Chapter One

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Chapter 1
An Introduction to the Role of Accounting in the
Business World
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Class Suggestions

• Read the chapter before class
• Spend time on the homework
• Ask questions during class
• Do a little bit each day
• Accounting can be fun!

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Chapter 1 Objectives

• What are the major types of Business
  Entities,their legal forms and key internal
  functions?
• How do accountants communicate financial
  information to decision-makers?
• What system collects internal financial data?
• What and who make up the accounting profession?
• What does the future hold for accounting?

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Business Entities

• Service
• Manufacturing
• Merchandising
• Wholesalers
• Retailers

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Legal Forms of Businesses

• Sole proprietorship

• Partnership

• Corporation

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Financial or Managerial?

• External users
• Rigid rules
• Historical perspective
• Aggregate information
• Quantitative information

• Internal users
• Flexible format
• Future perspective
• Detailed information
• Quantitative and qualitative information

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Hierarchy of Accounting
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Financial Statements

• Balance sheet
• Income statement
• Statement of cash flows
• Statement of owners equity

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Balance Sheet

• Assets Liabilities Owners Equity
• At a Point in Time
• Consolidates Activity

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Income Statement

• Revenues minus expenses
• For a period of time
• Measures gains and losses

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Statement of Cash Flows

• Details all cash inflows and outflows
• For a period of time
• Like a checkbook

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Statement of Owners Equity

• Changes in the owners equity
• For a period of time
• Owners claim on the assets

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Other Annual Report Components

• Footnotes
• Management discussion analysis
• Independent auditors report