Managerial Accounting Chapter 1

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Chapter

1

Accounting in Action
Financial Accounting, IFRS Edition Weygandt Kimmel Kieso
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Study Objectives
1. 2. 3. Explain what accounting is. Identify the users and uses of accounting. Understand why ethics is a fundamental business concept.

4.
5. 6. 7. 8.

Explain accounting standards and the measurement principles. Explain the monetary unit assumption and the economic entity assumption. State the accounting equation, and define its components. Analyze the effects of business transactions on the accounting equation. Understand the four financial statements and how they are prepared.

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Accounting in Action

What is Accounting?

The Building Blocks of Accounting

The Basic Accounting Equation

Using the Accounting Equation

Financial Statements

Three activities
Who uses accounting data?

Ethics in financial reporting
Accounting standards Assumptions

Assets
Liabilities Equity

Transaction analysis
Summary of transactions

Income statement
Retained earnings statement Statement of financial position Statement of cash flows

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What is Accounting?
The purpose of accounting:
(1)

to identify, record, and communicate the economic events of an

(2) (3)

organization to interested users.

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SO 1 Explain what accounting is.

What is Accounting?
Three Activities
Illustration 1-1 The activities of the accounting process

The accounting process includes the bookkeeping function.
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SO 1 Explain what accounting is.

What is Accounting?
Who Uses Accounting Data
Internal Users
Human Resources Taxing Authorities
Labor Unions Management Customers Creditors Marketing Regulatory Agencies

External Users

Finance

Investors

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SO 2 Identify the users and uses of accounting.

What is Accounting?
Common Questions Asked
1. Can we afford to give our employees a pay raise? 2. Did the company earn a satisfactory income? 3. Should any product lines be eliminated? 4. Is cash sufficient to pay dividends to shareholders? 5. What price for our product will maximize net income?

User Human Resources Investors Management Finance Marketing

6. Will the company be able to pay its debts?
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Creditors
SO 2 Identify the users and uses of accounting.

The Building Blocks of Accounting
Ethics In Financial Reporting
Standards of conduct by which one’s actions are judged as right or wrong, honest or dishonest, fair or not fair, are Ethics. Recent financial scandals include: Enron (USA), Parmalat (ITA), Satyam Computer Services (IND), AIG (USA), and others. Effective financial reporting depends on sound ethical behavior. Slide 1-9

SO 3 Understand why ethics is a fundamental business concept.

The Building Blocks of Accounting
Ethics In Financial Reporting

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SO 3 Understand why ethics is a fundamental business concept.

The Building Blocks of Accounting

Review Question
Ethics are the standards of conduct by which one's actions are judged as: a. right or wrong.

b. honest or dishonest.
c. fair or not fair. d. all of these options.

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Solution on notes page

SO 3 Understand why ethics is a fundamental business concept.

The Building Blocks of Accounting
Accounting Standards
International Accounting Standards Board (IASB)
http://www.iasb.org/
International Financial Reporting Standards (IFRS)

Financial Accounting Standards Board (FASB)
http://www.fasb.org/

Generally Accepted Accounting Principles (GAAP)

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SO 4 Explain accounting standards and the measurement principles.

The Building Blocks of Accounting
Measurement Principles
Cost Principle (Historical) – dictates that companies record assets at their cost. Issues: Reported at cost when purchased and also over the time the asset is held. Cost easily verified, market value is often subjective.

Fair value information may be more useful.

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SO 4...
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