1. 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.
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PowerPoint Presentation by Douglas Cloud Professor Emeritus of Accounting Pepperdine University

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3. 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:

4. 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.

5. 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

6. 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

7. 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

8. There are three types of business organizations
Proprietorship
Partnership
Corporation

9. 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

10. 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

11. 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.

12. 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.

13. 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

14. 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

15. 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

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

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

18. 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.

19. 5 The Process of Providing Information STAKEHOLDERS Internal:
Owners, managers, employees
External: Customers, creditors, government 5
Prepare accounting reports for stakeholders.
Accounting Information System

20. 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