinguish
standards of
right from
good and bad
wrong
behavior
1-12
C3
1-13
C4 Generally Accepted Accounting
Principles
Financial
Financial accounting
accountingis
is governed
governed by
by concepts
conceptsand
and
rules
rulesknown
knownasas generally
generallyaccepted
accepted accounting
accounting
principles
principles(GAAP).
(GAAP).
Relevant
Relevant Affects
Affectsdecisions
decisionsof
ofits
its
Information
Information users.
users.
Reliable
Reliable Information
Information Is
Istrusted
trustedby
by
users.
users.
Comparable
Comparable Used
Usedin
incomparisons
comparisons
Information across
acrossyears
years&&companies.
companies.
Information
1-14
C4
In
Inthe
theUnited
UnitedStates,
States,the
theSecurities
Securitiesand
andExchange
Exchange
Commission,
Commission,aagovernment
governmentagency,
agency,has
hasthe
thelegal
legalauthority
authority
to
toestablish
establishreporting
reportingrequirements
requirementsandandset
setGAAP
GAAPforfor
companies
companiesthat
thatissue
issuestock
stockto
tothe
thepublic.
public.
The
The Financial
Financial Accounting
Accounting
Standards
Standards Board
Board is
is the
the private
private
group
group that
that sets
sets both
both broad
broad and
and
specific
specific principles.
principles.
The International Accounting Standards Board (IASB) issues inter-
national standards that identify preferred accounting practices
in other countries. More than 115 countries now require or permit
companies to prepare financial reports following IFRS.
1-15
C4 Principles and Assumptions
of Accounting
Measurement principle (also called Going-concern assumption means
cost principle) means that accounting that accounting information reflects a
information is based on actual cost. presumption the business will
continue operating.
Revenue recognition principle provides
guidance on when a company must Monetary unit assumption means we
recognize revenue. can express transactions in money.
Sole
Sole Partnership
Partnership Corporation
Corporation
Proprietorship
Proprietorship
1-17
C4
Sarbanes-Oxley Act
1-18
A1
Accounting Equation
Assets
Assets = Liabilities
Liabilities + Equity
Equity
Liabilities
Assets + Equity
1-19
A1
Assets
Cash
Cash
Accounts
Accounts Notes
Notes
Receivable
Receivable Receivable
Receivable
Resources
Resources
owned
owned oror
Vehicles controlled
controlled
Vehicles Land
by
by aa Land
company
company
Store
Store Buildings
Buildings
Supplies
Supplies Equipment
Equipment
1-20
A1
Liabilities
Accounts
Accounts Notes
Notes
Payable
Payable Payable
Payable
Creditors’
Creditors’
claims
claims on
on
assets
assets
Taxes
Taxes Wages
Wages
Payable
Payable Payable
Payable
1-21
A1
Equity
Contributed
Contributed Retained
Retained
Capital
Capital Earnings
Earnings
Owner’s
Owner’s
claim
claim on
on
assets
assets
Dividends
Dividends
1-22
A1
Assets
Assets
Assets
Assets =
= Liabilities
Liabilities
Liabilities
Liabilities +
+ Equity
Equity
Equity
Equity
Contributed
Contributed _ Dividends _ Expenses
Capital
Capital
Dividends
+ Revenues
Revenues Expenses
Retained Earnings
1-23
P1
Transaction Analysis
Transaction Analysis
S. Scott invests $20,000 cash to start the
business in return for stock.
1-25
P1
Transaction Analysis
1-26
P1
Transaction Analysis
1-27
Transaction Analysis
P1
1-28
P1
Transaction Analysis
1-29
P1
Transaction Analysis
The balances so far appear below. Note that the
accounting equation is still in balance.
1-30
P1
Transaction Analysis
1-31
P1
Transaction Analysis
Provided $3,000 of consulting services and
received payment immediately.
1-32
P1
Transaction Analysis
Transaction Analysis
Dividends of $500 are paid to shareholders.
Financial Statements
Let’s prepare the Financial Statements reflecting
the transactions we have recorded.
1. Income Statement
2. Statement of Retained Earnings
3. Balance Sheet
4. Statement of Cash Flows
1-35
P2
Income Statement
1-37
P2
Balance Sheet
The
TheBalance
BalanceSheet
Sheetdescribes
describes
aacompany’s
company’sfinancial
financialposition
position
at
ataapoint
pointin
intime.
time.
1-38
P2
Statement of Cash Flows
1-39
A2
ROA
ROA is
is aa profitability
profitability
measure.
measure.
1-40
End of Chapter 1
1-41