The document provides an overview of accounting concepts covered in Chapter 1 of the textbook. It begins with explaining what accounting is and its purpose. It then discusses the users and uses of accounting data, including internal and external stakeholders. Ethics and generally accepted accounting principles (GAAP) are also introduced. The basic building blocks of accounting like the accounting equation, assets, liabilities, and owner's equity are defined. Transactions are analyzed and how they affect the accounting equation. Finally, the four main financial statements - the income statement, owner's equity statement, balance sheet, and statement of cash flows - and how they are interrelated are summarized.

1. Chapter
1-1

2. Accounting in
Action
Chapter
1-2 Accounting Principles, Ninth Edition

3. Study Objectives
Study Objectives
1. Explain what accounting is.
2. Identify the users and uses of accounting.
3. Understand why ethics is a fundamental business concept.
4. Explain generally accepted accounting principles and the cost
principle.
5. Explain the monetary unit assumption and the economic entity
assumption.
6. State the accounting equation, and define its components.
7. Analyze the effects of business transactions on the
accounting equation.
8. Understand the four financial statements and how they are
prepared.
Chapter
1-3

4. Accounting in Action
Accounting in Action
Using the
Using the
The Building
The Building The Basic
The Basic
What is
What is Basic
Basic Financial
Financial
Blocks of
Blocks of Accounting
Accounting
Accounting?
Accounting? Accounting
Accounting Statements
Statements
Accounting
Accounting Equation
Equation Equation
Equation
Three Ethics in Assets Transaction Income
activities financial Liabilities analysis statement
Who uses reporting Summary of Owner’s
Owner’s
accounting Generally equity transactions equity
data accepted statement
accounting Balance
principles sheet
Assumptions Statement of
cash flows
Chapter
1-4

5. What is Accounting?
What is Accounting?
The purpose of accounting is to:
(1) identify, record, and communicate the
identify record
economic events of an
(2) organization to
(3) interested users.
Chapter
1-5 SO 1 Explain what accounting is.

6. What is Accounting?
What is Accounting?
Illustration 1-1
Three Activities Accounting process
The accounting process includes
the bookkeeping function.
Chapter
1-6 SO 1 Explain what accounting is.

7. Who Uses Accounting Data?
Who Uses Accounting Data?
Internal Users
Management IRS
Human Investors
Resources
There are two broad
groups of users of Labor
financial information: Unions
Finance
internal users and
external users. Creditors
Marketing
SEC
Customers External
Users
Chapter
1-7 SO 2 Identify the users and uses of accounting.

8. Who Uses Accounting Data?
Who Uses Accounting Data?
Common Questions Asked User
1. Can we afford to give our
employees a pay raise? Human Resources
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
1-8 SO 2 Identify the users and uses of accounting.

9. Who Uses Accounting Data?
Who Uses Accounting Data?
Discussion Question
Q1-1: “Accounting is ingrained in our society and it
is vital to our economic system.” Do you agree?
Explain.
See notes page for discussion
Chapter
1-9 SO 3 Understand why ethics is a fundamental business concept .

10. The Building Blocks 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,
WorldCom, HealthSouth, AIG, and others.
Congress passed Sarbanes-Oxley Act of 2002.
Effective financial reporting depends on sound
ethical behavior.
Chapter
1-10 SO 3 Understand why ethics is a fundamental business concept .

11. Ethics
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
1-11 SO 3 Understand why ethics is a fundamental business concept .

12. The Building Blocks of Accounting
The Building Blocks of Accounting
Financial Statements
Various users Balance Sheet
need financial Income Statement
Statement of Owner’s Equity
information Statement of Cash Flows
Note Disclosure
The accounting profession
has attempted to develop Generally Accepted
a set of standards that
Accounting
are generally accepted
and universally practiced.
Principles (GAAP)
Chapter
1-12 SO 4 Explain generally accepted accounting principles and the cost principle.

