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Classroom Policies

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Present • Punctual and present for entire session

• Attendance part of grade

Prepared • Complete any pre-work/pre-reading

• Expect cold calling

Participating • Contribute to classroom learning

• No electronic devices

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1-4

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Learning Objectives

Identify the activities and users associated with accounting.

Explain the building blocks of accounting: ethics, principles, and assumptions.

State the accounting equation, and define its components.3

Analyze the effects of business transactions on the accounting equation.

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1

4

Describe the four financial statements and how they are prepared.5

Accounting in Action1

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Accounting consists of three basic activities—it

u identifies,

u records, and

u communicates

the economic events of an organization to interested users.

LEARNING OBJECTIVE

Identify the activities and users associated with accounting.1

LO 1

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Illustration 1-1 The activities of the accounting process

The accounting process includes the bookkeeping function.

Three Activities

LO 1

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INTERNAL USERS

Illustration 1-2 Questions that internal users ask

Who Uses Accounting Data

LO 1

1-10 LO 1

Illustration 1-3 Questions that external users ask

Who Uses Accounting Data

EXTERNAL USERS

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1DO IT! 1 Indicate whether the following statements are true or false.

1. The three steps in the accounting process are identification, recording, and communication.

2. Bookkeeping encompasses all steps in the accounting process.

3. Accountants prepare, but do not interpret, financial reports.

4. The two most common types of external users are investors and company officers.

5. Managerial accounting activities focus on reports for internal users.

LO 1

Basic Concepts

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Ethics in Financial Reporting u Recent financial scandals include: Enron, WorldCom,

HealthSouth, AIG, and other companies.

u Regulators and lawmakers concerned that economy would suffer if investors lost confidence in corporate accounting. In response,

► Congress passed Sarbanes-Oxley Act (SOX).

u Effective financial reporting depends on sound ethical behavior.

LO 2

LEARNING OBJECTIVE

Explain the building blocks of accounting: ethics, principles, and assumptions.

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Illustration 1-4 Steps in analyzing ethics cases and situations

Ethics in Financial Reporting

LO 2

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Ethics are the standards of conduct by which one’s actions are judged as:

a. right or wrong.

b. honest or dishonest.

c. fair or not fair.

d. all of these options.

Question

Ethics in Financial Reporting

LO 2

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Various users need financial

information

The accounting profession has developed standards that are

generally accepted and universally practiced.

Financial Statements u Balance Sheet u Income Statement u Statement of Owner’s Equity u Statement of Cash Flows u Note Disclosure

Generally Accepted Accounting Principles

(GAAP)

Generally Accepted Accounting Principles

LO 2

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Generally Accepted Accounting Principles (GAAP) – Standards that are generally accepted and universally practiced. These standards indicate how to report economic events.

Standard-setting bodies:

► Financial Accounting Standards Board (FASB)

► Securities and Exchange Commission (SEC)

► International Accounting Standards Board (IASB)

Generally Accepted Accounting Principles

LO 2

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Measurement Principles

HISTORICAL COST PRINCIPLE (or cost principle) dictates that companies record assets at their cost.

FAIR VALUE PRINCIPLE states that assets and liabilities should be reported at fair value (the price received to sell an asset or settle a liability).

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