1. PowerPoint Authors: Susan Coomer Galbreath, Ph.D., CPA Charles W. Caldwell, D.B.A., CMA Jon A. Booker, Ph.D., CPA, CIA Cynthia J. Rooney, Ph.D., CPA Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin Chapter 1 A CCOUNTING IN B USINESS

2. 1 - 2 Identifying Select transactions and events Recording Input, measure and classify Recording Input, measure and classify Communicating Prepare, analyze and interpret Communicating Prepare, analyze and interpret I MPORTANCE OF A CCOUNTING Accounting C 1

3. 1 - 3 U SERS OF A CCOUNTING I NFORMATION External Users Lenders Shareholders Governments Consumer Groups External Auditors Customers Internal Users Managers Officers/Directors Internal Auditors Sales Staff Budget Officers Controllers C 2

4. 1 - 4 External Users Financial accounting provides external users with financial statements. Internal Users Managerial accounting provides information needs for internal decision-makers. C 2 U SERS OF A CCOUNTING I NFORMATION

5. 1 - 5 O PPORTUNITIES IN A CCOUNTING C 2

6. 1 - 6 A CCOUNTING J OBS BY A REA C 2

7. 1 - 7 Beliefs that distinguish right from wrong Accepted standards of good and bad behavior Ethics E THICS - A K EY C ONCEPT C 3

8. 1 - 8 C 3 E THICS - A K EY C ONCEPT

9. 1 - 9 Financial accounting practice is governed by concepts and rules known as generally accepted accounting principles (GAAP). G ENERALLY A CCEPTED A CCOUNTING P RINCIPLES Relevant Information Affects the decision of its users. Reliable Information Is trusted by users. Comparable Information Is helpful in contrasting organizations. C 4

10. 1 - 10 The Securities and Exchange Commission is the government agency that establishes reporting requirements for companies that issue stock to the public. S ETTING A CCOUNTING P RINCIPLES Financial Accounting Standards Board is the private group that sets both broad and specific principles. The International Accounting Standards Board (IASB) issues International Financial Reporting Standards that identify preferred accounting practices to create harmony among accounting practices of different countries. C 4

11. 1 - 11 I NTERNATIONAL S TANDARDS The International Accounting Standards Board (IASB), an independent group (consisting of 16 individuals from many countries), issues International Financial Reporting Standards (IFRS) that identify preferred accounting practices. IASB C 4

12. 1 - 12 I NTERNATIONAL S TANDARDS C 4

13. 1 - 13 PRINCIPLES AND ASSUMPTIONS OF ACCOUNTING Cost Principle Accounting information is based on actual cost. Actual cost is considered objective. Revenue Recognition Principle 1.Recognize revenue when it is earned. 2.Proceeds need not be in cash. 3.Measure revenue by cash received plus cash value of items received. Matching Principle A company must record its expenses incurred to generate the revenue reported. Full Disclosure Principle A company is required to report the details behind financial statements that would impact users’ decisions. C 4

14. 1 - 14 A CCOUNTING A SSUMPTIONS Monetary Unit Assumption Express transactions and events in monetary, or money, units. Business Entity Assumption A business is accounted for separately from other business entities, including its owner. Time Period Assumption Presumes that the life of a company can be divided into time periods, such as months and years. Now Future Going-Concern Assumption Reflects assumption that the business will continue operating instead of being closed or sold. C 4

15. 1 - 15 F ORMS OF B USINESS E NTITIES Sole Proprietorship Partnership Corporation C 4

16. 1 - 16 * Proprietorships and partnerships that are set up as LLCs provide limited liability. C HARACTERISTICS OF B USINESSES * * C 4

17. 1 - 17 E ND OF C HAPTER 1