Accounting and Business
For many students, Chapter 1 of
Principles of Financial Accounting
is their first taste of the business or
accounting disciplines. The teaching challenge is to get students to understand and accept the importance
of learning business and accounting concepts. This will make the course more than just another
requirement that students must complete to graduate. Because this chapter will set the tone for the entire
course and their business careers, avoid the temptation to rush through the material.
Chapter 1 begins with a discussion of the nature of a business and the different types of businesses
(service, merchandising, and manufacturing) and types of business organizations (proprietorship,
partnership, corporation, and limited liability corporations). Next, the chapter describes different types of
business stakeholders, introduces business ethics, and discusses three factors of individual character, firm
culture, and laws and enforcement that affect ethics as well as the accounting/business frauds of the
2000s. The roles of accounting in business and accounting professions/careers are discussed. Following
this introductory information, the text explains Generally Accepted Accounting Principles (GAAP), the
business entity concept, and the cost concept. The accounting equation is introduced, and then the
discussion of how business transactions affect accounts in the accounting equation begins. When
transactions are analyzed, changes in assets, liabilities, and owner’s equity are stated as “increases” or
“decreases”—the terms debit and credit are not introduced until Chapter 2. The rules of using at least two
accounts, selecting those account names, and maintaining the equality of the equation are discussed using
several transactions for a business called “Net Solutions.”
The chapter ends with examples of how to
prepare all four financial statements using the accounting equation information and with explanations of
how the four financial statements are interrelated.
After studying the chapter, your students should be able to:
Describe the nature of a business, the role of accounting, and ethics in business.
Summarize the development of accounting principles and relate them to practice.
This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. This may not be resold, copied,
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