13. The Building Blocks of Accounting
The Building Blocks of Accounting
Organizations Involved in Standard Setting:
Securities and Exchange Commission (SEC)
http://www.sec.gov/
Financial Accounting Standards Board (FASB)
http://www.fasb.org/
International Accounting Standards Board
(IASB) http://www.iasb.org/
Chapter
1-13 SO 4 Explain generally accepted accounting principles and the cost principle.

14. The Building Blocks of Accounting
The Building Blocks of Accounting
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, whereas market value is often
subjective.
Fair value information may be more useful.
Chapter
1-14 SO 4 Explain generally accepted accounting principles and the cost principle.

15. Assumptions
Assumptions
Monetary Unit Assumption – include in the
accounting records only transaction data that can be
expressed in terms of money.
Economic Entity Assumption – requires that
activities of the entity be kept separate and distinct
from the activities of its owner and all other economic
entities.
Proprietorship.
Forms of
Partnership. Business Ownership
Corporation.
Chapter SO 5 Explain the monetary unit assumption
1-15
and the economic entity assumption.

16. Forms of Business Ownership
Forms of Business Ownership
Proprietorship Partnership Corporation
Generally owned Owned by two or Ownership
by one person. more persons. divided into
Often small shares of stock
Often retail and
service-type service-type Separate legal
businesses businesses entity organized
Owner receives under state
Generally
any profits, corporation law
unlimited
suffers any personal liability Limited liability
losses, and is
Partnership
personally liable
agreement
for all debts.
Chapter SO 5 Explain the monetary unit assumption
1-16
and the economic entity assumption.

17. Assumptions
Assumptions
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.
Chapter SO 5 Explain the monetary unit assumption
1-17
and the economic entity assumption.

18. Forms of Business Ownership
Forms of Business Ownership
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.
Chapter SO 5 Explain the monetary unit assumption
1-18
and the economic entity assumption.

19. The Basic Accounting Equation
The Basic Accounting Equation
Owner’s
Assets = Liabilities +
Equity
Provides the underlying framework for recording and
summarizing economic events.
Assets are claimed by either creditors or owners.
Claims of creditors must be paid before ownership
claims.
Chapter SO 6 State the accounting equation, and define
1-19
its components.

20. The Basic Accounting Equation
The Basic Accounting Equation
Owner’s
Assets = Liabilities +
Equity
Provides the underlying framework for recording and
summarizing economic events.
Assets
Resources a business owns.
Provide future services or benefits.
Cash, Supplies, Equipment, etc.
Chapter SO 6 State the accounting equation, and define
1-20
its components.

21. The Basic Accounting Equation
The Basic Accounting Equation
Owner’s
Assets = Liabilities +
Equity
Provides the underlying framework for recording and
summarizing economic events.
Liabilities
Claims against assets (debts and obligations).
Creditors - party to whom money is owed.
Accounts payable, Notes payable, etc.
Chapter SO 6 State the accounting equation, and define
1-21
its components.

22. The Basic Accounting Equation
The Basic Accounting Equation
Owner’s
Assets = Liabilities +
Equity
Provides the underlying framework for recording and
summarizing economic events.
Owner’s Equity
Ownership claim on total assets.
Referred to as residual equity.
Capital, Drawings, etc. (Proprietorship or
Partnership).
Chapter SO 6 State the accounting equation, and define
1-22
its components.

23. Owners’ Equity
Owners’ Equity
Illustration 1-6
Revenues result from business activities entered into for
the purpose of earning income.
Common sources of revenue are: sales, fees, services,
commissions, interest, dividends, royalties, and rent.
Chapter SO 6 State the accounting equation, and define
1-23
its components.

24. Owners’ Equity
Owners’ Equity
Illustration 1-6
Expenses are the cost of assets consumed or services
used in the process of earning revenue.
Common expenses are: salaries expense, rent expense,
utilities expense, tax expense, etc.
Chapter SO 6 State the accounting equation, and define
1-24
its components.

