Chapter 1

Introduction to
Accounting and Business

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 Chapter 1

Learning Objectives
1. Nature of a Business
2. The Role of Accounting in Business
Part 1 3. Business Ethics
4. Profession of Accounting
5. Generally Accepted Accounting Principles
6. Assets, Liabilities, and Owner’s Equity
7. Business Transactions
Part 2
8. Financial Statements
9. Financial Analysis and Interpretation

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 Introduction to
Accounting and Business
Part 1

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Nature of Business
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 the customers

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 Type of Business
Service Merchandising Manufacturing
businesses businesses businesses

Services businesses provide

services rather than products to
customers

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 Type of Business
Service Merchandising Manufacturing
businesses businesses businesses

Merchandising businesses sell

products to customers. However
the products are purchased from
other business

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 Type of Business
Service Merchandising Manufacturing
businesses businesses businesses

Manufacturing businesses
change basic inputs into products
that are sold to customers

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Types of Business Organization
1. A proprietorship is owned by one
individual
2. A partnership is owned by two or
more individuals
3. A corporation is organized under
state statutes as a separate legal entity

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The Role of Accounting in Business

ACCOUNTING
is an information system that
provide reports to stakeholders about
economic activities and condition of
a business.

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Accounting — An Information Process
Identification
of Users

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Accounting — An Information Process
Identification
of Users

User
Information
Needs

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Accounting — An Information Process
Identification
of Users

User
Information
Needs

Accounting
System

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 Accounting — An Information Process
Identification
of Users

User
Information
Needs

Economic Data Accounting

and Activities System

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 Accounting — An Information Process
Identification
of Users

User
Information
Needs

Economic Data Accounting

and Activities System

Reports

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 Accounting — An Information Process
Identification
of Users

User
Information
Needs

Economic Data Accounting

and Activities System

User
Reports
Decisions

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 DECISION
MAKING

ASSESS
IDENTIFY STAKEHOLDERS’
STAKEHOLDERS INFORMATIONAL
NEEDS

PREPARE ACCOUNTING
REPORTS FOR
STAKEHOLDERS

DESIGN THE
ACCOUNTING
RECORD ECONOMIC ACCOUNTING INFORMATION
DATA ABOUT INFORMATION SYSTEM TO MEET
BUSINESS SYSTEM STAKEHOLDER’S
ACTIVITIES AND NEED
EVENTS

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 Decision Making
A decision is the making of a choice
between two or more alternatives.

Why we make decisions?

Because it is not possible to do
everything as time and resources are
always limited.

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Steps in Decision Making
What are we trying to
1. ESTABLISH GOALS
achieve?

2. GATHER AVAILABLE What information

INFORMATION ON
ALTERNATIVES do we need?

3. DETERMINE
What are the
CONSEQUENCES OF consequences of
ALTERNATIVES different alternatives?

4. CHOOSE A COURSE What course of action

OF ACTION will we choose?
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The Nature of Accounting
Accounting is a service activity

The function of accounting is to

provide and interpret financial
information that is intended to be
useful in making economic
decisions.

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The Nature of Accounting
Accounting is often called ‘the
language of business’

Accounting uses its own special words

and symbols to communicate financial
information that is intended to be
useful in economic decision making.

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The Definition of Accounting
Accounting has been defined as
the process of identifying,
Accounting
measuring, recording, and activity
communicating economic
information
to permit informed judgments
and economic decisions by Accounting
users of the information. usefulness

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 Users of Accounting Information

• investors
Financial Accounting • creditors
EXTERNAL USERS • regulators
• customers
• competitors

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 Users of Accounting Information

• investors
Financial Accounting • creditors
EXTERNAL USERS • regulators
• customers
• competitors
Managerial Accounting
INTERNAL USERS • owners
• managers
• employees
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 The Accounting Profession
Government Industry CPA Firms

Staff Junior
Auditor Accountant Accountant

College Graduates

What are the starting rates for new graduates?

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 The Accounting Profession
Government Industry CPA Firms

Chief Senior
Supervisor Accountant Accountant

Staff Junior
Auditor Accountant Accountant

College Graduates

How soon would I get promoted?

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 The Accounting Profession
Government Industry CPA Firms

Director Controller Manager

Senior
Supervisor Chief Accountant
Accountant

Staff Junior
Auditor Accountant Accountant

College Graduates

What are the top positions in each category?

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 The Accounting Profession
Government Industry CPA Firms
Vice President
Administrator Finance Partner

Director Manager
Controller

Senior
Supervisor Chief Accountant
Accountant

Staff Junior
Auditor Accountant Accountant

College Graduates

What is the fastest path to top management?

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 The Accounting Profession
Government Industry CPA Firms

Administrator Vice President Partner

Finance
1 2
Director Manager
Controller

Senior
Supervisor Chief Accountant
Accountant

Staff Junior
Auditor Accountant Accountant

College Graduates

1 10 to 20 years of experience 2 6 to 8 years of experience

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Generally Accepted Accounting Principles

Financial accountants follow Generally Accepted

Accounting Principles (GAAP) in preparing
reports.
 Business entity concept:
The individual business unit is the business entity for which
economic are needed.
 Cost concept:
The cost concept is the basis for entering the exchange
price [or cost] into the accounting records.
It involves two other important accounting concepts—
objectivity and the unit of measure.

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Business Ethics
SOUND PRINCIPLES THAT
FORM THE FOUNDATION FOR
ETHICAL BEHAVIOR for
BUSINESS PEOPLE:

1. Avoid small ethical lapses

2. Focus on your long-term reputation
3. Expect to suffer adverse personal
consequences for holding to an ethical
position

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