Accounting 21th waren reeve fess chapter 01

Chapter 1
Introduction to Accounting
and Business
Accounting, 21st Edition
Warren Reeve Fess

PowerPoint Presentation by Douglas Cloud
Professor Emeritus of Accounting
Pepperdine University

© Copyright 2004 South-Western, a division
of Thomson Learning. All rights reserved.
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Some
Some of
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action has
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been automated,
automated, so
so
click
click the
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mouse when
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you see
see this
this lighting
lighting
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bolt in
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lower right-hand
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Objectives
Objectives
1. Describe the nature
of a business.
After
studying
After studying this
this
2. Describe the chapter,
role of accounting
in business.
you
should
chapter, you should
3. Describe the importance
of to:
business ethics and the
be
able
be able to:
basic principles of proper ethical conduct.
4. Describe the profession of accounting.
5. Summarize the development of accounting
principles and relate them to practice.
6. State the accounting equation and define each
element of the equation.

Objectives
Objectives
7. Explain how business transactions can be
stated in terms of the resulting change in the
basic elements of the accounting equation.
8. Describe the financial statements of a
proprietorship and explain how they interrelate.
9. Use the ratio of liabilities to owner’s equity to
analyze the ability of a business to withstand
poor business conditions.


Types of Businesses
Manufacturing
Manufacturing Business
Business
Product
Product

General
General Motors
Motors
Intel
Intel
Boeing
Boeing
Nike
Nike
Coca-Cola

Coca-Cola
Sony
Sony

Cars,
Cars, trucks,
trucks, vans
vans
Computer
Computer chips
chips
Jet
Jet aircraft
aircraft
Athletic
Athletic shoes
shoesand
and apparel
apparel
Beverages
Beverages
Stereos
Stereosand
and television
television


Types of Businesses
Merchandising
Merchandising Business

Business
Product
Product

Wal-Mart
Wal-Mart
Toys
Toys“R”
“R” Us
Us
Circuit
Circuit City
City
Lands’
Lands’ End
End
Amazon.com
Amazon.com

General
General merchandise
merchandise
Toys
Toys
Consumer
Consumer electronics
electronics
Apparel
Apparel
Internet

Internet books,
books, music,
music, video
video
retailer
retailer


Types of Businesses
Service
Service Business
Business
Product
Product

Disney
Disney
Delta
Delta Air
Air Lines
Lines
Marriott
Marriott Hotels
Hotels
Merrill
Merrill Lynch
Lynch
Sprint
Sprint

Entertainment
Entertainment
Transportation
Transportation
Hospitality
Hospitalityand
and lodging
lodging
Financial
Financial advice
advice
Telecommunication
Telecommunication


There
There are
are three
three types
types of
of
business
business organizations
organizations
 Proprietorship
 Partnership
 Corporation


A

A proprietorship
proprietorship
isis owned
owned by
by one
one
individual.
individual.

Joe’s

Advantages
• Ease in organizing
• Low cost of
organizing
Disadvantage
• Limited source of
financial resources
• Unlimited liability


A
A partnership
partnership isis
owned
owned by
by two
two or
or
more

more individuals.
individuals.

Joe and Marty’s

Advantages
• More financial
resources than a
proprietorship.
• Additional
management skills.
Disadvantage
• Unlimited liability.


A
A corporation
corporation isis
organized
organized under
under state
state
or
or federal
federal statutes
statutes as
as aa
separate
separate legal
legal entity.

entity.

J & M, Inc.

Advantage
• The ability to obtain
large amounts of
resources by issuing
stocks.
Disadvantage
• Double taxation.


Business
Business Strategies
Strategies
A business strategy is an integrated
set of plans and actions designed to
enable the business to gain an
advantage over its competitors, and
in doing so, to maximize its profits.


Business
Business Strategies
Strategies
Under a low-cost strategy, a business
designs and produces products or
services of acceptable quality at a cost
lower than that of its competitors.

Wal-Mart
Southwest Airlines


Business
Business Strategies
Strategies
Under a differential strategy, a business
designs and produces products or services
that possess unique attributes or
characteristics which customers are willing
to pay a premium price.
Maytag
Tommy Hilfiger


Value
Value Chain
Chain of
of aa Business
Business
A value chain is the way a
business adds value for its
customers by processing inputs
into product or service.
Inputs

Business
Processes

Products or
Services

Customer
Value


Business
Business Stakeholders
Stakeholders
A business stakeholder is a person or
entity having an interest in the
economic performance of the business.


The
The Process
Process of
of
Providing
Providing Information
Information

1

Identify
stakeholders.

STAKEHOLDERS
External:

Internal:
Customers,
Owners,
creditors,
managers,
government
employees

2

Assess
stakeholders’
informational
needs.


The
The Process
Process of
of
Providing
Providing Information
Information

4

Record
economic
data about
business

activities
and events.

Accounting
Information
System

3

Design the
accounting
information
system to meet
stakeholders’
needs.


The
The Process
Process of
of
Providing
Providing Information
Information
STAKEHOLDERS

Internal:
Owners,
managers,
employees

5

Prepare
accounting reports
for stakeholders.
Accounting
Information
System

External:
Customers,
creditors,
government


Business
Business Ethics
Ethics
Sound
Sound
Principles
Principles that
that
form
form the
the
foundation
foundation for
for

ethical
ethical
behavior
behavior

1. Avoid small ethical lapses.
2. Focus on your long-term
reputation.
3. You may expect to suffer
adverse personal
consequences for holding
to an ethical position.


Profession
Profession of
of Accounting
Accounting
Accountants
Accountants employed
employed by
by aa business
business firm
firm or
or
aa not-for-profit
not-for-profit organization
organization are
are said
said to

to be
be
engaged
engaged in
in private
private accounting.
accounting.
Accountants
Accountants and
and their
their staff
staff who
who provide
provide
services
services on
on aa fee
fee basis
basis are
are said
said to
to be
be
employed
employed in
in public
public accounting.
accounting.

Generally
Generally Accepted
Accepted
Accounting
Accounting
Principles
Principles (GAAP)
(GAAP)


The
The business
business entity
entity concept
concept
limits
limits the
the economic
economic data
data in
in
the
the accounting
accounting system
system to
to
data
data related
related directly
directly to

to the
the
activities
activities of
of the
the business.
business.
The
The cost
cost concept
concept isis the
the
basis
basis for
for entering
entering the
the
exchange
exchange price,
price, or
or cost
cost
of
of an
an acquisition
acquisition in
in the
the
accounting
accounting records.

records.


The
The objectivity
objectivity concept
concept
requires
requires that
that the
the accounting
accounting
records
records and
and reports
reports be
be based
based
upon
upon objective
objective evidence.
evidence.
The
The unit-of-measure
unit-of-measure
concept
concept requires
requires that
that
economic

economic data
data be
be
recorded
recorded in
in dollars.
dollars.


The
The Accounting
Accounting Equation
Equation
Assets = Liabilities + Owner’s Equity
The
The resources
resources
owned
ownedby
by aa
business
business