Fundamental-Accounting-Principles-(1)

AccountinginBusinessChapter1PowerPointEditor:BethKane,MBA,CPACopyright©2015McGraw-HillEducation.Allrightsreserved.NoreproductionordistributionwithoutthepriorwrittenconsentofMcGraw-HillEducation.01-C1:ImportanceofAccounting21-3ImportanceofAccountingC1Forexample,thesalebyAppleofaniPhone.Keepachronologicallogoftransactions.Preparereportssuchasfinancialstatements.301-C2:UsersofAccountingInformation41-5UsersofFinancialInformationC2Accountingiscalledthelanguageofbusinessbecauseallorganizationssetupanaccountinginformationsystemtocommunicatedatatohelppeoplemakebetterdecisions.Accountingservesmanyuserswhocanbedividedintotwogroups:externalusersandinternalusers.51-6OpportunitiesinAccountingAccountinginformationisinallaspectsofourlives.Whenweearnmoney,paytaxes,investsavings,budgetearnings,andplanforthefuture,weuseaccounting.6C2NEED-TO-KNOWIdentifythefollowingusersofaccountinginformationaseitheran(a)externalor(b)internaluser.RegulatorCEOShareholderControllerExecutiveEmployeeExternalAuditorProductionManagerNonexecutiveEmployeea)Externaluserb)Internalusera)Externaluserb)Internaluserb)Internalusera)Externaluserb)Internalusera)ExternaluserExternalusersofaccountinginformationareNOTdirectlyinvolvedinrunningtheorganization.InternalusersofaccountinginformationAREdirectlyinvolvedinmanagingandoperatinganorganization.701-C3:Ethics81-9Ethics–AKeyConceptC3Thegoalofaccountingistoprovideusefulinformationfordecisions.Forinformationtobeuseful,itmustbetrusted.Thisdemandsethicsinaccounting.Ethicsarebeliefsthatdistinguishrightfromwrong.Theyareacceptedstandardsofgoodandbadbehavior.91-10FraudTriangleC3Threefactorsmustexistforapersontocommitfraud:opportunity,pressure,andrationalization.EnvisionawaytocommitfraudwithalowperceivedriskofgettingcaughtFailstoseethecriminalnatureofthefraudorjustifiestheactionMusthavesomepressuretocommitfraud,likeunpaidbills1001-C4:GenerallyAcceptedAccountingPrinciples111-12GenerallyAcceptedAccountingPrinciples(GAAP)C4Financialaccountingisgovernedbyconceptsandrulesknownasgenerallyacceptedaccountingprinciples(GAAP).GAAPaimstomakeinformationrelevant,reliable,andcomparable.Relevantinformationaffectsdecisionsofusers.Reliableinformationistrustedbyusers.Comparableinformationishelpfulincontrastingorganizations.121-13InternationalStandardsC4Intoday’sglobaleconomy,thereisincreaseddemandbyexternalusersforcomparabilityinaccountingreports.Thisdemandoftenariseswhencompanieswishtoraisemoneyfromlendersandinvestorsindifferentcountries.DifferencesbetweenU.S.GAAPandIFRSaredecreasingastheFASBandIASBpursueaconvergenceprocessaimedtoachieveasinglesetofaccountingstandardsforglobaluse.InternationalAccountingStandardsBoard(IASB)Anindependentgroup(consistingofindividualsfrommanycountries),issuesInternationalFinancialReportingStandards(IFRS)InternationalFinancialReportingStandards(IFRS)Identifypreferredaccountingpractices131-14ConceptualFrameworkandConvergenceC4141-15PrinciplesandAssumptionsofAccountingC4Generalprinciplesarethebasicassumptions,concepts,andguidelinesforpreparingfinancialstatements.Generalprinciplesstemfromlong-usedaccountingpractices.Specificprinciplesaredetailedrulesusedinreportingbusinesstransactionsandevents.Specificprinciplesarisemoreoftenfromtherulingsofauthoritativegroups.151-16AccountingPrinciplesC4MeasurementPrinciple(orCostPrinciple)Accountinginformationisbasedonactualcost.Actualcostisconsideredobjective.ExpenseRecognitionPrinciple(orMatchingPrinciple)Acompanymustrecorditsexpensesincurredtogeneratetherevenuereported.FullDisclosurePrincipleAcompanyisrequiredtoreportthedetailsbehindfinancialstatementsthatwouldimpactusers’decisions.RevenueRecognitionPrinciple1.Recognizerevenuewhenitisearned.2.Proceedsneednotbeincash.3.Measurerevenuebycashreceivedpluscashvalueofitemsreceived.161-17AccountingAssumptionsMonetaryUnitAssumptionExpresstransactionsandeventsinmonetary,ormoney,units.BusinessEntityAssumptionAbusinessisaccountedforseparatelyfromotherbusinessentities,includingitsowner.TimePeriodAssumptionPresumesthatthelifeofacompanycanbedividedintotimeperiods,suchasmonthsandyears.Going-ConcernAssumptionReflectsassumptionthatthebusinesswillcontinueoperatinginsteadofbeingclosedorsold.C4171-18Proprietorship,Partnership,andCorporationHerearesomeofthemajorattributesofproprietorships,partnerships,andcorporations:C4181-19Sarbanes–Oxley(SOX)CongresspassedtheSarbanes–OxleyActtohelpcurbfinancialabusesatcompaniesthatissuetheirstocktothepublic.SOXrequiresthatthesepubliccompaniesapplybothaccountingoversightandstringentinternalcontrols.Thedesiredresultsincludemoretransparency,accountability,andtruthfulnessinreportingtransactions.C4191-20Dodd-FrankWallStreetReformandConsumerProtectionActThisactwasdesignedto:1.promoteaccountabilityandtransparencyinthefinancialsystem,2.putanendtothenotionof“toobigtofail,”3.protectthetaxpayerbyendingbailouts,and4.protectconsumersfromabusivefinancialservices.20C4NEED-TO-KNOWIdentifythefollowingterms/phrasesaseitheranaccounting(a)principle,(b)assumption,or(c)constraint.TimeperiodFulldisclosureRevenuerecognitionMaterial