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Unformatted text preview: C H A P T E R 1 BASIC FINANCIAL ACCOUNTING REVIEW I N T R O D U C T I O N Every profit or nonprofit business en- tity requires a reliable internal system of accountability. A business ac- counting system provides this ac- countability by recording all activi- ties regarding the creation of monetary inflows of sales revenue and monetary outflows of expenses resulting from operating activities. The accounting system provides the financial information needed to eval- uate the effectiveness of current and past operations. In addition, the ac- counting system maintains data re- quired to present reports showing the status of asset resources, creditor lia- bilities, and ownership equities of the business entity. In the past, much of the work required to maintain an effective ac- counting system involved extensive manual effort that was tedious, ag- gravating, and time consuming. Such systems relied on individual effort to continually record transac- tions, to add, subtract, summarize, and check for errors. The rapid ad- vancement of computer technology has increased operating speed, data storage, and reliability, accompanied by a significant cost reduction. Inex- pensive microcomputers and ac- counting software programs have advanced to the point where all of the posting, calculations, error checking, and financial reports are provided quickly by the computer- ized system. The efficiency and cost-effectiveness of accounting computer software allow manage- ment to maintain direct personal control of the accounting system. To effectively understand con- cepts and analysis techniques dis- cussed within this text, it is essential that the reader have a conceptual as well as a practical understanding of accounting fundamentals. This chap- ter reviews basic accounting princi- ples, concepts, conventions, and practices. This review should be of particular benefit to the reader who has not taken an introductory ac- counting course or who has not re- ceived accounting training for some time. C O P Y R I G H T E D M A T E R I A L 2 C H A P T E R 1 B A S I C F I N A N C I A L A C C O U N T I N G R E V I E W C H A P T E R O B J E C T I V E S After studying this chapter and completing the assigned exercises and problems, the reader should be able to 1. Define and explain the accounting principles and concepts. 2. Explain the conceptual difference between the cash and accrual methods of accounting. 3. Explain the rules of debits and credits and their use as applied to double- entry accounting by increasing or decreasing an account balance of the five basic accounts: A ssets, L iabilities, O wnership E quity, S ales R ev- enue, and E xpenses. 4. Explain the basic balance sheet equation: A ssets L iabilities O wner- ship E quity....
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This note was uploaded on 04/17/2010 for the course ACCT 1001 taught by Professor Lalaman during the Spring '10 term at Fordham.
- Spring '10