Accounting in Action: Accounting Principles, Eighth Edition
Accounting in Action: Accounting Principles, Eighth Edition
Accounting in Action: Accounting Principles, Eighth Edition
ACCOUNTING IN
ACTION
Chapter
1-1
What is Accounting?
Chapter
1-2 LO 1 Explain what accounting is.
What is Accounting?
Illustration 1-1
Three Activities Accounting process
Chapter
1-3 LO 1 Explain what accounting is.
Who Uses Accounting Data?
Internal Users
Management IRS
Human Investors
Resources
Labor
Unions
Finance Common Questions
Creditors
Marketing
Customers SEC
External
Users
Chapter
1-4 LO 2 Identify the users and uses of accounting.
Who Uses Accounting Data?
Common Questions Asked User
1. Can we afford to give
our employees a pay Human Resources
raise?
2. Did the company earn a
satisfactory income? Investors
3. Do we need to borrow in
the near future? Management
4. Is cash sufficient to pay
dividends to the stockholders? Finance
5. What price for our product
will maximize net income? Marketing
6. Will the company be able to
pay its short-term debts? Creditors
Chapter
1-5 LO 2 Identify the users and uses of accounting.
The Building Blocks of Accounting
Chapter
1-6 LO 3 Understand why ethics is a fundamental business concept.
Ethics
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.
Chapter
1-7 LO 3 Understand why ethics is a fundamental business concept.
The Building Blocks of Accounting
Financial Statements
Various users • Balance Sheet
need financial • Income Statement
• Statement of Owners’ Equity
information • Statement of Cash Flows
• Note Disclosure
Chapter
1-8 LO 4 Explain generally accepted accounting principles and the cost principle.
The Building Blocks of Accounting
Chapter
1-9 LO 4 Explain generally accepted accounting principles and the cost principle.
Generally Accepted Accounting Principles
Measurement Principles
Historical Cost Principle (or cost principle) dictates that
companies record assets at their cost.
Review Question
Combining the activities of Kellogg and General
Mills would violate the
a. cost principle.
b. economic entity assumption.
c. monetary unit assumption.
d. ethics principle.
Review Question
A business organized as a separate legal entity
under state law having ownership divided into
shares of stock is a
a. proprietorship.
b. partnership.
c. corporation.
d. sole proprietorship.
Assets
• Resources a business owns.
• Provide future services or benefits.
• Cash, Supplies, Equipment, etc.
Chapter LO 6 State the accounting equation, and
1-16
define assets, liabilities, and owner’s
The Basic Accounting Equation
Liabilities
• Claims against assets (debts and obligations).
• Creditors - party to whom money is owed.
• Accounts payable, Notes payable, etc.
Chapter LO 6 State the accounting equation, and
1-17
define assets, liabilities, and owner’s
The Basic Accounting Equation
Owners’ Equity
• Ownership claim on total assets.
• Referred to as residual equity.
• Capital, Drawings, etc. (Proprietorship or
Partnership).
Chapter LO 6 State the accounting equation, and
1-18
define assets, liabilities, and owner’s
Owners’ Equity
Illustration 1-6
Record/
Don’t Record
Owners’ Statement
Income Balance
Equity of Cash
Statement Sheet
Statement Flows
Chapter
1-32 LO 8 Understand the four financial statements and how they are prepared.
Financial Statements
Income Statement
Chapter
1-33 LO 8 Understand the four financial statements and how they are prepared.
Financial Statements
Review Question
Net income will result during a time period when:
a. assets exceed liabilities.
b. assets exceed revenues.
c. expenses exceed revenues.
d. revenues exceed expenses.
Chapter
1-34 LO 8 Understand the four financial statements and how they are prepared.
Financial Statements
Owners’ Equity
Income Statement Statement
Chapter
1-36 LO 8 Understand the four financial statements and how they are prepared.
Financial Statements
Owners’ Equity
Balance Sheet Statement
Balance Sheet
• Reports the assets,
liabilities, and owner’s
equity at a specific date.
• Assets listed at the top,
followed by liabilities and
owner’s equity.
• Total assets must equal
total liabilities and
owner’s equity.
Chapter
1-38 LO 8 Understand the four financial statements and how they are prepared.
Financial Statements
Statement of Cash Flows
Balance Sheet
Chapter
1-39 LO 8 Understand the four financial statements and how they are prepared.
Financial Statements
• Information for a
Statement of Cash Flows
specific period of time.
• Answers the following:
1. Where did cash come
from?
2. What was cash used
for?
3. What was the change
in the cash balance?
Chapter
1-40 LO 8 Understand the four financial statements and how they are prepared.
Financial Statements
Review Question
Which of the following financial statements is
prepared as of a specific date?
a. Balance sheet.
b. Income statement.
c. Owner's equity statement.
d. Statement of cash flows.
Chapter
1-41 LO 8 Understand the four financial statements and how they are prepared.
End of Chapter One
Chapter
1-42