1. What is Accounting?
Accounting is a system of dealing with financial information that provides information for decision-making.
G.E. Syme & T.W. Ireland

2. Accounting is the language of business.
What is Accounting?
Accounting is the language of business.
Art Lightstone

3. The Five functions of Accounting
1. Gathering financial information.

4. The Five functions of Accounting
2. Preparing and collecting permanent records.

5. The Five functions of Accounting
3. Rearranging, summarizing and classifying financial information.

6. The Five functions of Accounting
4. Preparing information reports and summaries.

7. The Five functions of Accounting
5. Establishing controls to promote accuracy and honesty among employees.

8. Types of Business All businesses fall into three general categories…
service
manufacturing
merchandising
Sells effort (ie. work, talent) that does not result in a material item. A haircut would be an example of a service. A service is often viewed as an expense by the buyer.
Combines effort and materials to produce a new product. These products may be viewed by the buyer as an expense (ie. fuel) or an asset (ie. car).
Purchases a manufacturer’s product and resells it to another customer for a higher price. Again, such products may be viewed as assets or expenses by the buyer.

9. Forms of Business Organization

10. There are three forms of business organization. They are:
Sole Proprietorship
Partnership
Corporation

11. Sole Proprietorship
An unincorporated business owned by a single individual.
The law does not distinguish between the business and the owner.

12. Sole Proprietorship Advantages low start-up cost
great freedom from regulation
all profits to owner
owner has complete control

13. Sole Proprietorship Disadvantages unlimited liability
difficult to raise capital
limited to owner’s knowledge
lack of continuity
profits taxed at personal rate

14. Partnership
An unincorporated business owned by more than one individual.
The law does not distinguish between the business and the owners.

15. Partnership Advantages ease of formation broader management skills
limited regulations
more capital resources

16. Partnership Disadvantages unlimited liability possible disagreements
divided authority
difficult to find partners
partners liable for each other

17. Corporation A business which is an individual in the eyes of the law.
The law views the business as a separate entity from the owner(s).

18. Corporation
Profits of the corporation are distributed to the shareholders by way of "dividends".
The more shares one owns, the more dividends they will receive.
example
Shareholder receives: $1,000.00
Dividends: $1.00 / share
Shareholder owns: 1000 shares

19. Corporation Advantages
limited liability of shareholders (However, directors and officers can be liable in certain circumstances.)
possible lower taxation rate
can sue / be sued in the corporate name
more prestige
continuity of business

20. Corporation Disadvantages
higher start-up costs and greater formalities
requires annual maintenance from accountant and lawyer
losses cannot offset personal income

21. Corporation Structure Executive: (ie. President, Treasurer, Secretary.
Run the day to day operations of the business.)
Directors: (Hire executive, guide mission,
distribute profits between business & shareholders)
Shareholders: (provide capital,
elect directors, receive dividends)

22. 1. In groups of four to five students, answer the following Chapter Review questions: #1, 8, 9, 10, and 11.
1. List the five main activities involved in accounting. 8. Identify three kinds of businesses besides a service business. 9. List the three forms of business ownership. 10. Give examples of a routine accounting activity and a periodic accounting activity. 11. Define the accounting cycle.
Bonus Question: Explain the paradox involved in the answer to question #8.

23. 1. Originating Transaction Data 8. Post-closing Trial Balance
The Accounting Cycle
The Entire Cycle
1. Originating Transaction Data
2. Journalizing
8. Post-closing Trial Balance
3. Posting
A = L + OE
7. Closing Entries
4. Trial Balance
6. Financial Statements
5. Worksheet