principals of accounting

1. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw1in
Fundamental Accounting PrinciplesFundamental Accounting Principles
17th
Edition
Larson Wild Chiappetta

2. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw2in
Accounting in
Business
Chapter
1

3. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw3in
Learning objectivesLearning objectives
 Conceptual:
C1: Explain the purpose and importance of accounting
in the information age.
C2: Identify users and uses of accounting.
C3: Identify opportunities in accounting and related
fields.
C4: Explain why ethics are crucial to accounting.
C5: Explain the meaning of GAAP, and define and
apply several key principles of accounting.
 Analytical:
Define and interpret the accounting equation and each
of its components.

4. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw4in
Learning objectiveLearning objective
C1: Explain the purpose and importance
of accounting in the information age.

5. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw5in
IdentifiesIdentifies
RecordsRecords
CommunicatesCommunicatesRelevantRelevant
ReliableReliable
ComparableComparable
Importance of AccountingImportance of Accounting
AccountingAccounting
is a
system that
information
that is
to help users make
better decisions.
to help users make
better decisions.

6. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw6in
 Identifying
Business
Activities
 Recording
Business
Activities

Communicating
Business
Activities
Accounting ActivitiesAccounting Activities

7. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw7in
What is the relation between accounting
and bookkeeping?
What is the relation between accounting
and bookkeeping?
 Bookkeeping is the recording of financial
transactions and events, either manually or
electronically.
 Accounting is much more. It includes
identifying, measuring, recording, reporting,
and analyzing business events and
transactions, and helps information users to
make economic decisions.

8. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw8in
Learning objectiveLearning objective
C2: Identify users and uses of
accounting.

9. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw9in
Users of Accounting InformationUsers of Accounting Information
External Users
•Lenders
•Shareholders
•Governments
•Consumer Groups
•External Auditors
•Customers
Internal Users
•Managers
•Officers
•Internal Auditors
•Sales Staff
•Budget Officers
•Controllers

10. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw10in
Users of Accounting InformationUsers of Accounting Information
External Users
Financial accounting provides
external users with financial
statements.
Internal Users
Managerial accounting provides
information needs for internal
decision makers.

11. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw11in
Users of Accounting Information-
External
Users of Accounting Information-
External
 Lenders: Whether the firm (borrower) can
repay the money?
 Shareholders: whether to buy, hold, or sell
stocks?
 Governments: whether the firm pay all due
tax?
 Customers: whether the firm can exist to
provide post-sale services?
 External Auditors: whether the financial
statements are prepared according to GAAP?
 Etc.

12. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw12in
Users of Accounting Information-
Internal
Users of Accounting Information-
Internal
 Marketing managers: target customers, set
price, monitor sales.
 Production managers: monitor cost and ensure
quality.
 Purchasing managers: what, when and where
to purchase materials.
 Human resource managers: employees’
performance and compensation.

13. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw13in
Learning objectiveLearning objective
C3: Identify opportunities in accounting
and related fields.

14. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw14in
Opportunities in AccountingOpportunities in Accounting
FinancialFinancial
•Preparation
•Analysis
•Auditing
•Regulatory
•Consulting
•Planning
•Criminal
investigation
•Preparation
•Analysis
•Auditing
•Regulatory
•Consulting
•Planning
•Criminal
investigation
ManagerialManagerial
•General accounting
•Cost accounting
•Budgeting
•Internal auditing
•Consulting
•Controller
•Treasurer
•Strategy
•General accounting
•Cost accounting
•Budgeting
•Internal auditing
•Consulting
•Controller
•Treasurer
•Strategy
TaxationTaxation
•Preparation
•Planning
•Regulatory
•Investigations
•Consulting
•Enforcement
•Legal services
•Estate planning
•Preparation
•Planning
•Regulatory
•Investigations
•Consulting
•Enforcement
•Legal services
•Estate planning
Accounting-
related
Accounting-
related
•Lenders
•Consultants
•Analysts
•Traders
•Directors
•Underwriters
•Planners
•Appraisers
•Lenders
•Consultants
•Analysts
•Traders
•Directors
•Underwriters
•Planners
•Appraisers
•FBI investigators
•Market researchers
•Systems designers
•Merger services
•Business valuation
•Human services
•Litigation support
•Entrepreneurs
•FBI investigators
•Market researchers
•Systems designers
•Merger services
•Business valuation
•Human services
•Litigation support
•Entrepreneurs

15. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw15in
Accounting Jobs by AreaAccounting Jobs by Area
Private
accounting
60%Public
accounting
25%
Government,
not-for-profit,
& education
15%

16. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw16in
Learning objectiveLearning objective
C4: Explain why ethics are crucial to
accounting.

17. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw17in
Beliefs that
distinguish
right from
wrong
Accepted
standards of
good and bad
behavior
Ethics
Ethics—A Key ConceptEthics—A Key Concept

18. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw18in
 Identify
ethical concerns
 Analyze
options
 Make ethical
decision
Use personal
ethics to
recognize ethical
concern.
Consider all
good and bad
consequences.
Choose best
option after
weighing all
consequences.
Guidelines for Ethical Decision MakingGuidelines for Ethical Decision Making

19. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw19in
Learning objectiveLearning objective
C5: Explain the meaning of GAAP, and
define and apply several key principles
of accounting.

20. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw20in
Financial accounting practice is governed by
concepts and rules known as generally accepted
accounting principles (GAAP).
Financial accounting practice is governed by
concepts and rules known as generally accepted
accounting principles (GAAP).
Generally Accepted Accounting
Principles
Generally Accepted Accounting
Principles
Relevant
Information
Relevant
Information
Affects the decision of
its users.
Affects the decision of
its users.
Reliable InformationReliable Information Is trusted by
users.
Is trusted by
users.
Comparable
Information
Comparable
Information
Is helpful in contrasting
organizations.
Is helpful in contrasting
organizations.

21. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw21in
The Securities and Exchange Commission is
the government group that establishes
reporting requirements for companies that
issue stock to the public.
The Securities and Exchange Commission is
the government group that establishes
reporting requirements for companies that
issue stock to the public.
Setting Accounting PrinciplesSetting Accounting Principles
Financial Accounting
Standards Board is the private
group that sets both broad and
specific principles.
Financial Accounting
Standards Board is the private
group that sets both broad and
specific principles.

22. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw22in
Setting Accounting PrinciplesSetting Accounting Principles
 Hong Kong:
• Hong Kong Institute of Certified Public Accountants
(HKICPA)
 China
• Ministry of Finance People’s Republic of China
 International Accounting Standard Board
(IASB)
• International Financial Reporting Standards
(IFRS)

23. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw23in
Principles of AccountingPrinciples of Accounting
 General principles: basic assumptions,
concepts, and guidelines for preparing
financial statements.
Usually stem from long-used accounting
practice.
 Specific principles: detailed rules used in
reporting business transactions and events.
Usually created by a pronouncement from an
authoritative body.

24. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw24in
Principles of Accounting— General
Principles
Principles of Accounting— General
Principles
Objectivity Principle
Accounting information is supported by independent,
unbiased evidence. It is intended to make financial
statements useful by ensuring they report reliable and
verifible information.
Source documents.

25. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw25in
Principles of AccountingPrinciples of Accounting
Cost Principle
Accounting information is based on actual
cost.
Cost is measured on a cash or equal-to cash basis
Information based on cost is
considered objective.

26. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw26in
Principles of AccountingPrinciples of Accounting
Now Future
Going-Concern Principle
Reflects assumption that the business will continue
operating instead of being closed or sold.
The assets are reported at cost but not reported
at liquidation value that assume closure.

27. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw27in
Principles of AccountingPrinciples of Accounting
Monetary Unit Principle
Express transactions and events in monetary, or
money, units.

28. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw28in
Principles of AccountingPrinciples of Accounting
Revenue Recognition Principle
Provides guidance on when a company must recognize
revenue.
1.Recognize revenue when it is earned.
2.Proceeds need not be in cash (Credit sales).
3.Measure revenue by cash received plus cash
value of items received.

29. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw29in
Principles of AccountingPrinciples of Accounting
Business Entity Principle
A business is accounted for separately from
other business entities, including its owner.

30. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw30in
Business Entity FormsBusiness Entity Forms
ProprietorshipProprietorship PartnershipPartnership CorporationCorporation

31. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw31in
Characteristics Proprietorship Partnership Corporation
Business entity yes yes yes
Legal entity no no yes
Limited liability no no yes
Unlimited life no no yes
Business taxed no no yes
One owner allowed yes no yes
*
* Proprietorships and partnerships that are set up as LLC’s
provide limited liability.
* Proprietorships and partnerships that are set up as LLC’s
provide limited liability.
Characteristics of BusinessesCharacteristics of Businesses
Exh.
1.8
*

32. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw32in
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).
CorporationCorporation

33. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw33in
Learning objectiveLearning objective
 Define and interpret the accounting
equation and each of its components.

34. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw34in
Assets
Liabilities
& Equity
Accounting EquationAccounting Equation
LiabilitiesLiabilities EquityEquityAssetsAssets = +

35. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw35in
Accounting EquationAccounting Equation
 Assets are resources with future benefits that are owned
or controlled by a company.
 Liabilities are what a company owes its creditors in future
products or services.
 Equity refers to the claims of its owner(s).
Forms of funds=Sources of funds ( 資金佔用＝資金來源
)
What resources does the firm have? (Assets) = Where
do those resources come from? (Liabilities and Equity)
A firm acquires assets by funds. Liabilities and equity
are the sources of funds to acquire those assets.

36. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw36in
LandLand
EquipmentEquipment
BuildingsBuildings
CashCash
VehiclesVehicles
Store
Supplies
Store
Supplies
Notes
Receivable
Notes
Receivable
Accounts
Receivable
Accounts
Receivable
Resources
owned or
controlled
by a
company
Resources
owned or
controlled
by a
company
AssetsAssets

37. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw37in
Taxes
Payable
Taxes
Payable
Wages
Payable
Wages
Payable
Notes
Payable
Notes
Payable
Accounts
Payable
Accounts
Payable
Creditors’
claims on
assets
Creditors’
claims on
assets
LiabilitiesLiabilities

38. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw38in
Owner’s
claims
on
assets
Owner’s
claims
on
assets
RevenuesRevenues
Owner
Investments
Owner
Investments
Owner
Withdrawals
Owner
Withdrawals
ExpensesExpenses
EquityEquity

39. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw39in
LiabilitiesLiabilities EquityEquityAssetsAssets = +
Expanded Accounting EquationExpanded Accounting Equation
RevenuesRevenues ExpensesExpenses
Owner
Capital
Owner
Capital
Owner
Withdrawals
Owner
Withdrawals
_
+
_

40. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw40in
Expanded Accounting EquationExpanded Accounting Equation
 Revenues: gross increase in equity from a
company’s earnings activities.
 Expenses: the cost of assets or services used
to earn revenue. Expenses decrease owner’s
equity.
 Owner investments: the assets an owner puts
into the company.
 Owner withdrawals: the assets take away from
the company for personal use.

41. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw41in
End of Chapter 1

42. © The McGraw-Hill Companies, Inc., 2006cGraw-Hill/Irw42in
Chapter 1 HomeworkChapter 1 Homework
 Ex. 1-1,1-2,1-7
 Problem 1-1A
 Due on June 12, 2006 (Monday)