Financial Accounting in

Practices ,

Prepared by
Marianne Bradford, Ph. D.
Bryant College

John Wiley & Sons, Inc.

 WHAT IS ACCOUNTING?
Accounting is an information system that
1) identifies, 2) records, and 3) communicates
the economic events of an organization to
interested users
 ILLUSTRATION 1-1
THE ACCOUNTING PROCESS
Communication
Accounting
Identification Recording Reports

Prepare accounting
reports

SOFTBYTE
Select economic events Record, classify Annual Report

(transactions) and summarize

Analyze and interpret

for users
 ILLUSTRATION 1-2
QUESTIONS ASKED BY INTERNAL USERS

What is the cost of manufacturing

Is cash sufficient to pay bills? each unit of product?

Can we afford to give employee Which product line is the most

pay raises this year? profitable?
 ILLUSTRATION 1-3
QUESTIONS ASKED BY EXTERNAL USERS

How does the company compare

Is the company earning in size and profitability with its
satisfactory income? competitors?
What do we
do if they
catch us?

Will the company be able to pay its debts as they come due?
 BOOKKEEPING DISTINGUISHED
FROM ACCOUNTING
Accounting
1 Includes bookkeeping
2 Also includes much more
Bookkeeping
1 Involves only the recording of economic
events
2 Is just one part of accounting
 THE ACCOUNTING PROFESSION

 Public accountants offer expert service to the general

public through the services they perform.
 Private accountants are employees of individual
companies and are involved in a number of activities
including cost and tax accounting, systems, and internal
auditing.
 Not for Profit accounting includes reporting and control
for government units, foundations, hospitals, labor
unions, colleges/universities, and charities.
 ILLUSTRATION 1-4
ACCOUNTING CAREER LADDER
Private Public
Accounting Accounting
VP Finance and 10+ years
Chief Financial Partner
Officer

6 to 8 years
Audit
Corporate Manager
Controller
2 to 4+ years
Senior
Senior Auditor
Accountant
Entry level
Junior
Junior Auditor
Accountant
C2
Opportunities in Accounting
 THE BUILDING BLOCKS
OF ACCOUNTING
 Ethics - standards of conduct by which one’s actions are
judged as right or wrong, honest or dishonest.
 Generally Accepted Accounting Principles - primarily
established by the Financial Accounting Standards
Board and the Securities and Exchange Commission
 BUSINESS ENTERPRISES
 A business owned by one person is generally a
proprietorship.
 A business owned by two or more persons associated as
partners is a partnership.
 A business organized as a separate legal entity under
state corporation law and having ownership divided into
transferable shares of stock is a corporation.
 ILLUSTRATION 1-6
BASIC ACCOUNTING EQUATION

The Basic Accounting Equation

Assets = Liabilities + Owner’s Equity

 ASSETS AS A BUILDING BLOCK

 Assets are resources owned by a business.

 They are used in carrying out such activities as
production, consumption and exchange.
LIABILITIES AS A BUILDING BLOCK

 Liabilities are claims against assets.

 They are existing debts and obligations.
 OWNER’S EQUITY AS
A BUILDING BLOCK

 Owner’s Equity is equal to total assets minus total

liabilities.
 Owner’s Equity represents the ownership claim
on total assets.
 Subdivisions of Owner’s Equity:
1 Capital or Investments by Owner
2 Drawing
3 Revenues
4 Expenses
 INVESTMENTS BY OWNERS
AS A BUILDING BLOCK

 Investments by Owner are the assets the owner

puts in the business.
 These investments increase owner’s equity.
 ILLUSTRATION 1-7
INCREASES AND DECREASES IN OWNER’S EQUITY

INCREASES DECREASES
Investments Withdrawals
by Owner by Owner
Owner’s
Equity
Revenues Expenses
 COPYRIGHT

Copyright © 2002 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 consent 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.