Chapter 1-1 Accounting in Action Chapter 1-2 Accounting Principles, Ninth Edition Study Study Objectives Objectives Explain what accounting is Identify the users and uses of accounting Understand why ethics is a fundamental business concept Explain generally accepted accounting principles and the cost principle Explain the monetary unit assumption and the economic entity assumption State the accounting equation, and define its components Analyze the effects of business transactions on the accounting equation Understand the four financial statements and how they are prepared Chapter 1-3 Accounting Accounting in in Action Action What is Accounting? Three activities Who uses accounting data Chapter 1-4 The Building Blocks of Accounting Ethics in financial reporting Generally accepted accounting principles Assumptions The Basic Accounting Equation Assets Liabilities Owner’s equity Using the Basic Accounting Equation Transaction analysis Summary of transactions Financial Statements Income statement Owner’s equity statement Balance sheet Statement of cash flows What What is is Accounting? Accounting? The purpose of accounting is to: (1) identify, identify record, record and communicate the economic events of an (2) organization to (3) interested users Chapter 1-5 SO Explain what accounting is What What is is Accounting? Accounting? Three Activities Illustration 1-1 Accounting process The accounting process includes the bookkeeping function Chapter 1-6 SO Explain what accounting is Who Who Uses Uses Accounting Accounting Data? Data? Internal Users Human Resources Finance Management IRS Investors There are two broad groups of users of financial information: internal users and external users Marketing Customers Chapter 1-7 SEC Labor Unions Creditors External Users SO Identify the users and uses of accounting Who Who Uses Uses Accounting Accounting Data? Data? Common Questions Asked Can we afford to give our employees a pay raise? User Human Resources Did the company earn a satisfactory income? Investors Do we need to borrow in the near future? Is cash sufficient to pay dividends to the stockholders? Management Finance What price for our product will maximize net income? Marketing Will the company be able to pay its short-term debts? Creditors Chapter 1-8 SO Identify the users and uses of accounting Who Who Uses Uses Accounting Accounting Data? Data? Discussion Question Q1-1: “Accounting is ingrained in our society and it is vital to our economic system.” Do you agree? Explain See notes page for discussion Chapter 1-9 SO Understand why ethics is a fundamental business concept The The Building Building Blocks Blocks of of Accounting Accounting Ethics In Financial Reporting Standards of conduct by which one’s actions are judged as right or wrong, honest or dishonest, fair or not fair, are Ethics Recent financial scandals include: Enron, WorldCom, HealthSouth, AIG, and others Congress passed Sarbanes-Oxley Act of 2002 Effective financial reporting depends on sound ethical behavior Chapter 1-10 SO Understand why ethics is a fundamental business concept Transactions Transactions Analysis Analysis Summary of Transactions Chapter 1-38 Illustration 1-8 Tabular summary of Softbyte transactions SO Analyze the effects of business transactions on the accounting equation Financial Financial Statements Statements Companies Companies prepare prepare four four financial financial statements statements from from the the summarized summarized accounting accounting data: data: Income Statement Chapter 1-39 Owner’s Equity Statement Balance Sheet Statement of Cash Flows SO Understand the four financial statements and how they are prepared Financial Financial Statements Statements Review Question Net income will result during a time period when: a assets exceed liabilities b assets exceed revenues c expenses exceed revenues d revenues exceed expenses Chapter 1-40 SO Understand the four financial statements and how they are prepared Financial Financial Statements Statements Income Statement Reports the revenues and expenses for a specific period of time Net income – revenues exceed expenses Illustration 1-9 Financial statements and Net loss – expenses exceed revenues their interrelationships Chapter 1-41 SO Understand the four financial statements and how they are prepared Financial Financial Statements Statements Net income is needed to determine the ending balance in owner’s equity Illustration 1-9 Financial statements and their interrelationships Chapter 1-42 Financial Financial Statements Statements Owner’s Equity Statement Statement indicates the reasons why owner’s equity has increased or decreased during the period Chapter 1-43 Illustration 1-9 Financial statements and their interrelationships SO Understand the four financial statements and how they are prepared Financial Financial Statements Statements The ending balance in owner’s equity is needed in preparing the balance sheet Illustration 1-9 Financial statements and their interrelationships Chapter 1-44 Financial Financial Statements Statements Balance Sheet Illustration 1-9 Financial statements and their interrelationships Chapter 1-45 SO Understand the four financial statements and how they are prepared Financial Financial Statements Statements Illustration 1-9 Financial statements and their interrelationships Chapter 1-46 Financial Financial Statements Statements Statement of Cash Flows Information for a specific period of time Answers the following: Where did cash come from? What was cash used for? What was the change in the cash balance? Chapter 1-47 SO Understand the four financial statements and how they are prepared Financial Financial Statements Statements Statement of Cash Flows Illustration 1-9 Financial statements and their interrelationships Chapter 1-48 SO Understand the four financial statements and how they are prepared Financial Financial Statements Statements Review Question Which of the following financial statements is prepared as of a specific date? a Balance sheet b Income statement c Owner's equity statement d Statement of cash flows Chapter 1-49 SO Understand the four financial statements and how they are prepared Financial Financial Statements Statements Discussion Question Q1-19: “A company’s net income appears directly on the income statement and the owner’s equity statement, and it is included indirectly in the company’s balance sheet.” Do you agree? Explain See notes page for discussion Chapter 1-50 SO Understand the four financial statements and how they are prepared Accounting Accounting Career Career Opportunities Opportunities Public Accounting Careers in auditing and taxation serving the general public Private Accounting Careers in industry working in cost accounting, budgeting, accounting information systems, and taxation Opportunities in Government Careers with the IRS, the FBI, the SEC, and in public colleges and universities Forensic Accounting Careers with insurance companies and law offices to conduct investigations into theft and fraud Chapter 1-51 SO Explain the career opportunities in accounting Copyright Copyright Copyright © 2009 John Wiley & Sons, Inc All rights reserved Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc The purchaser may make back-up copies for his/her own use only and not for distribution or resale The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein Chapter 1-52 .. .Accounting in Action Chapter 1-2 Accounting Principles, Ninth Edition Study Study Objectives Objectives Explain what accounting is Identify the users and uses of accounting Understand... the accounting equation Understand the four financial statements and how they are prepared Chapter 1-3 Accounting Accounting in in Action Action What is Accounting? Three activities Who uses accounting. .. Explain what accounting is What What is is Accounting? Accounting? Three Activities Illustration 1-1 Accounting process The accounting process includes the bookkeeping function Chapter 1-6 SO