Copyright © 2007 Prentice-Hall. All rights reserved
22
Transactions that Affect
Owner’s Equity
OWNER’S EQUITY
INCREASES
OWNER’S EQUITY DECREASES
Owner Investments
10 Copyright © 2007 Prentice-Hall. All rights reserved
GAAP
• Generally Accepted Accounting Principles
– Accounting guidelines that govern how accountants measure, process, and communicate financial information
Copyright © 2007 Prentice-Hall. All rights reserved
28
Exercise 1-17
a. Increased assets (cash) b. No effect on total assets c. Decreased assets (cash) d. Increased assets (equipment)
5
Governing Organizations
• FASB – Financial Accounting Standards Board
• SEC – Securities and Exchange Commission
• AICPA – American Institute of Certified Public Accountants
• Sarbanes-Oxley Act
– Criminal offense to falsify financial statements
• Public Companies Accounting Oversight Board
– Monitors work of accountants
Copyright © 2007 Prentice-Hall. All rights reserved
• Financial Accounting – Information for people outside of the company
• Managerial Accounting – Information for internal decision makers
Copyright © 2007 Prentice-Hall. All rights reserved
13
Reliability (Objectivity) Principle
• Accounting information is based on the most reliable data available
– Verifiable – Free from bias – Individuals would arrive at similar conclusions
– Formulated by Financial Accounting Standards Board (FASB)
Copyright © 2007 Prentice-Hall. All rights reserved
11
GAAP
• Primary objective of financial accounting – provide information that is useful for making investment and lending decisions
– Salary expense – Rent expense – Utilities expense – Interest expense
Copyright © 2007 Prentice-Hall. All rights reserved
25
Exercise 1-18
Assets Liabilities Owner’s Equity
Copyright © 2007 Prentice-Hall. All rights reserved
21
The Accounting Equation
Assets = Liabilities + Owner’s Equity
Economic Resources
Claims to Economic Resources
8
Types of Business Organizations
• Proprietorships • Partnerships • Corporations
Copyright © 2007 Prentice-Hall. All rights reserved
9
Objective 2
Apply accounting concepts and principles
Owner Withdrawals
Owner’s Equity
Revenues
Expenses
Copyright © 2007 Prentice-Hall. All rights reserved
23
Revenues
• Amounts earned by delivering goods or services to customers
– Accounts payable – Notes payable – Salary payable
Copyright © 2007 Prentice-Hall. All rights reserved
20
Claims to the Assets
• Owner’s Equity (capital) – claim of business owner to the assets of the business
Copyright © 2007 Prentice-Hall. All rights reserved
ቤተ መጻሕፍቲ ባይዱ
12
Entity Concept
• Accounting Entity – organization that stands apart as a separate economic unit
Copyright © 2007 Prentice-Hall. All rights reserved
Copyright © 2007 Prentice-Hall. All rights reserved
16
Stable-Monetary-Unit Concept
• Assumes that the dollar’s purchasing power is stable
Copyright © 2007 Prentice-Hall. All rights reserved
– Cash – Accounts receivable – Merchandise inventory – Furniture – Land
Copyright © 2007 Prentice-Hall. All rights reserved
19
Claims to the Assets
• Liabilities – economic obligations payable to an individual or organization outside the business
• IMA – Institute of Management Accountants
Copyright © 2007 Prentice-Hall. All rights reserved
6
Ethics
• Audit
– Examination of company’s financial situation – Performed by independent accountants
Accounting and the Business Environment
Chapter 1
1 Copyright © 2007 Prentice-Hall. All rights reserved
Objective 1
Use accounting vocabulary
2 Copyright © 2007 Prentice-Hall. All rights reserved
7
Standards of Professional Conduct
• AICPA – Code of Professional Conduct for Accountants
• IMA – Standards of Ethical Conduct
Copyright © 2007 Prentice-Hall. All rights reserved
• Individuals • Businesses • Investors • Creditors • Taxing Authorities
Copyright © 2007 Prentice-Hall. All rights reserved
4
Financial vs. Managerial Accounting
Accounting
• Measures • Processes • Communicates…..
Financial information to decision makers
Copyright © 2007 Prentice-Hall. All rights reserved
3
Decision Makers
using same data