Chapter 1_Lecture_Summer_2010

Chapter 1_Lecture_Summer_2010 - 1 1. Explain what...

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Unformatted text preview: 1 1. Explain what accounting is. 2. Identify the users and uses of accounting. 3. Understand why ethics is a fundamental business concept. 4. Explain generally accepted accounting principles (GAAP) and the cost principle. 5. Explain the monetary unit assumption and the economic entity assumption. 6. State the accounting equation, and define assets, liabilities, and stockholders’ equity. 7. Analyze the effects of business transactions on the accounting equation. 8. Understand the four financial statements and how they are prepared. CHAPTER 1 STUDY OBJECTIVES 2 Accounting Accounting can be described as:- An Information System- The Language of Business WHAT IS ACCOUNTING? 3 The purpose of accounting is to: (1) (1) identify identify , record record , and communicate communicate the economic events of an (2) organization to (3) interested users. WHAT IS ACCOUNTING? 4 Identification Select economic events (transactions) Measurement & Recording Measure, Record, Classify, and summarize Accounting Reports SOFTBYTE Annual Report Prepare accounting reports Analyze and interpret for users Communication ACCOUNTING PROCESS Three Activities Three Activities 5 Management Common Questions Human Resources IRS Labor Unions SEC Marketing Finance Creditors/ Banks Customers Internal Users External Users Investors/ Financial Analysts Who Uses Accounting Data? 6 Common Questions Asked User 1. Can we afford to give our employees a pay raise? Human Resources 2. Did the company earn a satisfactory income? 3. Do we need to borrow in the near future? 4. Is cash sufficient to pay dividends to the stockholders? 5. What price for our product will maximize net income? 6. Will the company be able to pay its debts when they become due? Investors Management Finance Marketing Creditors Who Uses Accounting Data? 7 Ethics in Financial Reporting Standards of conduct by which one’s actions are judged as right or wrong, honest or dishonest. Business ethics are tested on the CPA (Certified Public Accountant) exam and are part of a CPAs licensing requirements. – Recent financial scandals include: Enron , WorldCom , HealthSouth , AIG , and others. – Congress passed Sarbanes-Oxley Act of 2002. – Effective financial reporting depends on sound ethical behavior. THE BUILDING BLOCKS OF ACCOUNTING 8 Generally Accepted Accounting Principles (GAAP) The accounting profession has attempted to develop a set of accounting rules & regulations to measure & report transactions. These standards are generally accepted and universally practiced. Organizations involved in standard setting are: • The Financial Accounting Standards Board (FASB) • The Securities and Exchange Commission (SEC) • The International Accounting Standard Board (IASB) THE BUILDING BLOCKS OF ACCOUNTING 9 Cost Principle (Historical) – dictates that companies record assets at their cost....
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This note was uploaded on 02/08/2011 for the course ACCOUNTING 272 taught by Professor Stein during the Spring '11 term at Rutgers.

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Chapter 1_Lecture_Summer_2010 - 1 1. Explain what...

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