Introduction to Accounting and Business

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Introduction to Accounting and Business
LO 2 Generally Accepted Accounting Principles
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Generally Accepted Accounting Principles
LO 2

• Financial accountants follow generally accepted
  accounting principles (GAAP) in preparing
  reports.
• Within the U.S., the Financial Accounting
  Standards Board (FASB) has the primary
  responsibility for developing accounting
  principles.

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LO 2
Generally Accepted Accounting Principles

• The Securities and Exchange Commission (SEC), an
  agency of the U.S. government, has authority over
  the accounting and financial disclosures for
  companies whose shares of ownership (stock) are
  traded and sold to the public.
• Many countries outside the United States use
  generally accepted accounting principles adopted
  by the International Accounting Standards
• Board (IASB).

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Proprietorship
LO 2

• A proprietorship is owned by one individual.

• 70 of business entities in the U.S. are
  proprietorships.
• They are easy and cheap to organize.
• Resources are limited to those of the owner.
• Used by small businesses.

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Partnership
LO 2

• A partnership is similar to a proprietorship
  except that it is owned by two or more
  individuals.

• 10 of business organizations in the U.S.
  (combined with limited liability companies) are
  partnerships.
• Combines the skills and resources of more than
  one person.

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Corporation
LO 2

• A corporation is organized under state or federal
  statutes as a separate legal taxable entity.

• Generates 90 of business revenues.
• 20 of the business organizations in the U.S.
• Ownership is divided into shares, called stock.
• Can obtain large amounts of resources by issuing
  stock.
• Used by large businesses.

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Limited Liability Company (LLC)
LO 2

• A limited liability company (LLC) combines the
  attributes of a partnership and a corporation.

• 10 of business organizations in the U.S.
  (combined with partnerships).
• Often used as an alternative to a partnership.
• Has tax and legal liability advantages for owners.

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Business Entity Concept
LO 2

• Under the business entity concept, the activities
  of a business are recorded separately from the
  activities of its owners, creditors, or other
  businesses.

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Business Entity Concept
LO 2
Owner
Owners Business
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Business Entity Concept
LO 2
Owner
Owners Business
The owner purchases merchandise for the business,
and the business pays the amount due.
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Business Entity Concept
LO 2
Owner
Owners Business
The business entity concept allows this entry in
the owners business records because it relates
directly to the activities of the business.
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Business Entity Concept
LO 2
Owner
Owners Business
The owner buys a television set for home use by
writing a check on his personal bank account.
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Business Entity Concept
LO 2
Owner
Owners Business
The purchase of personal items with personal
funds, even by the owner, is not an economic
event that relates to the activities of the
business.
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LO 2
Cost Concept

• Under the cost concept, amounts are initially
  recorded in the accounting records at their cost
  or purchase price.

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Cost Concept
LO 2
Aaron Publishers purchased a building on February
20, 2010, for 150,000. Other amounts related to
this purchase are shown on the next slide.
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Cost Concept
LO 2

• Price listed by seller on Jan. 1, 2010 160,000
• Aaron Publishers initial offer to buy on
  Jan. 31, 2010 140,000
• Purchase price on Feb. 20, 2010 150,000
• Estimated selling price on Dec. 31,
• 2012 220,000
• Assessed value for property taxes,
• Dec. 31, 2012 190,000

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Objectivity Concept
LO 2

• The objectivity concept requires that the amounts
  recorded in the accounting records be based on
  objective evidence.
• Only the final agreed-upon amount is objective
  enough to be recorded in the accounting records.

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Unit of Measure Concept
LO 2

• The unit of measure concept requires that
  economic data be recorded in dollars.