© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw1in Fundamental Accounting Principles 17 th Edition Larson Wild Chiappetta

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw2in Accounting in Business Chapter 1 1

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw3in Learning objectives  Conceptual: C1: Explain the purpose and importance of accounting in the information age. C2: Identify users and uses of accounting. C3: Identify opportunities in accounting and related fields. C4: Explain why ethics are crucial to accounting. C5: Explain the meaning of GAAP, and define and apply several key principles of accounting.  Analytical: Define and interpret the accounting equation and each of its components.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw4in Learning objective C1: Explain the purpose and importance of accounting in the information age.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw5in Identifies Records Communicates Relevant Reliable Comparable Importance of Accounting Accounting is a system that information that is to help users make better decisions.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw6in  Identifying Business Activities  Recording Business Activities  Communicating Business Activities Accounting Activities

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw7in What is the relation between accounting and bookkeeping?  Bookkeeping is the recording of financial transactions and events, either manually or electronically.  Accounting is much more. It includes identifying, measuring, recording, reporting, and analyzing business events and transactions, and helps information users to make economic decisions.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw8in Learning objective C2: Identify users and uses of accounting.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw9in Users of Accounting Information External Users Lenders Shareholders Governments Consumer Groups External Auditors Customers Internal Users Managers Officers Internal Auditors Sales Staff Budget Officers Controllers

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw10in Users of Accounting Information External Users Financial accounting provides external users with financial statements. Internal Users Managerial accounting provides information needs for internal decision makers.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw11in Users of Accounting Information- External  Lenders: Whether the firm (borrower) can repay the money?  Shareholders: whether to buy, hold, or sell stocks?  Governments: whether the firm pay all due tax?  Customers: whether the firm can exist to provide post-sale services?  External Auditors: whether the financial statements are prepared according to GAAP?  Etc.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw12in Users of Accounting Information- Internal  Marketing managers: target customers, set price, monitor sales.  Production managers: monitor cost and ensure quality.  Purchasing managers: what, when and where to purchase materials.  Human resource managers: employees’ performance and compensation.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw13in Learning objective C3: Identify opportunities in accounting and related fields.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw14in Opportunities in Accounting Financial Preparation Analysis Auditing Regulatory Consulting Planning Criminal investigation Preparation Analysis Auditing Regulatory Consulting Planning Criminal investigation Managerial General accounting Cost accounting Budgeting Internal auditing Consulting Controller Treasurer Strategy General accounting Cost accounting Budgeting Internal auditing Consulting Controller Treasurer Strategy Taxation Preparation Planning Regulatory Investigations Consulting Enforcement Legal services Estate planning Preparation Planning Regulatory Investigations Consulting Enforcement Legal services Estate planning Accounting- related Lenders Consultants Analysts Traders Directors Underwriters Planners Appraisers Lenders Consultants Analysts Traders Directors Underwriters Planners Appraisers FBI investigators Market researchers Systems designers Merger services Business valuation Human services Litigation support Entrepreneurs FBI investigators Market researchers Systems designers Merger services Business valuation Human services Litigation support Entrepreneurs

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw15in Accounting Jobs by Area

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw16in Learning objective C4: Explain why ethics are crucial to accounting.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw17in Beliefs that distinguish right from wrong Accepted standards of good and bad behavior Ethics Ethics—A Key Concept

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw18in  Identify ethical concerns  Analyze options  Make ethical decision Use personal ethics to recognize ethical concern. Consider all good and bad consequences. Choose best option after weighing all consequences. Guidelines for Ethical Decision Making

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw19in Learning objective C5: Explain the meaning of GAAP, and define and apply several key principles of accounting.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw20in Financial accounting practice is governed by concepts and rules known as generally accepted accounting principles (GAAP). Generally Accepted Accounting Principles Relevant Information Affects the decision of its users. Reliable Information Is trusted by users. Comparable Information Is helpful in contrasting organizations.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw21in The Securities and Exchange Commission is the government group that establishes reporting requirements for companies that issue stock to the public. Setting Accounting Principles Financial Accounting Standards Board is the private group that sets both broad and specific principles.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw22in Setting Accounting Principles  Hong Kong: Hong Kong Institute of Certified Public Accountants (HKICPA)Hong Kong Institute of Certified Public Accountants  China Ministry of Finance People’s Republic of China  International Accounting Standard Board (IASB) International Financial Reporting Standards (IFRS)

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw23in Principles of Accounting  General principles: basic assumptions, concepts, and guidelines for preparing financial statements. Usually stem from long-used accounting practice.  Specific principles: detailed rules used in reporting business transactions and events. Usually created by a pronouncement from an authoritative body.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw24in Principles of Accounting— General Principles Objectivity Principle Accounting information is supported by independent, unbiased evidence. It is intended to make financial statements useful by ensuring they report reliable and verifible information. Source documents.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw25in Principles of Accounting Cost Principle Accounting information is based on actual cost. Cost is measured on a cash or equal-to cash basis Information based on cost is considered objective.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw26in Principles of Accounting Now Future Going-Concern Principle Reflects assumption that the business will continue operating instead of being closed or sold. The assets are reported at cost but not reported at liquidation value that assume closure.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw27in Principles of Accounting Monetary Unit Principle Express transactions and events in monetary, or money, units.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw28in Principles of Accounting Revenue Recognition Principle Provides guidance on when a company must recognize revenue. 1.Recognize revenue when it is earned. 2.Proceeds need not be in cash (Credit sales). 3.Measure revenue by cash received plus cash value of items received.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw29in Principles of Accounting Business Entity Principle A business is accounted for separately from other business entities, including its owner.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw30in Business Entity Forms Proprietorship Partnership Corporation

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw31in * * Proprietorships and partnerships that are set up as LLC’s provide limited liability. Characteristics of Businesses Exh. 1.8 *

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw32in Owners of a corporation are called shareholders (or stockholders). When a corporation issues only one class of stock, we call it common stock (or capital stock). Corporation

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw33in Learning objective  Define and interpret the accounting equation and each of its components.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw34in Assets Liabilities & Equity Accounting Equation Liabilities Equity Assets =+

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw35in Accounting Equation  Assets are resources with future benefits that are owned or controlled by a company.  Liabilities are what a company owes its creditors in future products or services.  Equity refers to the claims of its owner(s). Forms of funds=Sources of funds ( 資金佔用＝資金來源 ) What resources does the firm have? (Assets) = Where do those resources come from? (Liabilities and Equity) A firm acquires assets by funds. Liabilities and equity are the sources of funds to acquire those assets.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw36in Land Equipment Buildings Cash Vehicles Store Supplies Notes Receivable Accounts Receivable Resources owned or controlled by a company Assets

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw37in Taxes Payable Wages Payable Notes Payable Accounts Payable Creditors’ claims on assets Liabilities

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw38in Owner’s claims on assets Owner’s claims on assets Revenues Owner Investments Owner Withdrawals Expenses Equity

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw39in Liabilities Equity Assets =+ Expanded Accounting Equation Revenues Expenses Owner Capital Owner Withdrawals _ + _

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw40in Expanded Accounting Equation  Revenues: gross increase in equity from a company’s earnings activities.  Expenses: the cost of assets or services used to earn revenue. Expenses decrease owner’s equity.  Owner investments: the assets an owner puts into the company.  Owner withdrawals: the assets take away from the company for personal use.

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw41in End of Chapter 1

© The McGraw-Hill Companies, Inc., 2006 McGraw-Hill/Irw42in Chapter 1 Homework  Ex. 1-1,1-2,1-7  Problem 1-1A  Due on June 12, 2006 (Monday)