Chapter 1 The Nature and Purpose of Financial Accounting.

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Presentation transcript:

Chapter 1 The Nature and Purpose of Financial Accounting

What is Accounting? Why Does it Exist?

3 Financial Accounting, 7e Stice/Stice, 2006 © Thomson The preservation of a systematic, quantitative record of an entity Mechanical in nature Bookkeeping

4 Financial Accounting, 7e Stice/Stice, 2006 © Thomson Accounting System Step 2: Analysis (organize and evaluate accounting information) Step 1:Bookkeeping (keep track of information)

5 Financial Accounting, 7e Stice/Stice, 2006 © Thomson Accounting A system providing quantitative information... Numbers are easily tabulated and summarized. Does not capture qualitative information.

6 Financial Accounting, 7e Stice/Stice, 2006 © Thomson Accounting A system providing quantitative information, primarily financial in nature... Accounting does not capture non-financial information. Accounting

7 Financial Accounting, 7e Stice/Stice, 2006 © Thomson Accounting A system providing quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions. Although historical in nature, it is useful only if future decisions are impacted by it. Accounting

8 Financial Accounting, 7e Stice/Stice, 2006 © Thomson Financial Statement Users Managerial accounting Financial accounting Internal UsersExternal Users Managers Executives Lenders Investors

Financial Statements

10 Financial Accounting, 7e Stice/Stice, 2006 © Thomson Types of Financial Statements Balance sheet Income statement Statement of cash flows

11 Financial Accounting, 7e Stice/Stice, 2006 © Thomson Balance Sheet Assets=LiabilitiesEquity +

12 Financial Accounting, 7e Stice/Stice, 2006 © Thomson Income Statement Revenue - Expenses Net Income

13 Financial Accounting, 7e Stice/Stice, 2006 © Thomson Statement of Cash Flows Cash from operating activities Cash from investing activities Cash from financing activities

Who Uses Financial Accounting Information

15 Financial Accounting, 7e Stice/Stice, 2006 © Thomson Who Uses Financial Accounting Information? Lenders Investors Management Suppliers and customers Employees Competitors Government agencies Politicians The press

The Need for Financial Accounting Standards

17 Financial Accounting, 7e Stice/Stice, 2006 © Thomson Financial Accounting Standards Board (FASB) Sets accounting standards in the United States – Generally Accepted Accounting Principles –GAAP Established in 1973 Is a private sector regulatory authority

Other Accounting- Related Organizations

19 Financial Accounting, 7e Stice/Stice, 2006 © Thomson Other Accounting-Related Organizations Securities and Exchange Commission American Institute of Certified Public Accountants (AICPA) Public Company Accounting Oversight Board (PCAOB) Internal Revenue Service International Accounting Standards Board

20 Financial Accounting, 7e Stice/Stice, 2006 © Thomson It’s An Exciting Time... Global economy Worldwide accounting standards Information technology Post-Enron/Sarbanes-Oxley era

21 Financial Accounting, 7e Stice/Stice, 2006 © Thomson In Summary... Three primary financial statements –Income Statement –Balance Sheet –Statement of Cash Flows Users of financial data United States GAAP from the FASB Other accounting-related organizations: AICPA, SEC, PCAOB, IRS, IASB Factors impacting changes in accounting