Class_Notes_Financial_Accounting_Chapter_1_Fall_2005

Class_Notes_Financial_Accounting_Chapter_1_Fall_2005 -...

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1 Accounting in Action Ethics - a fundamental business concept Generally accepted accounting principles Assumptions Basic accounting equation Transaction analysis Summary of transactions Who uses accounting data? Brief history of accounting Bookkeeping and accounting Accounting and you The accounting profession What is Accounting? PREVIEW OF CHAPTER 1 Financial Statements The Building Blocks of Accounting Using the Building Blocks Income statement Retained Earnings statement Balance sheet Statement of cash flows
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2 Accounting   is a process of three activities: 1   Identifying 2   Recording 3   Communicating WHAT IS ACCOUNTING?
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3 Identification Select economic events  (transactions) Recording Record, classify  and summarize Accounting Reports SOFTBYTE Annual Report Prepare accounting reports Analyze and interpret for users Communication ACCOUNTING PROCESS
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4 BOOKKEEPING DISTINGUISHED FROM ACCOUNTING Accounting 1 Includes bookkeeping 2 Also includes much more Bookkeeping 1 Involves only the recording of economic events 2 Is just one part of accounting
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5 Who Uses Accounting Data Internal Users – Managers plan, organize & run a business Questions Asked by Internal Users Is cash sufficient to pay bills? What is the cost of manufacturing each unit of product? Can we afford to give employee pay raises this year? What product line is most profitable? External Users Investors Creditors Others Taxing authorities, Regulatory agencies, Customers, Labor unions, Economic planners ? Questions Asked by External Users Is the company earning satisfactory income? How does the company compare in size and profitability with competitors? Will the company be able to pay its debts when they become due?
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6 Importance of Accounting Individuals and Institutions can improve their decision making with information. Financial Accounting and Reporting: Process by which the financial transactions, position, and results of a firm are recorded and communicated to outside investors, potential investors, and other external users. Managerial Accounting and Reporting: Process by which financial position and results of a firm are communicated internally.
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7 Ethics - standards of conduct by which one’s actions are judged as right or wrong, honest or dishonest. Generally Accepted Accounting Principles - primarily established by the Financial Accounting Standards Board and the Securities and Exchange Commission. Assumptions : 1 Monetary unit - only transaction data that can be expressed in terms of money is included in the accounting records. 2 Economic entity - includes any organization or unit in society.
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