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Accounting Chapter 1

Accounting Chapter 1






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Accounting Chapter 1 Accounting Chapter 1 Presentation Transcript

  • 1 Accounting in the Information Age
  • Living in the Information Age Communication News Facts Access Commentary Data
  • Living in the Information Age Timeliness Independence Freedom-of-Expression Communication News Facts Access Commentary Data
  • Influence of Accounting Identifies Records Communicates Relevant Reliable Comparable Accounting to help users make better decisions. is a system that information that is
  • Business and Investment Sells Profit Profit Goal Business Products Services
  • Business Profit Amounts earned from selling products or services Costs incurred with sales Amounts earned from sales less expenses incurred
  • Nike’s Profit Breakdown Exh. 1.1
  • Return and Risk Return $ Risk ? Profit  Investment Amount of uncertainty about the return we expect to earn The lower the risk of our investment, the lower is our expected return .
  • Returns for Bonds with Different Risks Bonds are written promises by organizations to repay amounts loaned to them with interest. Exh. 1.2 Source: The Wall Street Journal
  • Accounting Information Factors of production are the means businesses use to make profit. Labor and Equipment Accounting Information Land and Building
  • Focus of Accounting
    • Identifying Economic Events
    • Recording Economic Events
    • Reporting and Analyzing Economic Events
  • Setting Accounting Rules Generally Accepted Accounting Principles Securities and Exchange Commission Unions Investors Accountants Politicians Lenders Others AICPA Financial Accounting Standards Board Provide input to Help set
  • Accounting and Technology Reduces time, effort and cost of recordkeeping. Improves clerical accuracy. Changes the way we store, process and summarize large masses of data. Technology
  • Forms of Organization Law Offices Exh. 1.4 Corporation Partnership Proprietorship Sally’s Grocery Business
  • Forms of Organization Exh. 1.4 Private Nonprofit Government Nonbusiness
  • Characteristics of Business Organizations * * Limited partnerships and limited liability partnerships specifically restrict certain partners’ liabilities. Exh. 1.6
  • Corporation Owners of a corporation are called shareholders (or stockholders ). When a corporation issues only one class of stock, we call it common stock (or capital stock ).
  • Nonbusiness Organization Accounting for these organizations is usually a fund-based system, but the basic principles are similar to accounting for business organizations. Libraries Army Airports Cities Colleges Museums Hospitals Prisons Shelters Schools
  • Activities in Organizations Financing
    • Financing Activities
    • Owner financing (equity)
    • Nonowner financing (liabilities)
    Planning Planning
  • Activities in Organizations Financing Planning Planning Investing
    • Investing Activities
    • Buying resources (assets)
    • Selling resources (assets)
  • Activities in Organizations Financing Planning Planning Operating Investing
    • Operating activities
    • Aimed at selling products and services
    • Result in sales and expenses
    Exh. 1.7
  • Balance Sheet A balance sheet reports on investing and financing. It lists amounts for assets, liabilities, and equity at a point in time . The relationship is reflected in the Balance Sheet equation: Assets = Liabilities + Equity Exh. 1.8
  • Income Statement An income statement reports on operating activities. It lists sales (revenues), costs, and expenses over a period of time . The relationship is expressed: Net Income = Revenues - Expenses Exh. 1.9
  • Statement of Changes in Owners’ Equity This statement reports changes in the owners’ claims on the business over a period of time . It includes changes due to income and any owner contributions and withdrawals (called dividends in a corporation). Exh. 1.10
  • Statement of Cash Flows The statement of cash flows reports on cash flows for operating, investing, and financing activities over a period of time . Exh. 1.11
  • Users of Accounting Information Managerial Accounting is aimed at Internal Users Financial Accounting is aimed at External Users Managers Officers Internal Auditors Lenders Shareholders Government Labor Unions External Auditors Customers
  • Internal Operating Functions Products and Services Research & Development Purchasing Human Resources Production Marketing Distribution Servicing
  • Ethics and Social Responsibility Beliefs that separate right from wrong Accepted standards of good and bad behavior Often coincide with laws Ethics
  • Guidelines for Ethical Decision Making
    • Identify Ethical Issues
    • Analyze Options
    • Make Ethical Decision
    Use personal ethics to recognize ethical issues. Consider both the good and bad consequences for all affected. Choose the best option after weighing all consequences.
  • Social Responsibility
    • Donations to nonprofit organizations
    • Programs to reduce pollution
    • Programs to improve worker and consumer safety
    • Paid time off for workers
  • Selected Opportunities in Accounting Exh. 1.15 Financial
    • Statement Preparation
    • Statement Analysis
    • Auditing
    • Regulatory
    • Consulting
    • Planning
    • Criminal Investigation
    • General Accounting
    • Cost Accounting
    • Budgeting
    • Internal Auditing
    • Management Consulting
    • Preparation
    • Planning
    • Regulatory
    • Investigations
    • Consulting
    • Lenders
    • Consultants
    • Analysts
    • Traders
    • Managers
    • Directors
    • Underwriters
    • Planners
    • Appraisers
    • FBI Investigators
  • Accounting Specialization
    • Certified Public Accountant (CPA)
    • Certified Management Accountant (CMA)
    • Certified Internal Auditor (CIA)
    • Chartered Financial Analyst (CFA)
  • Return on Investment (ROI) = Net income ÷ Avg total assets ROI is viewed as an indicator of operating efficiency.
  • End of Chapter 1