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CHAPTER 1

Accounting
Accounting Information:
Information:
Users
Users and
and Uses
Uses
Learning Objective 1
Describe the purpose of accounting
and explain its role in business and
society.
What are the functions of an
accounting system?
Analyze business events to
determine if information
Analysis should be captured by the
accounting system.

Bookkeeping Day-to-day keeping track of


things.
Use summary information to
Evaluation evaluate the financial health
and performance of the
business.
What is the Nature of Accounting?
Explain What Each Term Means.

Quantitative Deals with numbers.

Financial Focused on the financial


dimension of business.
Supported by a theoretical
Useful
conceptual framework.
Past information can only
Decision Making
be useful if it impacts
decisions about the future.
What Are the Four Steps of the
Decision-making Process?

Step Step Step Step

1 2 3 4
Identify Gather Identify Select the
the issue information alternatives option that
will most
likely result
in the
desired
objective
What are the Sources of
Business Capital?

Investors
(Owners)
Sources of
Business Capital
Creditors
(Lenders)

Business
Earnings
What are Uses of Business
Resources?

Buy land, buildings,


Uses of Business and equipment
Resources
Buy materials and
supplies

Pay employees

Pay other operating


expenses
Why Do Businesses Perform the
Following Functions?

Buy land, buildings,


To produce and
and equipment
market goods
Buy materials and and services
supplies (resulting in
revenues)
Pay employees

Pay other operating


expenses
How is the Revenue a Business
Generates Used?

Pay a return to
Produce and
owners
market goods
and services
Pay loans
(resulting in
revenues)
Pay taxes

Continue business
activity
Learning Objective 2

Identify the primary


users of accounting
information.
Describe The Accounting
Cycle
1. Analyze Investment,
business event purchase, sale, or
transaction
2. Record,
3. Classify, and Account, amount,
classification
4. Summarize
transaction
Balance sheet,
5. Report Income statement,
summaries Statement of cash
flows
What are the Two Types of Reports
from Accounting Information?

Internal Reports External Reports


(Management Accounting) (Financial Accounting)

Lenders
Investors
Management Suppliers/Customers
Employees
Competitors
Government Agencies
The Press
What Are Accounting Reports
Used For?

Used by management for Used by external parties


who have an economic
• planning interest in the firm.
• implementing plans
• controlling costs • Balance sheet
• making decisions • Income statement
• Statement of cash flows
Learning Objective 3

Describe the
environment of
accounting, including
the effects of generally
accepted accounting
principles,
international business,
ethical considerations,
and technology.
Accounting Environment
Accountants follow generally accepted accounting
principles (GAAP), which are authoritative
guidelines that define accounting practice at a
particular time.
1. Financial statements must be
comparable and reliable.

2. External users need to understand


the rules and assumptions used by
companies when constructing
financial statements.
What are the Standard-Setting
Organizations in the United States?

Congress
Congress SEC
SEC FASB
FASB

Wanted to Created to make Publicly supported


regulate U.S. sure investors by SEC to set U.S.
stock are provided accounting
exchanges. with full and fair standards for
information on companies
publicly traded soliciting
companies. investment funds.
What is a CPA?

CPA: Certified Public Accountant

• Has taken a minimum number of college-level


accounting classes.
• Has passed the exam administered by the AICPA.
• Has met other requirements set by his/her state.

AICPA: American Institute of Certified Public Accountants

• The national organization of CPAs in the U.S.


• Not a government agency.
Name Some Other
Accounting Organizations
AICPA: American Institute of Certified Public Accountants
National organization of certified public accountants (CPAs)

IMA: Institute of Management Accountants


National organization of management accountants (CMAs)

IRS: Internal Revenue Service


Government agency--prescribes rules and regulates
the collection of tax revenues in the U.S.

SEC: Securities and Exchange Commission


Created by Congress to regulate U.S. stock exchanges.

IASC: International Accounting Standards Committee


Formed to develop worldwide accounting standards.
Ethics in Accounting
The Code of Professional Conduct.
Adopted by the AICPA.
Holds to what three key principles?
Integrity
Objectivity
Independence

Members are subject to


disciplinary action.
What are Three Advantages of
Technology?
Allows companies to easily
gather vast amounts of
information about individual
transactions.
Allows large amounts of data to
be compiled quickly and
accurately, significantly
reducing error.
Creditors and investors can
receive and process large
amounts of data.
Why Doesn’t Technology
Replace People?
Because technology does not replace
judgment.
People must still
analyze situations
and input results.
People must still
analyze output.
Learning Objective 4

Analyze the reasons for


studying accounting.
Why Study Accounting?

Everyone makes financial decisions.


What types of decisions?

Investing
Budgeting

g i n g
i n l e as
a nc g vs .
i n in
F B uy
Accounting Opportunities
Public Government
Accounting Auditor
Agencies:
J.D. GAO,
(Law)
Controller
IRS, FBI

Industry Tax Consultant


Ph.D.
StateInternal
and Local
Agencies
Auditor
Management
Government
M.Acc.
Advisory
or Nonprofit Hospitals,
Services
Financial
Schools,
Graduate Executive
MBA
Nonprofit
Education Consultant
Organizations
The End of Chapter One