3achapter1 - What is Accounting Accounting as a Form of...

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Slide 1-1 ECON 3A UCSB-- ANDERSON Accounting as a Form of Communication Chapter 1 Slide 1-2 ECON 3A UCSB-- ANDERSON What is Accounting? Accounting is the process of identifying, measuring, and communicating economic information to various users. Its purpose is to provide economic information about an organization that will be useful to those who need to make decisions regarding that entity. For example , information provided by an accountant about an entity is useful to a banker in reaching a decision about whether to loan money to a business . ACCOUNTING IS THE LANGUAGE USED TO DISCUSS BUSINESS PERFORMANCE. Slide 1-3 ECON 3A UCSB-- ANDERSON BALANCE SHEET BALANCE SHEET/ STATEMENT OF FINANCIAL POSITION ASSET: Probable future economic benefit as a result of a past transaction, examples: Cash, accounts receivable LIABILITY: Probable future economic sacrifice as a result of a past transaction, examples: accounts payable, accrued expenses EQUITY: Residual interest of owners, examples retained earnings, common stock A = L + E OR E = A - L Slide 1-4 ECON 3A UCSB-- ANDERSON INCOME STATEMENT REVENUE: Reported when it is earned EXPENSE: Reported when the benefit is derived. Leads to the concept of MATCHING, which means we match the expense to the period in which the associated revenue is recorded.
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