Accounting-Financial Statements

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Chapter 1: Overview—The Financial Statements

Chapter 1 introduces the four financial statements--Income Statement, Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flows. Accounting as the language of business is discussed along with an introduction of the various users of accounting information. Financial and Managerial accounting are compared. The four ways to organize a business – proprietorship, partnership, limited – liability company, and corporation, are discussed. An introduction and contrast of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) is done.

The Entity Assumption, Continuity (Going Concern) Assumption, Historical Cost Principle, and Stable – Monetary – Unit Assumption are explained. The accounting equation – Assets = Liabilities + Stockholder’s Equity is presented along with definitions and explanations of each component of the equation.

A detail presentation of each of the four previously mentioned financial statements is given. Each account classification of the financial statements – assets, liabilities, stockholder’s equity, revenue, and expenses are thoroughly explained and examples of common account titles used are given. The process of evaluating a company through the use of the financial statements is shown. A discussion of business ethics in accounting decisions is done.

An end of chapter summary problem emphasizes the preparation as well as understanding of the financial statements. An accounting vocabulary section explains all the new accounting terms. The End of Chapter Access Your Progress allows the student to determine how well he grasped the information presented in the chapter. Traditional exercises and problems solidify the student’s understanding of the material.

Teaching Outline

1. Define

a. Financial Accounting

b. Managerial Accounting

c. Contrast Financial and Managerial Accounting

2. Describe the users of financial information:

a. Individuals

b. Business Managers

c. Investors

d. Creditors

e. Government Regulatory Agencies

f. Taxing Authorities

g. Nonprofit Organizations

h. Other Organizations

3. Explain

a. Financial Accounting Standards Board (FASB)

i. Generally Accepted Accounting Principles (GAAP)

b. International Accounting Standards Board (IASB)

i. International Financial Reporting Standards (IFRS)

c. Compare GAAP and IFRS

4. Define and discuss Accounting Principles, Assumptions and Concepts

a. Entity Assumption

b. Continuity (Going Concern) Assumption

c. Historical Cost Principle

d. Stable Monetary Unit Assumption

5. Introduce the Accounting Equation

a. Define and discuss common account titles:

i. Assets

ii. Liabilities

iii. Stockholder’s Equity

b. Define and discuss common account titles;

i. Revenue

ii. Expense

iii. Retained Earnings

c. Discuss Paid in Capital and Dividends

6. Explain and Prepare the Financial Statements

a. Income Statement

b. Statements of Retained Earnings

c. Balance Sheet

d. Statement of Cash Flows

7. Use Financial Statements to evaluate business performance

a. Explain the relationship among the financial statements

8. Ethics in Business and Accounting Decisions

a. The role of judgment in making decisions

b. Economic factors

c. Legal factors

d. Ethical factors

Key Topics

The financial statements are actually reports on how well or poorly a business performed during a specified period of time. Chapter one actually presents the four basic financial statements and other relevant information that is needed to adequately prepare the financial statements.

First one must understand that the Financial Accounting Standards Board (FASB) develops the rules and guidelines in...
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