Accounting: The Key to Success C H A P T E R 1

Learning Objectives 1. Describe accounting and its goals and uses. 2. Describe different forms of business organizations. 3. Identify users and uses of accounting. 4. Explain why ethics and social responsibility are crucial to accounting.

Learning Objectives 5. Describe how technology is changing accounting. 6. Identify opportunities in accounting and related fields. 7. Explain e-business and identify other technology applications useful to accounting. (Appendix 1A)

What is Accounting? Accounting is an information system that: identifies measures records communicates relevant, reliable, consistent and comparable information about an organization’s economic activities.

Why? The primary objective of accounting is to provide useful information for decision making.

Forms of Organization  Sole Proprietorship  Partnership  Corporation

Sole Proprietorship  One owner  Separate entity for accounting purposes  Not a separate legal entity from the owner  Unlimited liability  Limited life  Owner taxed on profits

Partnership  Two or more owners  Separate entity for accounting purposes  Not a separate legal entity from the owners  Unlimited liability  Limited life  Owners taxed on profits

Corporations  One or more owners  Separate entity for accounting purposes  Separate legal entity from the owner(s)  Limited liability  Unlimited life  Corporation taxed on profits

Non-business Organizations  Not-for-profit and government organizations  No identifiable owner  Examples: schools, charities, libraries, hospitals, police, shelters Practice

Users of Accounting Information Internal  Owners  Managers External  Bankers and other creditors  Investors and potential investors  Unions  External auditors  CCRA

Questions asked by internal users  What are the manufacturing expenses per unit of product?  What is the most profitable mix of services?  What level of revenues is necessary to show net income?  How much profit did we earn last month?  Which expenses change with a change in revenues?  Are we keeping our expenses under control?

Questions asked by external users  Can the company repay current loans?  Can additional loans be repaid?  Do expenses fit the level and type of revenues?  Is net income large enough to support a request for increased pay?  Have all expenses been recorded?  Are the funds donated being spent in an appropriate manner?

Ethics in Accounting  One of the primary goals of accounting is to provide useful information for decision making.  In order for the information to be useful, it must be trusted.  Accountants must act in an ethical manner in order for the information they produce to be trusted. Ethics in Accounting

Ethics and Social Responsibility Ethical obligations of accountants:  Maintain a high level of professional competence.  Treat sensitive information as confidential.  Exercise personal integrity.  Be objective in matters of financial disclosure. Practice

Accounting and Technology Impact of technology on accounting:  Instant access to information  Decreased cost, effort, and time  Computer skills essential  Increased job opportunities

Accounting Opportunities Broad fields of accounting include:  Financial accounting  Managerial accounting  Taxation  Accounting related fields

Accounting Opportunities Financial Accounting Managerial Accounting Taxation Accounting Related Fields

End of chapter

Forms of Organization Exercise 1-1 Problem 1-1A Return

Ethics Exercise 1-4 Return