1. The Role of Accounting in Business Chapter 1
Survey of Accounting
The Role of Accounting in Business
Chapter 1

2. Users of Accounting Information
Internal users
Managers
External users
Investors and creditors
Suppliers
Customers
Employees
Government and other regulatory agencies

3. Types of Accounting Information
Financial
External users
Follows generally accepted accounting principles (GAAP)
Supply-driven
Highly summarized
Basic financial statements
Managerial
Internal users
No regulations regarding what is to be presented or how
Demand-driven
Very detailed
Various forms of reports needed to provide useful information to managers

4. Objectives of Financial Reporting
Provide information useful for making investment, credit and other decisions
Provide information about the amount, timing and probability of future cash flows
Provide information about the entity’s assets and claims against those assets, and the changes in the assets and claims against them

5. Qualitative Characteristics of Accounting information
Primary characteristics
Relevance
Reliability
Secondary characteristics
Comparability
Consistency

6. Basic Accounting Concepts
Entity concept
Information about the entity is kept separate from information about other entities
Going concern concept
It is assumed the entity will continue to operate in the future unless there is evidence to the contrary
Time period concept
The life of the entity is divided into shorter periods for reporting purposes

7. Basic Accounting Concepts
Monetary unit concept
For accounting purposes, all economic events are reduced to a common unit of currency
Historical cost concept
Economic events will be recorded at their value when the event occurred
Objectivity concept
Accounting information should be based on objective evidence

8. Basic Accounting Concepts
Adequate disclosure concept
Financial statements, footnotes, and other information should contain all relevant information needed by users to understand the entity’s financial condition and results of operations
Matching concept
Expenses incurred to produce revenue should be recorded in the same period as the revenue

9. Basic Financial Statements
Income Statement
Reports the results of operations for a period of time
Revenues – expenses = net income (or loss)
Balance Sheet
Reports the financial position of the entity at a point in time
Assets = liabilities + equity

10. Basic Financial Statements
Retained Earnings Statement
Reports the change in the amount of earnings retained within the entity during a period of time
Statement of Cash Flows
Reports the sources and uses of cash during a period of time

11. Categories of Business Activities
Financing Activities
Raising capital to start or expand the business
Borrowing and repaying long-term debt
Issuance or reacquisition of capital stock
Payment of dividends
Investing activities
Acquisition of the resources needed to operate the business
Acquisition and disposal of property, plant and equipment

12. Categories of Business Activities
Operating activities
Day-to-day activities conducted to carry out the purpose of the business
Sale of goods or services
Incurrence of expenses

13. Elements of Financial Statements
Asset
Probable future economic benefits resulting from past transactions
Liability
Probable future sacrifice of economic benefits resulting from past transactions
Equity
Residual ownership in the assets of an entity after the liabilities have been satisfied

14. Elements of Financial Statements
Revenue
Inflow of assets or settlement of liabilities as a result of conducting the main activities of the entity
Expense
The consumption of assets or incurrence of liabilities as a result of conducting the main activities of the entity
Dividend
Distribution of assets to the owners of the entity