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.
Functions of an
Accounting System
Analyze business events to determine
Analysis
Analysis if information should be captured by
the accounting system.
Bookkeeping Day-to-day keeping track of things.
Bookkeeping
Use summary information to evaluate
Evaluation
Evaluation the financial health and performance
of the business.
The Nature of Accounting
Quantitative
Quantitative Deals with numbers.
Focused on the financial
Financial
Financial dimension of business.
Supported by the theoretical
Useful
Useful conceptual framework.
Past information can only be useful
Impacts
Impacts Decisions
Decisions if it impacts decisions about the
future.
The Decision-Making Process
Step
1
Identify
the issue
The Decision-Making Process
Step Step
1 2
Identify Gather
the issue information
The Decision-Making Process
Step Step Step
1 2 3
Identify Gather Identify
the issue information alternatives
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
objectives
The Relationship of
Accounting to Business
Investors
(Owners)
Sources of
Business Capital
Creditors
(Lenders)
Business
Earnings
The Relationship of
Accounting to Business
Buy land, buildings,
Uses of Business and equipment
Resources
Buy materials and
supplies
Pay employees
Pay other operating
expenses
The Relationship of
Accounting to Business
Buy land, buildings,
Produce and
and equipment
market goods
Buy materials and and services
supplies (resulting in
revenues)
Pay employees
Pay other operating
expenses
The Relationship of
Accounting to Business
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.
The Accounting Cycle
1. Analyze Investment,
business event purchase, sale, or
transaction
The Accounting Cycle
1. Analyze
business event
2. Record,
3. Classify, and Account, amount,
classification
4. Summarize
transaction
The Accounting Cycle
1. Analyze
business event
2. Record,
3. Classify, and
4. Summarize
transaction
Balance sheet,
5. Report Income statement,
summaries Statement of cash
flows
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
Users of Accounting
Information
Internal Reports External Reports
(Managerial Accounting) (Financial Accounting)
Creditors
Management Investors
Suppliers/Customers
Employees
Competitors
Government Agencies
The Press
Uses of Accounting
Information
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.
Financial statements must be
comparable and reliable. External users
need to understand the rules and
assumptions used by companies when
constructing financial statements.
Standard-Setting
Organizations
Congress
Congress
Wanted to
regulate U.S.
stock
exchanges.
Standard-Setting
Organizations
Congress
Congress SEC
SEC
Wanted to Created to make
regulate U.S. sure investors are
stock provided with full
exchanges. and fair
information on
publicly traded
companies.
Standard-Setting
Organizations
Congress
Congress SEC
SEC FASB
FASB
Wanted to Created to make Publicly supported
regulate U.S. sure investors are by SEC to set U.S.
stock provided with full accounting
exchanges. and fair standards for
information on companies soliciting
publicly traded investment funds.
companies.
Other Accounting
Organizations
AICPA: American Institute of Certified Public Accountants
National organization of certified public accountants (CPAs)
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)
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.
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.
IASC: International Accounting Standards Committee
Formed to develop worldwide accounting standards.
What is a CPA?
CPA: Certified Public Accountant
• Has taken a minimum number of college-level classes.
• Has passed the exam administered by the AICPA.
• Has meet 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.
Ethics in Accounting
The Code of Professional Conduct.
Adopted by the AICPA.
Holds as key principles:
integrity
objectivity
independence
Members are subject
to disciplinary action.
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.
Technology
But technology has
not replaced
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.
Budgeting
Investing
Financing
Buying vs. leasing
Accounting Opportunities
Public
Accounting Auditor
Industry Tax Consultant
Government Management
or Nonprofit Advisory
Services
Graduate
Education Consultant
Accounting Opportunities
Public
Accounting Controller
Industry
Internal
Auditor
Government
or Nonprofit
Financial
Graduate Executive
Education
Accounting Opportunities
Public Government
Accounting Agencies: GAO,
IRS, FBI
Industry State and Local
Agencies
Government
or Nonprofit Hospitals,
Schools,
Graduate Nonprofit
Education organizations
Accounting Opportunities
Public
Accounting J.D. (Law)
Industry Ph.D.
Government M.Acc.
or Nonprofit
Graduate MBA
Education