25. Using The Basic Accounting Equation
Using The Basic Accounting Equation
Transactions are a business’s economic events
recorded by accountants.
May be external or internal.
Not all activities represent transactions.
Each transaction has a dual effect on the
accounting equation.
Chapter SO 7 Analyze the effects of business transactions
1-25
on the accounting equation.

26. Transactions (Question?)
Transactions (Question?)
Q1-15: Are the following events recorded in the
accounting records? Owner
Supplies are An employee withdraws
Event purchased is hired. cash for
on account. personal use.
Criterion Is the financial position (assets, liabilities, or
owner’s equity) of the company changed?
Record/
Don’t Record
Chapter SO 7 Analyze the effects of business transactions
1-26
on the accounting equation.

27. Transactions
Transactions
Discussion Question
Q1-18: In February 2010, Paula King invested
an additional $10,000 in her business, King’s
Pharmacy, which is organized as a proprietorship.
King’s accountant, Lance Jones, recorded this
receipt as an increase in cash and revenues. Is
this treatment appropriate? Why or why not?
See notes page for discussion
Chapter SO 7 Analyze the effects of business transactions
1-27
on the accounting equation.

28. Transactions Analysis
Transactions Analysis
Transaction (1). Investment By Owner. Ray Neal decides
to open a computer programming service which he names
Softbyte. On September 1, 2010, he invests $15,000 cash in
the. The effect of this transaction on the basic equation is:
Chapter SO 7 Analyze the effects of business transactions
1-28
on the accounting equation.

29. Transactions Analysis
Transactions Analysis
Transaction (2). Purchase of Equipment for Cash. Softbyte
purchases computer equipment for $7,000 cash.
Chapter SO 7 Analyze the effects of business transactions
1-29
on the accounting equation.

30. Transactions Analysis
Transactions Analysis
Transaction (3). Purchase of Supplies on Credit. Softbyte
purchases for $1,600 from Acme Supply Company computer
paper and other supplies expected to last several months.
Chapter SO 7 Analyze the effects of business transactions
1-30
on the accounting equation.

31. Transactions Analysis
Transactions Analysis
Transaction (4). Services Provided for Cash. Softbyte
receives $1,200 cash from customers for programming
services it has provided.
Chapter SO 7 Analyze the effects of business transactions
1-31
on the accounting equation.

32. Transactions Analysis
Transactions Analysis
Transaction (5). Purchase of Advertising on Credit.
Softbyte receives a bill for $250 from the Daily News for
advertising but postpones payment until a later date.
Chapter SO 7 Analyze the effects of business transactions
1-32
on the accounting equation.

33. Transactions Analysis
Transactions Analysis
Transaction (6). Services Provided for Cash and Credit.
Softbyte provides $3,500 of programming services for
customers. The company receives cash of $1,500 from
customers, and it bills the balance of $2,000 on account.
Chapter SO 7 Analyze the effects of business transactions
1-33
on the accounting equation.

34. Transactions Analysis
Transactions Analysis
Transaction (7). Payment of Expenses. Softbyte pays the
following Expenses in cash for September: store rent $600,
salaries of employees $900, and utilities $200.
Chapter SO 7 Analyze the effects of business transactions
1-34
on the accounting equation.

35. Transactions Analysis
Transactions Analysis
Transaction (8). Payment of Accounts Payable. Softbyte
pays its $250 Daily News bill in cash.
Chapter SO 7 Analyze the effects of business transactions
1-35
on the accounting equation.

36. Transactions Analysis
Transactions Analysis
Transaction (9). Receipt of Cash on Account. Softbyte
receives $600 in cash from customers who had been billed
for services [in Transaction (6)].
Chapter SO 7 Analyze the effects of business transactions
1-36
on the accounting equation.

