Acconting

CHAPTER 1: Accounting In Action

STUDY OBJECTIVES:

BY THE END OF THIS CHAPTER STUDENTS SHOULD BE ABLE TO:

1. EXPLAIN THE MEANING OF ACCOUNTING.

2. IDENTIFY THE USERS AND USES OF ACCOUNTING.

3. UNDERSTAND WHY ETHICS IS A FUNDAMENTAL BUSINESS CONCEPT.

4. EXPLAIN THE MEANING OF GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND THE COST PRINCIPLE.

5. EXPLAIN THE MEANING OF THE MONETARY UNIT ASSUMPTION AND THE ECONOMIC ENTITY ASSUMPTION.

6. STATE THE BASIC ACCOUNTING EQUATION AND EXPLAIN THE MEANING OF ASSETS, LIABILITIES, AND STOCKHOLDERS' EQUITY.

7. ANALYZE THE EFFECT OF BUSINESS TRANSACTIONS ON THE BASIC ACCOUNTING EQUATION.

8. PREPARE AN INCOME STATEMENT, RETAINED EARNINGS STATEMENT, BALANCE SHEET, AND STATEMENT OF CASH FLOWS.

CHAPTER REVIEW

Lecture 2:

Accounting Defined

1. (S.O. 1) Accounting is the process of identifying, recording, and communicating economic events of an organization to interested users.

a. The first part of the process, identifying, involves selecting those events that are considered evidence of economic activity relevant to a particular business organization.

b. Recording is the keeping of a chronological diary of measured events in an orderly and systematic manner.

c. Communication occurs through the preparation and distribution of accounting reports.

2. The accounting process consists of:

Identification Recording Communication.

3. (S.O. 2) Internal users of accounting information consist of management, officers, and other decision makers inside the business.

4. External users include investors, creditors, taxing authorities, regulatory agencies, labor unions, customers, and economic planners outside the business.

5. Bookkeeping is not synonymous with accounting. Bookkeeping involves only the recording of economic events, while accounting also includes identification, measurement, and communication. Bookkeeping is therefore only a...