Chapter 1

Accounting in Business

IdentifiesIdentifies

RecordsRecords

CommunicatesCommunicatesRelevantRelevant

ReliableReliable

ComparableComparable

Importance of Accounting

AccountingAccountingis a

system that

information

that is

to help users make better decisions.

to help users make better decisions.

C1

Identifying Business Activities

Recording Business Activities

Communicating Business Activities

Accounting ActivitiesC 1

Users of Accounting Information

External Users

•Lenders

•Shareholders

•Governments

•Consumer Groups

•External Auditors

•Customers

Internal Users

•Managers

•Officers/Directors

•Internal Auditors

•Sales Staff

•Budget Officers

•Controllers

C 2

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.

C 2

Opportunities in Accounting

FinancialFinancial

•Preparation•Analysis•Auditing•Regulatory•Consulting•Planning•Criminal investigation

•Preparation•Analysis•Auditing•Regulatory•Consulting•Planning•Criminal investigation

ManagerialManagerial

•General accounting •Cost accounting•Budgeting•Internal auditing•Consulting•Controller•Treasurer•Strategy

•General accounting •Cost accounting•Budgeting•Internal auditing•Consulting•Controller•Treasurer•Strategy

TaxationTaxation

•Preparation•Planning•Regulatory•Investigations•Consulting•Enforcement•Legal services•Estate plans

•Preparation•Planning•Regulatory•Investigations•Consulting•Enforcement•Legal services•Estate plans

Accounting-related

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

C 3

Accounting Jobs by Area

Government, not-for-profit, & education

15%

Public accounting

25%

Private accounting

60%

C 3

Beliefs that distinguish right from

wrong

Accepted standards of good and bad

behavior

Ethics

Ethics—A Key ConceptC 4

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

Financial accounting practice is governed by concepts and rules known as generally accepted

accounting principles (GAAP).

Financial accounting practice is governed by concepts and rules known as generally accepted

accounting principles (GAAP).

Generally Accepted Accounting Principles

Relevant Information

Relevant Information

Affects the decision of its users.

Affects the decision of its users.

Reliable InformationReliable Information Is trusted by users.

Is trusted by users.

Comparable Information

Comparable Information

Is helpful in contrasting organizations.

Is helpful in contrasting organizations.

C 5

The Securities and Exchange Commission is the government group that establishes

reporting requirements for companies that issue stock to the public.

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.

Financial Accounting Standards Board is the private group that sets both broad and

specific principles.

C 5

Principles of Accounting

Now Future

Going-Concern PrincipleReflects assumption that the

business will continue operating instead of being closed or sold.

Cost PrincipleAccounting information is

based on actual cost.

Objectivity PrincipleAccounting information is supported by independent,

unbiased evidence.

C 5

Principles of Accounting

Revenue Recognition Principle1. 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.

Monetary Unit PrincipleExpress transactions and events in

monetary, or money, units.

Business Entity PrincipleA business is accounted for

separately from other business entities, including its owner.

C 5