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Financial Accounting 01

Financial Accounting 01 - Business lt All bout Wholt A...

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Business: Wholt lt All About? Here's Where You're Going When youfinish studying Chopter 1, you should understond whot o business does ond how the finonciol stotements reflect informotion obout business tronsoctions. /,ea.nniry QSteeftves When you are finished studying this chapter, you should be able to: 1- Describe what a business does and the various ways a business can be organrzed. 2. Classify business transactions as operating, investing, or financing activities, 3- Describe who uses accountinginformation and why accountinginformaiion is im- portant to them. 4. Identify the elements and explain the purpose of the four basic financial statements and be able use basic transaction analysis to prepareeach statement-the income statement, the statement of changes in shareholders' equity, the balance sheet, and the statement of cash flows. . 5. Identify the elements of a real company's financial statements. 6. Describe the risks associated with being in business and the part that ethics plays in business.
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CHAPTER 1 . BUSINESS: WHAT'S lT ALL ABOUT? ffiff*t*s ;W{r*ffeye When you are asked to do something you believe may be uneth- ical, askyourself the following questions: (1) ls it legal? (2) Will it harm anyone? (3) Would you mind reading about your decision in the morning newspaper? In 2005, a documentary called "The Smartest Guys in the Room" was nominated for an Academy Award. lt is the story of the rise and fall of Enron, the energy giant that filed for bank- ruptcy in 2001. Although the symptoms of the scandal were fraudulent finan- cial statements and accounting failures, at the heart of Enron's failure was a lack of ethics. The unethical decisions and actions of some of Enron's managers and executives paved the way for one of the largest bankruptcies in U.5. his- tory. In May 2006, Enron's founder, Ken Lay, and CEO Jeffrey Skilling were both found guilty of conspiring to defraud shareholders. In July 2006, Ken Lay died before he could be sentenced. In October 2006, Jeff Skilling was sentenced to 24 years in prison. Have you ever heard of Enron? WorldCom? Sarbanes-Oxley? Much of the business press in the past few years has focused on the Sarbanes-Oxley Act of 2002. The law was motivated by the financial scandals and business failures-such as Enron and WorldCom-in the early part of the decade. The U.S. Congress felt the need to pass new business regulations to help restore confidence in the capital markets. No respectable businessperson can remain ignorant about this law and its relationship to accounting. In the investigation and trial of Bernard Ebbers, the former CEO of WorldCom, Ebbers was quoted as saying that he did not know fi- nance and he did not know accounting. His conviction and long prison sentence tell us that this is no longer acceptable. Everyone in business must know something about accounting.
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Financial Accounting 01 - Business lt All bout Wholt A...

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