Financial Accounting Lecture Note (1), Spring 2009
Professor Won-Wook Choi, Yonsei School of Business
Chapter 1 Introduction to Financial Accounting
1. What is accounting?
The act of gathering and reporting of the financial history of an economic entity for various
monetary information reported on the financial statements (balance
stmt, cash flow stmt).
corporation, sole proprietorship, partnership,
stocks listed on the exchange, stocks traded on the OTC market,
manufacturers, merchandisers, service firms,
profit-seeking organization, non-profit organization.
Various interest groups:
shareholders (majority, minority, current, potential),
regulators, tax authority
managers, employees (labor union), analysts
2. How is financial history prepared on the accounting reports?
Economic concepts – ideas that form the foundation of accounting reports.
Financial values, wealth and economic income are used to measure the history.
Accounting conventions – to implement economic ideas by setting the criteria (GAAP) for
recognition (whether report or not), classification (where in the report), and valuation (by how
Institutional context – incentives and environment that affect what people (managers, investors,
auditors, regulators, and etc.) will do.