Introduction to Accounting and Business Chapter 1 Introduction to Accounting and Business Accounting, 21st Edition Warren Reeve Fess © Copyright 2004 South-Western, a division of Thomson Learning. All rights reserved. Task Force Image Gallery clip art included in this electronic presentation is used with the permission of NVTech Inc. PowerPoint Presentation by Douglas Cloud Professor Emeritus of Accounting Pepperdine University

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After studying this chapter, you should be able to: Objectives 1. Describe the nature of a business. 2. Describe the role of accounting in business. 3. Describe the importance of business ethics and the basic principles of proper ethical conduct. 4. Describe the profession of accounting. 5. Summarize the development of accounting principles and relate them to practice. 6. State the accounting equation and define each element of the equation. After studying this chapter, you should be able to:

Objectives 7. Explain how business transactions can be stated in terms of the resulting change in the basic elements of the accounting equation. 8. Describe the financial statements of a proprietorship and explain how they interrelate. 9. Use the ratio of liabilities to owner’s equity to analyze the ability of a business to withstand poor business conditions.

Manufacturing Business Types of Businesses Manufacturing Business Product General Motors Cars, trucks, vans Intel Computer chips Boeing Jet aircraft Nike Athletic shoes and apparel Coca-Cola Beverages Sony Stereos and television

Merchandising Business Types of Businesses Merchandising Business Product Wal-Mart General merchandise Toys “R” Us Toys Circuit City Consumer electronics Lands’ End Apparel Amazon.com Internet books, music, video retailer

Types of Businesses Service Business Disney Entertainment Product Disney Entertainment Delta Air Lines Transportation Marriott Hotels Hospitality and lodging Merrill Lynch Financial advice Sprint Telecommunication

There are three types of business organizations Proprietorship Partnership Corporation

A proprietorship is owned by one individual. Advantages Ease in organizing Low cost of organizing Disadvantage Limited source of financial resources Unlimited liability Joe’s

A partnership is owned by two or more individuals. Advantages More financial resources than a proprietorship. Additional management skills. A partnership is owned by two or more individuals. Disadvantage Unlimited liability. Joe and Marty’s

The ability to obtain large amounts of resources by issuing stocks. A corporation is organized under state or federal statutes as a separate legal entity. Advantage The ability to obtain large amounts of resources by issuing stocks. Disadvantage Double taxation. J & M, Inc.

Business Strategies A business strategy is an integrated set of plans and actions designed to enable the business to gain an advantage over its competitors, and in doing so, to maximize its profits.

Business Strategies Under a low-cost strategy, a business designs and produces products or services of acceptable quality at a cost lower than that of its competitors. Wal-Mart Southwest Airlines

Business Strategies Under a differential strategy, a business designs and produces products or services that possess unique attributes or characteristics which customers are willing to pay a premium price. Maytag Tommy Hilfiger

Value Chain of a Business A value chain is the way a business adds value for its customers by processing inputs into product or service. Inputs Business Processes Products or Services Customer Value

Business Stakeholders A business stakeholder is a person or entity having an interest in the economic performance of the business.

The Process of Providing Information STAKEHOLDERS Internal: Owners, managers, employees External: Customers, creditors, government 1 Identify stake-holders. 2 Assess stakeholders’ informational needs.

The Process of Providing Information Design the accounting information system to meet stakeholders’ needs. 3 Accounting Information System 4 Record economic data about business activities and events.

5 The Process of Providing Information STAKEHOLDERS Internal: Owners, managers, employees External: Customers, creditors, government 5 Prepare accounting reports for stakeholders. Accounting Information System

Sound Principles that form the foundation for ethical behavior Business Ethics 1. Avoid small ethical lapses. 2. Focus on your long-term reputation. 3. You may expect to suffer adverse personal consequences for holding to an ethical position. Sound Principles that form the foundation for ethical behavior