Financial and Managerial Accounting,John J. Wild Third Edition,McGraw-Hill/Irwin,Copyright 2009 by The McGraw-Hill Companies, Inc. All rights reserved.,Chapter 1,Introducing Accounting in Business,Conceptual Chapter Objectives,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 GAAP, and define and apply several key accounting principles. C6: Appendix 1B: Identify and describe the three major activities of organizations.,1-3,Analytical Chapter Objectives,A1: Define and interpret the accounting equation and each of its components. A2: Analyze business transactions using the accounting equation. A3: Compute and interpret return on assets. A4: Appendix 1A: Explain the relationship between return and risk.,1-4,Procedural Chapter Objectives,P1: Identify and prepare basic financial statements and explain how they interrelate.,1-5,Identifies,Records,Communicates,Relevant,Reliable,Comparable,Importance of Accounting,Accounting,is a system that,information that is,to help users make better decisions.,C1,1-6,Identifying Business Activities,Recording Business Activities,Communicating Business Activities,Accounting Activities,C 1,1-7,Users of Accounting Information,C 2,1-8,Users of Accounting Information,Internal Users,Managerial accounting provides information needs for internal decision makers.,C 2,1-9,Opportunities in Accounting,C 3,1-10,Accounting Jobs by Area,C 3,1-11,Beliefs that distinguish right from wrong,Accepted standards of good and bad behavior,EthicsA Key Concept,C 4,1-12,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 Decisions,C 4,1-13,Financial accounting practice is governed by concepts and rules known as generally accepted accounting principles (GAAP).,Generally Accepted Accounting Principles,C 5,1-14,The Securities and Exchange Commission is the government group that establishes reporting requirements for companies that issue stock to the public.,Setting Accounting Principles,The Financial Accounting Standards Board is the private group that sets both broad and specific principles.,C 5,The International Accounting Standards Board (IASB) issues inter- national standards that identify preferred accounting practices in other countries. The IASB does not have authority to impose its standards on companies.,1-15,Principles of Accounting,C 5,Cost principle means that accounting information is based on actual cost.,Going-concern means that accounting information reflects a presumption the business will continue operating.,Monetary unit means we can express transactions in money.,Revenue recognition principle provides guidance on when a company must recognize revenue.,Business entity means that a business is accounted for separately from its owner or other business entities.,Matching Principle prescribes that a company must record its expenses incurred to generate the revenue.,Full disclosure principle requires a company to report the details behind financial statements that would impact users decisions.,1-16,Business Entity Forms,Sole Proprietorship,Partnership,Corporation,C 5,1-17,Assets,Liabilities & Equity,Accounting Equation,A1,1-18,Land,Equipment,Buildings,Cash,Vehicles,Store Supplies,Notes Receivable,Accounts Receivable,Resources owned or controlled by a company,Assets,A1,1-19,Taxes Payable,Wages Payable,Notes Payable,Accounts Payable,Creditors claims on assets,Liabilities,A1,1-20,Owners claim on assets,Dividends,Contributed Capital,Retained Earnings,Equity,A1,1-21,Expanded Accounting Equation,A1,1-22,Transaction Analysis,J. Scott invests $20,000 cash to start the business in return for stock.,A2,1-23,Transaction Analysis,Purchased supplies paying $1,000 cash.,A2,1-24,Transaction Analysis,Purchased equipment for $15,000 cash.,A2,1-25,Transaction Analysis,Purchased Supplies of $200 and Equipment of $1,000 on account.,A2,1-26,Transaction Analysis,Borrowed $4,000 from 1st American Bank.,A2,1-27,Transaction Analysis,The balances so far appear below. Note that the Balance Sheet Equation is still in balance.,A2,1-28,Transaction Analysis,Now, lets look at transactions involving revenue, expenses and dividends.,A2,1-29,Transaction Analysis,Provided consulting services receiving $3,000 cash.,A2,1-30,Transaction Analysis,Remember that expenses decrease equity.,Paid salaries of $800 to employees.,A2,1-31,Transaction Analysis,Remember that dividends decrease equity.,Dividends of $500 are paid to shareholders.,A2,1-32,Financial Statements,Lets prepare the Financial Statements reflecting the transactions we have recorded.,Income Statement Statement of Retained Earnings Balance Sheet Statement of Cash Flows,