Chapter 1

ACCOUNTING IN BUSINESS

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

McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
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C1

IMPORTANCE OF ACCOUNTING
Accounting

Identifying
Select transactions and events

Recording
Input, measure and classify

Communicating
Prepare, analyze and interpret
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C2 USERS OF ACCOUNTING
INFORMATION

External Users Internal Users

•Lenders •Consumer Groups •Managers •Sales Staff

•Shareholders •External Auditors •Officers/Directors •Budget Officers
•Governments •Customers •Internal Auditors •Controllers
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C2 USERS OF ACCOUNTING
INFORMATION

External Users Internal Users

Financial accounting Managerial accounting

provides external users provides information needs
with financial statements. for internal decision-makers.
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C2

OPPORTUNITIES IN ACCOUNTING
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C2

ACCOUNTING JOBS BY AREA

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C3

ETHICS - A KEY CONCEPT

Ethics

Beliefs that Accepted standards

distinguish right of good and bad
from wrong behavior
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C3

ETHICS - A KEY CONCEPT

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C4 GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
Financial accounting practice is governed by concepts
and rules known as generally accepted accounting
principles (GAAP).

Relevant Information Affects the decision of its users.

Reliable Information Is trusted by users.

Comparable Is helpful in contrasting

Information organizations.
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C4

SETTING ACCOUNTING PRINCIPLES

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

The Securities and Exchange Commission is the

government agency that establishes reporting
requirements for companies that issue stock to the public.

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.
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C4

INTERNATIONAL STANDARDS

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
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C4

INTERNATIONAL STANDARDS
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C4
PRINCIPLES AND ASSUMPTIONS
OF ACCOUNTING

Revenue Recognition Principle

1. Recognize revenue when it is earned. Cost Principle
2. Proceeds need not be in cash. Accounting information is based on
3. Measure revenue by cash received actual cost. Actual cost is
plus cash value of items received. considered objective.

Full Disclosure Principle

Matching Principle
A company is required to report the
A company must record its expenses
details behind financial statements
incurred to generate the revenue reported.
that would impact users’ decisions.
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C4
ACCOUNTING ASSUMPTIONS

Now Future
Going-Concern Assumption Monetary Unit Assumption
Express transactions and events in
Reflects assumption that the business
monetary, or money, units.
will continue operating instead of
being closed or sold.

Business Entity Assumption Time Period Assumption

A business is accounted for Presumes that the life of a company can
separately from other business be divided into time periods, such as
entities, including its owner. months and years.
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C4

FORMS OF BUSINESS ENTITIES

Sole Partnership Corporation

Proprietorship
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C4

CHARACTERISTICS OF BUSINESSES
Characteristic Proprietorship Partnership Corporation
Business entity yes yes yes
Legal entity no no yes
Limited liability no* no* yes
Unlimited life no no yes
Business taxed no no yes
One owner allowed yes no yes

* Proprietorships and partnerships that are

set up as LLCs provide limited liability.
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END OF CHAPTER 1