Professional Documents
Culture Documents
Introducing Accounting in
Business
C1
Importance of Accounting
Accounting
Accounting
is a
system that
Identifies
Identifies
Records
Records
Relevant
Relevant
Reliable
Reliable
Comparable
Comparable
information
that is
Communicates
Communicates
about
aboutan
an
organizations
organizations
business
businessactivities.
activities.
1-2
C1
Accounting Activities
Identifying
Business
Activities
Recording
Business
Activities
Communicating
Business
Activities
1-3
Users of Accounting
Information
C2
External Users
Lenders
Consumer groups
Internal Users
Managers
Sales staff
Officers
Budget officers
Governments Customers
C2
Users of Accounting
Information
External Users
Internal Users
C2
Opportunities in Accounting
Financial
Financial
Preparation
Preparation
Analysis
Analysis
Auditing
Auditing
Regulatory
Regulatory
Consulting
Consulting
Planning
Planning
Criminal
Criminal
investigation
investigation
AccountingAccountingrelated
related
Managerial
Managerial
General
Generalaccounting
accounting
Cost
Costaccounting
accounting
Budgeting
Budgeting
Internal
Internalauditing
auditing
Consulting
Consulting
Controller
Controller
Treasurer
Treasurer
Strategy
Strategy
Lenders
Lenders
Consultants
Consultants
Analysts
Analysts
Traders
Traders
Directors
Directors
Underwriters
Underwriters
Planners
Planners
Appraisers
Appraisers
Taxation
Taxation
Preparation
Preparation
Planning
Planning
Regulatory
Regulatory
Investigations
Investigations
Consulting
Consulting
Enforcement
Enforcement
Legal
Legalservices
services
Estate
Estateplans
plans
FBI
FBIinvestigators
investigators
Market
Marketresearchers
researchers
Systems
Systemsdesigners
designers
Merger
services
Merger services
Business
Businessvaluation
valuation
Forensic
Forensicaccountant
accountant
Litigation
Litigationsupport
support
Entrepreneurs
Entrepreneurs
C2
1-7
C3
Accepted
standards of
good and bad
behavior
1-8
C3
Use personal
ethics to
recognize an
ethical concern.
Analyze
options
Consider all
good and bad
consequences.
Make ethical
decision
Choose best
option after
weighing all
consequences.
1-9
C4
Comparable
Comparable
Information
Information
Affects
Affectsdecisions
decisionsof
ofits
its
users.
users.
Is
Istrusted
trustedby
by
users.
users.
Used
Usedin
incomparisons
comparisons
across
acrossyears
years&&companies.
companies.
1-10
C4
The International Accounting Standards Board (IASB) issues international standards that identify preferred accounting practices
in other countries. More than 115 countries now require or permit
companies to prepare financial reports following IFRS.
1-11
C4
C4
Sole
Sole
Proprietorship
Proprietorship
Partnership
Partnership
Corporation
Corporation
1-13
C4
Sarbanes-Oxley Act
In response to a number of publicized accounting
scandals (Enron, WorldCom, Tyco, ImClone),
Congress passed the Sarbanes-Oxley Act (also
called SOX) in 2002 to help curb financial abuses
at companies that issue their stock to the public.
The act requires that public companies apply
both accounting oversight and stringent internal
controls. The desired results include more
transparency, accountability, and truthfulness in
reporting transactions.
1-14
A1
Accounting Equation
Assets
Assets
Liabilities
Liabilities
Assets
Equity
Equity
Liabilities
+ Equity
1-15
Assets
A1
Cash
Cash
Accounts
Accounts
Receivable
Receivable
Vehicles
Vehicles
Store
Store
Supplies
Supplies
Resources
Resources
owned
owned or
or
controlled
controlled
by
by aa
company
company
Notes
Notes
Receivable
Receivable
Land
Land
Buildings
Buildings
Equipment
Equipment
1-16
A1
Liabilities
Accounts
Accounts
Payable
Payable
Notes
Notes
Payable
Payable
Creditors
Creditors
claims
claims on
on
assets
assets
Taxes
Taxes
Payable
Payable
Wages
Wages
Payable
Payable
1-17
A1
Equity
Retained
Retained
Earnings
Earnings
Contributed
Contributed
Capital
Capital
Owners
Owners
claim
claim on
on
assets
assets
Dividends
Dividends
1-18
A1
Contributed
Contributed
Capital
Capital
=
=
_
Liabilities
Liabilities
Liabilities
Liabilities
Dividends
Dividends
+
+
Revenues
Revenues
Equity
Equity
Equity
Equity
_ Expenses
Expenses
Retained Earnings
1-19
P1
Transaction Analysis
Business activities can be described in terms of
transactions and events. External transactions
are exchanges of value between two entities,
which yield changes in the accounting equation.
Internal transactions are exchanges within any
entity; they can also affect the accounting
equation. Events refer to happenings that affect
an entitys accounting equation and can be
reliably measured. Transaction analysis is
defined as the process used to analyze
transactions and events.
1-20
P1
Transaction Analysis
S. Scott invests $20,000 cash to start the
business in return for stock.
1-21
P1
Transaction Analysis
Purchased supplies with $1,000 cash.
1-22
P1
Transaction Analysis
Purchased equipment for $15,000 cash.
1-23
P1
Transaction Analysis
Purchased supplies of $200 and
equipment of $1,000 on account.
1-24
P1
Transaction Analysis
1-25
P1
Transaction Analysis
The balances so far appear below. Note that the
accounting equation is still in balance.
1-26
P1
Transaction Analysis
1-27
P1
Transaction Analysis
1-28
P1
Transaction Analysis
Paid salaries of $800 to employees.
P1
Transaction Analysis
P2
Financial Statements
Lets 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
1-31
P2
Income Statement
Net income is the
difference
between
Revenues and
Expenses.
The income statement describes a
companys revenues and expenses along
with the resulting net income or loss over a
period of time due to earnings activities.
1-32
P2
1-33
P2
Balance Sheet
The
TheBalance
BalanceSheet
Sheetdescribes
describes
aacompanys
companysfinancial
financialposition
position
at
ataapoint
pointin
intime.
time.
1-34
P2
1-35
A2
ROA
ROA is
is aa profitability
profitability
measure.
measure.
1-36
End of Chapter 1
1-37