Slide 1-1ECON 3A UCSB-- ANDERSONAccounting as a Form of CommunicationChapter 1Slide 1-2ECON 3A UCSB-- ANDERSONWhat is Accounting?Accounting isthe process of identifying, measuring, and communicating economic information to various users. Its purpose isto 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 1-3ECON 3A UCSB-- ANDERSONBALANCE SHEETBALANCE SHEET/ STATEMENT OF FINANCIAL POSITIONASSET: Probable future economic benefit as a result of a past transaction, examples: Cash, accounts receivableLIABILITY: Probable future economic sacrifice as a result of a past transaction, examples: accounts payable, accrued expensesEQUITY: Residual interest of owners, examples retained earnings, common stockA= L + EOR E = A - LSlide 1-4ECON 3A UCSB-- ANDERSONINCOME STATEMENTREVENUE: 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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