Financial Accounting: Chapter Notes

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Lesson 1: The Accounting Process
(Textbook Libby et al. Chapters 1 and 2).
Objectives:
When you have successfully completed this lesson, you will be able to...
Define accounting and explain its purpose
Define business and identify the different types of businesses
Explain the accounting equation: Assets = Liabilities + Owner's Equity
Visualize the start of a business, create accounting transactions for it, and prepare simple financial statements Reading Assignment
Please read chapters 1 and 2 of your textbook.
Recommended Problem Assignment
Chapter 1. Please complete MC questions plus Exercises 1-1, 1-3, 1-7, 1-8, 1-9 and 1-11
Chapter 2. Please complete MC questions plus Exercises 2-5, 2-7, 2-9, 2-12 and 2-13
Answers to these assignments are available in the folder “Answers to Assigned Multiple Choice and Exercises.”
Outline of Readings: Chapter 1
Reviews the information conveyed in Financial Statements and how accounting is used for decision making.
Balance Sheet (Statement of Financial Position)
Income Statement (Statement of Income, Statement of Earnings, Statement of Operations)
Statement of Retained Earnings (or the more comprehensive Statement of Stockholder’s Equity)
Statement of Cash Flows
Discusses financial analysis. Financial analysis is a way to use financial information to answer questions about the financial strength and well being of a company.
Also reviews cash flow analysis as a useful tool for evaluating financial growth and success.
DISCUSSION
We first discuss the nature of business and how businesses operate.
What Is Business?
A business is a financial entity formed to produce and distribute products or services to customers. What factors combine to make a successful business? For a small business, an entrepreneur brings together capital (money invested in the business), resources (raw materials or expertise), and labor (skilled people who convert resources into usable products or services)

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