POA_En_ch01

1-11-2Chapter1AccountinginActionLearningObjectivesAfterstudyingthischapter,youshouldbeableto:1.Explainwhatbalancesheetandincomestatementare.2.Explainwhataccountingis.3.Identifytheusersandusesofaccounting.4.Identifythemajorbranchesofaccounting.5.Statetheaccountingequation,anddefineitscomponents.6.Analyzetheeffectsofbusinesstransactionsontheaccountingequation.7.Understandthefourfinancialstatementsandhowtheyareprepared.8.Understandwhyethicsisafundamentalbusinessconcept.1-3Chapter1AccountinginActionLearningObjectivesAfterstudyingthischapter,youshouldbeableto:9.Explainaccountingstandards-settersandtheirstandards.10.Explainmeasurementprinciples.11.Explainthefouraccountingassumption.12.Explainthethreeformsofbusinessorganization.13.Explainthemechanismthatensurestheusefulnessofaccountinginformation.14.Explainwhattolearninfinancialaccountingcourse.1-4PreviewofChapter1ACCOUNTINGINACTION•Yourownbalancesheet•Acompany’sbalancesheetandincomestatement•Threeactivities•Whouseaccountingdata?•MajorbranchesofaccountingWhatisAccounting?•Assets•Liabilities•EquityTheBasicAccountingEquation•TransactionAnalysisUsingtheAccountingEquation•IncomeStatement•Statementoffinancialposition•Statementofchangesequity•StatementofcashflowsFinancialStatementsBeginningStories•EthicsinFinancialReporting•AccountingStandards•MeasurementPrinciples•Assumptions•OtherissuesBuildingBlocksofAccounting1-5Prepareyourownbalancesheet.ListallyourpersonalpropertiesIdentifywherethecapitalcomesfromCombinethetwolistsintoonetable,yougetyourbalancesheet.BeginningStoriesLO1Explainwhatbalancesheetandincomestatementare.1-6Prepareacompany’sbalancesheetandincomestatement.Setupanewcompany,prepareitsbalancesheetDobusinesstillthe1stmonthends.Preparethebalancesheetattheendofthe1stmonth.Prepareanincomestatementforthe1stmonth.BeginningStoriesLO1Explainwhatbalancesheetandincomestatementare.1-7ThinkitoverWhatinformationdoesabalancesheetgive?Whatinformationdoesanincomestatementgive?BeginningStoriesLO1Explainwhatbalancesheetandincomestatementare.1-8LO2Explainwhataccountingis.Accountingconsistsofthreebasicactivities-itidentifiestheeconomiceventsofanorganizationRecordstheevents,andcommunicatessummarizedinformationabouttheeventstointerestedusers,viafinancialreports.WhatisAccounting?1-9ThreeActivitiesIllustration1-1TheactivitiesoftheaccountingprocessTheaccountingprocessincludesthebookkeepingfunction.WhatisAccounting?LO2Explainwhataccountingis.1-10ManagementHumanResourcesTaxingAuthoritiesLaborUnionsRegulatoryAgenciesMarketingFinanceInvestorsCreditorsCustomersInternalUsersExternalUsersWhoUsesAccountingDataLO3Identifytheusersandusesofaccounting.1-11CommonQuestionsAskedUser1.Canweaffordtogiveouremployeesapayraise?HumanResources2.Didthecompanyearnasatisfactoryincome?3.Shouldanyproductlinesbeeliminated?4.Iscashsufficienttopaydividendstoshareholders?5.Whatpriceforourproductwillmaximizenetincome?6.Willthecompanybeabletopayitsdebts?InvestorsManagementFinanceMarketingCreditorsWhoUsesAccountingDataLO3Identifytheusersandusesofaccounting.1-12ManagementAccountingfocusesonhowtoprovideaccountinginformationtoinsideusers.FinancialAccountingfocusesonhowtoprovideaccountinginformationtooutsideusers.Auditingfocusesonhowtoattestthefairnessofcompanies’financialstatements.PrinciplesofAccountingisafundamentalcourseoffinancialaccounting.BranchesofAccountingLO4Identifythemajorbranchofaccounting.1-13AssetsLiabilitiesEquity=+Providestheunderlyingframeworkforrecordingandsummarizingeconomicevents.Appliestoalleconomicentitiesregardlessofsize.TheBasicAccountingEquationLO5Statetheaccountingequation,anddefineitscomponents.1-14AssetsResourcesabusinessownsorcontrols.Providefutureservicesorbenefits.Cash,Inventory,Equipment,etc.AssetsLiabilitiesEquity=+LO5Statetheaccountingequation,anddefineitscomponents.TheBasicAccountingEquation1-15LiabilitiesAssetsLiabilities=+EquityLO5Statetheaccountingequation,anddefineitscomponents.TheBasicAccountingEquationClaimsagainstassets(debtsandobligations).Creditors-partytowhommoneyisowed.Accountspayable,Notespayable,etc.1-16Ownershipclaimontotalassets.Referredtoasresidualequity.Sharecapital-ordinaryandretainedearnings.EquityAssetsLiabilitiesEquity=+LO5Statetheaccountingequation,anddefineitscomponents.TheBasicAccountingEquation1-17Revenuesresultfrombusinessactivitiesenteredintoforthepurposeofearningincome.Generallyresultsfromsellingmerchandise,performingservices,rentingproperty,andlendingmoney.Illustration1-7LO5Statetheaccountingequation,anddefineitscomponents.TheBasicAccountingEquation1-18Expensesarethecostofassetsconsumedorservicesusedintheprocessofearningrevenue.Commonexpensesaresalariesexpense,rentexpense,interestexpense,propertytaxexpense,etc.Illustration1-7LO5Statetheaccountingequation,anddefineitscomponents.TheBasicAccountingEquation1-19Dividendsarethedistributionofcashorotherassetstoshareholders.ReduceretainedearningsNotanexpenseIllustration1-7LO5Statetheaccountingequation,anddefineitscomponents.TheBasicAccountingEquation1-20ClassificationClassifythefollowing