Fundamental Accounting Principles

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Fundamental Accounting Principles

• 17th Edition
• Larson Wild Chiappetta

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Accounting in Business
Chapter
1
3
Learning objectives

• Conceptual
• C1 Explain the purpose and importance of
  accounting in the information age.
• C2 Identify users and uses of accounting.
• C3 Identify opportunities in accounting and
  related fields.
• C4 Explain why ethics are crucial to accounting.
  
• C5 Explain the meaning of GAAP and define and
  apply several key principles of accounting.
• Analytical
• Define and interpret the accounting equation and
  each of its components.

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Learning objective

• C1 Explain the purpose and importance of
  accounting in the information age.

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Importance of Accounting
Accounting
Identifies
Records
Communicates
Relevant
Reliable
to help users make better decisions.
Comparable
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Accounting Activities

• Identifying Business Activities

• Recording Business Activities

• Communicating Business Activities

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What is the relation between accounting and
bookkeeping

• Bookkeeping is the recording of financial
  transactions and events either manually or
  electronically.
• Accounting is much more. It includes identifying
  measuring recording reporting and analyzing
  business events and transactions and helps
  information users to make economic decisions.

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Learning objective

• C2 Identify users and uses of accounting.

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Users of Accounting Information
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Users of Accounting Information
Internal Users
Managerial accounting provides information needs
for internal decision makers.
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Users of Accounting Information-External

• Lenders Whether the firm (borrower) can repay
  the money
• Shareholders whether to buy hold or sell
  stocks
• Governments whether the firm pay all due tax
• Customers whether the firm can exist to provide
  post-sale services
• External Auditors whether the financial
  statements are prepared according to GAAP
• Etc.

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Users of Accounting Information-Internal

• Marketing managers target customers set price
  monitor sales.
• Production managers monitor cost and ensure
  quality.
• Purchasing managers what when and where to
  purchase materials.
• Human resource managers employees performance
  and compensation.

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Learning objective

• C3 Identify opportunities in accounting and
  related fields.

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Opportunities in Accounting
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Accounting Jobs by Area
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Learning objective

• C4 Explain why ethics are crucial to accounting.

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EthicsA Key Concept
Beliefs that distinguish right from wrong
Accepted standards of good and bad behavior
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Guidelines for Ethical Decision Making

• Make ethical decision

• Identify ethical concerns

• Analyze options

Use personal ethics to recognize ethical concern.
Consider all good and bad consequences.
Choose best option after weighing all
consequences.
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Learning objective

• C5 Explain the meaning of GAAP and define and
  apply several key principles of accounting.

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Generally Accepted Accounting Principles
Financial accounting practice is governed by
concepts and rules known as generally accepted
accounting principles (GAAP).
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Setting Accounting Principles
Financial Accounting Standards Board is the
private group that sets both broad and specific
principles.
The Securities and Exchange Commission is the
government group that establishes reporting
requirements for companies that issue stock to
the public.
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Setting Accounting Principles

• Hong Kong
• Hong Kong Institute of Certified Public
  Accountants (HKICPA)
• China
• Ministry of Finance Peoples Republic of China
• International Accounting Standard Board (IASB)
• International Financial Reporting Standards (IFRS)

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Principles of Accounting

• General principles basic assumptions concepts
  and guidelines for preparing financial
  statements.
• Usually stem from long-used accounting
  practice.
• Specific principles detailed rules used in
  reporting business transactions and events.
• Usually created by a pronouncement from an
  authoritative body.

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Principles of Accounting General Principles
Source documents.
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Principles of Accounting
Information based on cost is considered
objective.
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Principles of Accounting
The assets are reported at cost but not reported
at liquidation value that assume closure.
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Principles of Accounting
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Principles of Accounting
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Principles of Accounting
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Business Entity Forms
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Characteristics of Businesses
Exh. 1.8


Proprietorships and partnerships that are set
up as LLCs provide limited liability.
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Corporation
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Learning objective

• Define and interpret the accounting equation and
  each of its components.

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Accounting Equation
Liabilities Equity
Assets
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Accounting Equation

• Assets are resources with future benefits that
  are owned or controlled by a company.
• Liabilities are what a company owes its creditors
  in future products or services.
• Equity refers to the claims of its owner(s).
• Forms of fundsSources of funds ()
• What resources does the firm have (Assets)
  Where do those resources come from (Liabilities
  and Equity)
• A firm acquires assets by funds. Liabilities and
  equity are the sources of funds to acquire those
  assets.

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Assets
Cash
Notes Receivable
Accounts Receivable
Resources owned or controlled by a company
Vehicles
Land
Buildings
Store Supplies
Equipment
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Liabilities
Notes Payable
Accounts Payable
Creditors claims on assets
Wages Payable
Taxes Payable
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Equity
Owner Withdrawals
Owner Investments
Owners claims on assets
Revenues
Expenses
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Expanded Accounting Equation
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Expanded Accounting Equation

• Revenues gross increase in equity from a
  companys earnings activities.
• Expenses the cost of assets or services used to
  earn revenue. Expenses decrease owners equity.
• Owner investments the assets an owner puts into
  the company.
• Owner withdrawals the assets take away from the
  company for personal use.

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End of Chapter 1
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Chapter 1 Homework

• Ex. 1-11-21-7
• Problem 1-1A
• Due on June 12 2006 (Monday)