37. Transactions Analysis
Transactions Analysis
Transaction (10). Withdrawal of Cash by Owner. Ray Neal
withdraws $1,300 in cash from the business for his personal
use.
Chapter SO 7 Analyze the effects of business transactions
1-37
on the accounting equation.

38. Transactions Analysis
Transactions Analysis
Illustration 1-8
Summary of Transactions Tabular summary of
Softbyte transactions
Chapter SO 7 Analyze the effects of business transactions
1-38
on the accounting equation.

39. Financial Statements
Financial Statements
Companies prepare four financial statements from
Companies prepare four financial statements from
the summarized accounting data:
the summarized accounting data:
Owner’s Statement
Income Balance
Equity of Cash
Statement Sheet
Statement Flows
Chapter
1-39 SO 8 Understand the four financial statements and how they are prepared.

40. Financial Statements
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
1-40 SO 8 Understand the four financial statements and how they are prepared.

41. Financial Statements
Financial Statements Income Statement
Reports the revenues and expenses for a specific period of time.
Net income – revenues exceed expenses. Illustration 1-9
Net loss – expenses exceed revenues. Financial statements and
their interrelationships
Chapter
1-41 SO 8 Understand the four financial statements and how they are prepared.

42. Financial Statements
Financial Statements
Net income is needed to determine the
ending balance in owner’s equity.
Illustration 1-9
Financial statements and
their interrelationships
Chapter
1-42

43. Financial Statements
Financial Statements Owner’s Equity Statement
Statement indicates the reasons Illustration 1-9
Financial statements and
why owner’s equity has increased or their interrelationships
decreased during the period.
Chapter
1-43 SO 8 Understand the four financial statements and how they are prepared.

44. Financial
Financial
Statements
Statements
The ending
balance in
owner’s equity
is needed in
preparing the
balance sheet
Illustration 1-9
Financial statements and
their interrelationships
Chapter
1-44

45. Financial Statements
Financial Statements Balance Sheet
Illustration 1-9
Financial statements and
their interrelationships
Chapter
1-45 SO 8 Understand the four financial statements and how they are prepared.

46. Financial
Financial
Statements
Statements
Illustration 1-9
Financial statements and
their interrelationships
Chapter
1-46

47. Financial Statements
Financial Statements
Statement of Cash Flows
Information for a 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
1-47 SO 8 Understand the four financial statements and how they are prepared.

48. Financial Statements
Financial Statements Statement of Cash Flows
Illustration 1-9
Financial statements and
their interrelationships
Chapter
1-48 SO 8 Understand the four financial statements and how they are prepared.

49. Financial Statements
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
1-49 SO 8 Understand the four financial statements and how they are prepared.

50. Financial Statements
Financial Statements
Discussion Question
Q1-19: “A company’s net income appears directly on
the income statement and the owner’s equity
statement, and it is included indirectly in the
company’s balance sheet.” Do you agree? Explain.
See notes page for discussion
Chapter
1-50 SO 8 Understand the four financial statements and how they are prepared.

51. Accounting Career Opportunities
Accounting Career Opportunities
Public Accounting
Careers in auditing and taxation serving the general public.
Private Accounting
Careers in industry working in cost accounting, budgeting,
accounting information systems, and taxation.
Opportunities in Government
Careers with the IRS, the FBI, the SEC, and in public
colleges and universities.
Forensic Accounting
Careers with insurance companies and law offices to conduct
investigations into theft and fraud.
Chapter
1-51 SO 9 Explain the career opportunities in accounting.

52. Copyright
Copyright
Copyright © 2009 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that permitted
in Section 117 of the 1976 United States Copyright Act
without the express written permission of the copyright owner
is unlawful. Request for further information should be
addressed to the Permissions Department, John Wiley & Sons,
Inc. The purchaser may make back-up copies for his/her own
use only and not for distribution or resale. The Publisher
assumes no responsibility for errors, omissions, or damages,
caused by the use of these programs or from the use of the
information contained herein.
Chapter
1-52