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Financial Accounting Chapter 1

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Financial Accounting Chapter 1

Page 1 of 19
The Language of Business

Learning objectives

After studying this chapter you should be able to:

1.Explain how accounting information assists in making decisions.

2.Describe the components of the balance sheet.

3. Analyze business transactions and relate them to changes in the balance sheet.

4.Compare the features of proprietorships, partnerships, and corporations.

5.Identify how the owners’ equity section in a corporate balance sheet differs from that in a sole proprietorship or a partnership.

6.Describe auditing and how it enhances the value of financial information.

7.Explain the regulation of financial reporting.

8.Evaluate the role of ethics in the accounting process.

Chapter 1 provides a glimpse of the entire field of accounting. It describes the nature of accounting and its role in providing useful information for a wide variety of decisions. In addition, the balance sheet equation is introduced: Assets = Liabilities + Stockholders' Equity.

An introduction to the basic terms accountants use - the accounting vocabulary - is an overall theme of the chapter. Transaction analysis is introduced as well as the effect of a transaction on the balance sheet equation. The chapter also looks at types of business organizations. The chapter concludes with a discussion of the accounting profession, regulation, the auditing function, and professional ethics.

I.The Nature of Accounting

Learning Objective 1.Explain how accounting information assists in making decisions.

1.Accounting is the language of business and is the process of identifying, recording, summarizing, and reporting economic information to decision makers.

2.Decision makers use this information to answer questions concerning investment alternatives, product development, employee evaluations, loan levels, and cash needs.

3.Financial accounting concentrates on the...

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