3achapter1

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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Slide 1-5 ECON 3A UCSB-- ANDERSON A word about International Accounting These fundamentals that you are about to learn in this class will be applicable whenever the IFRS convergence takes place!! Slide 1-6 ECON 3A UCSB-- ANDERSON Accounting is important for markets, free enterprise, and competition because it assists in providing information that leads to capital allocation. The better the information, the more effective the process of capital allocation and then the healthier the economy. ACCOUNTING IS A CRITICAL COMPONENT OF THE FUNCTIONING OF THE CAPITAL MARKETS! Why is Accounting Important? Slide 1-7 ECON 3A UCSB-- ANDERSON Users of Financial Information Management Common Decisions? Current and Potential Stockholders Bankers Financial Analyst Government Agencies Employees Supplier Bondholders Creditors LO 1 Identify the primary users of accounting information and their needs. Slide 1-8 ECON 3A UCSB-- ANDERSON Needs Information About User Group 1. The profitability of each division in the company Management 2. The prospects for future dividend payments Stockholder 3. The financial status of a company issuing securities to the public for the first time Securities and Exchange Commission (SEC) 4. The prospects that the company will be able to pay its interest payments on time Banker 5. The prospects that the company will be able to pay for its purchases on time Supplier LO 1 Identify the primary users of accounting information and their needs.
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Slide 1-9 ECON 3A UCSB-- ANDERSON Characteristics of Financial Accounting Financial Information Accounting?
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3achapter1 - What is Accounting? Accounting as a Form of...

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