Chapter 1

Chapter
C apte 1

INTRODUCTION TO ACCOUNTING
 Learning Objectives

After you study this presentation,

you will be able to:

1.
1 Define
D fin accounting
a o ntin
2. Explain
p how the accounting system works
3. Explain the accounting equation
4
4. A l
Analyze a bbusiness
i ttransaction
ti
What is accounting?
 Accounting is

an information system …
that measures …
and
d processes …
information
used to create reports …
that show operating results …
and are used for decision-making.
 Accounting is an
information system that
measures business
activity processes
activity,
information into reports
p
and communicates the
results
lt tto users.
How does the accounting
system work?
Inputs Processing Outputs
inputs
processing: sorting & classifying
processing: recording
outputs: reports
Income Statement

Balance Sheet

Statement of Owners Equity

Statement of Cash Flows

p reports
Example: p
What is the accounting
equation?
A L OE
Assets =  Liabilities  
Assets   Liabilities +  Owner
Owner’ss Equity
Equity

Items of value  Financial claims  Financial claims 

owned by the  of creditors  of owners
business (outsiders) (insiders)
Examples:
E l iimpact
t off t
transactions
ti on
the accounting equation
How do we analyze a business
transaction?
 Analyzing a transaction
Analyzing a transaction
Analysis
l i Steps
Identify 1. Identify the accounts affected
Classify 2. Classify the accounts affected
+/‐
+ /  3. Determine the  amount of increase 
or decrease for each account 
affected.
Balance 4. Make sure the accounting equation 
remains in balance
Example:
p analyzing
y g a business
transaction
Accounting tells a company’s
company s
story using the language of
money!