1. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Nature of Business and Accounting  A business is an organization in which basic resources (inputs), such as materials and labor, are assembled and processed to provide goods or services (outputs) to customers. LO 1

2. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO 1 Nature of Business and Accounting  The objective of most businesses is to earn a profit.  Profit is the difference between the amounts received from customers for goods or services and the amounts paid for the inputs used to provide the goods or services.

3. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. LO 1 Types of Businesses Personal computersDell Transportation services Delta Air Lines Service Service Businesses The Walt Disney Company Entertainment services General merchandise Walmart ProductMerchandising Businesses ProductManufacturing Businesses Cars, trucks, vansFord Motor Company Internet books, music, videos Amazon.com

4. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Role of Accounting in Business  Accounting can be defined as an information system that provides reports to users about the economic activities and condition of a business. LO 1

5. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.  The process by which accounting provides information to users is as follows:  Identify users.  Assess users’ information needs.  Design the accounting information system to meet users’ needs.  Record economic data about business activities and events.  Prepare accounting reports for users. LO 1 The Role of Accounting in Business

6. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Managerial Accounting  The area of accounting that provides internal users with information is called managerial accounting or management accounting.  Managerial accountants employed by a business are employed in private accounting. LO 1

7. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Financial Accounting  The area of accounting that provides external users with information is called financial accounting.  The objective of financial accounting is to provide relevant and timely information for the decision-making needs of users outside of the business.  General-purpose financial statements are one type of financial accounting report that is distributed to external users. LO 1

8. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Role of Ethics in Accounting and Business  The objective of accounting is to provide relevant, timely information for user decision making.  Accountants must behave in an ethical manner so that the information they provide users will be trustworthy and, thus, useful for decision making.  Ethics are moral principles that guide the conduct of individuals. LO 1

9. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Role of Ethics in Accounting and Business LO 1 (continued)

10. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Role of Ethics in Accounting and Business LO 1 (continued)

11. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Role of Ethics in Accounting and Business LO 1 (concluded)

12. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Opportunities for Accountants  Accountants and their staffs who provide services on a fee basis are said to be employed in public accounting.  Accountants employed by a business firm or a not-for-profit organization are said to be employed in private accounting.  Public accountants who have met a state’s education, experience, and examination requirements may become Certified Public Accountants (CPAs). LO 1

13. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Opportunities for Accountants LO 1

14. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Generally Accepted Accounting Principles  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. LO 2

15. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. 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). LO 2

16. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Business Entity Concept  Under the business entity concept, the activities of a business are recorded separately from the activities of its owners, creditors, or other businesses. LO 2

17. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Proprietorship  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. LO 2

18. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Partnership  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. LO 2

19. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Corporation  A corporation is organized under state or federal statutes as a separate legal taxable entity.  Corporations generate 90% of business revenues.  20% of the business organizations in the U.S. are corporations.  Ownership is divided into shares, called stock. LO 2 (continued)

20. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Corporation  A corporation is organized under state or federal statutes as a separate legal taxable entity.  Can obtain large amounts of resources by issuing stocks.  Used by large businesses. LO 2

21. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Limited Liability Company (LLC)  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. LO 2

22. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost Concept  Under the cost concept, amounts are initially recorded in the accounting records at their cost or purchase price. LO 2

23. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost Concept LO 2 Aaron Publishers purchased a building on February 20, 2010, for $150,000. Other amounts related to this purchased are shown on the next slide.

24. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Cost Concept  Price listed by seller on January 1, 2010$160,000  Aaron Publishers’ initial offer to buy on January 31, 2010 140,000  Purchase price on February 20, 2010 150,000  Estimated selling price on December 31, 2012 220,000  Assessed value for property taxes, December 31, 2012190,000 LO 2

25. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Objectivity Concept  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. LO 2

26. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Unit of Measure Concept  The unit of measure concept requires that economic data be recorded in dollars. LO 2

27. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Accounting Equation  The resources owned by a business are its assets.  The rights of creditors are the debts of the business and are called liabilities.  The rights of the owners are called owner’s equity.  The equation Assets = Liabilities + Owner’s Equity is called the accounting equation. LO 3

28. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The resources owned by a business Assets = Liabilities + Owner’s Equity The Accounting Equation LO 3

29. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Assets = Liabilities + Owner’s Equity The Accounting Equation LO 3 The rights of creditors are the debts of the business

30. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The rights of the owners Assets = Liabilities + Owner’s Equity The Accounting Equation LO 3

31. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Business Transaction  A business transaction is an economic event or condition that directly changes an entity’s financial condition or its results of operations. LO 4

32. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Financial Statements  After transactions have been recorded and summarized, reports are prepared for users. The accounting reports providing this information are called financial statements. LO 5

33. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Financial Statements LO 5

34. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Income Statement  The income statement reports the revenues and expenses for a period of time, based on the matching concept.  The matching concept is applied by “matching” the expenses incurred during a period with the revenue that those expenses generated.  The excess of the revenue over the expenses is called net income, net profit, or earnings. If expenses exceed revenue, the excess is a net loss. LO 5

35. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Retained Earnings Statement  The retained earnings statement reports the changes in the retained earnings for a period of time.  It is prepared after the income statement because the net income or net loss for the period must be reported in this statement. LO 5

36. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Balance Sheet  A balance sheet is a list of the assets, liabilities, and stockholders’ equity as of a specific date. LO 5

37. © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Statement of Cash Flows  A statement of cash flows is a summary of the cash receipts and cash payments for a specific period of time.  It consists of three sections: (1) operating activities (2) investing activities (3) financing activities LO 5