gaap in accounting
TRANSCRIPT
-
8/10/2019 GAAP in Accounting
1/41
-
8/10/2019 GAAP in Accounting
2/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw2in
Accounting inBusiness
-
8/10/2019 GAAP in Accounting
3/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw3in
Learning objectives
Conceptual:C1: Explain the purpose and importance of accounting
in the information age.
C2: Identify users and uses of accounting.
C3: Identify opportunities in accounting and relatedfields.
C4: Explain why ethics are crucial to accounting.
C5: Explain the meaning of GAAP, and define and
apply several key principles of accounting.
Analytical:
Define and interpret the accounting equation and each
of its components.
-
8/10/2019 GAAP in Accounting
4/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw4in
Learning objective
C1: Explain the purpose and importance
of accounting in the information age.
-
8/10/2019 GAAP in Accounting
5/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw5in
Identifies
Records
CommunicatesRelevant
Reliable
Comparable
Importance of Accounting
Accountingis a
system that
information
that is
to help users make
better decisions.
-
8/10/2019 GAAP in Accounting
6/41
-
8/10/2019 GAAP in Accounting
7/41 The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw7in
What is the relation between accountingand bookkeeping?
Bookkeeping is the recordingof financial
transactions and events, either manually or
electronically.
Accounting is much more. It includes
identifying, measuring, recording, reporting,
and analyzingbusiness events and
transactions, and helps information users tomake economic decisions.
-
8/10/2019 GAAP in Accounting
8/41 The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw8in
Learning objective
C2: Identify users and uses of
accounting.
-
8/10/2019 GAAP in Accounting
9/41 The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw9in
Users of Accounting Information
External Users
Lenders
Shareholders
Governments
Consumer Groups
External Auditors
Customers
Internal Users
Managers
Officers
Internal Auditors
Sales Staff
Budget Officers
Controllers
-
8/10/2019 GAAP in Accounting
10/41 The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw10in
Users of Accounting Information
External Users
Financial accountingprovides
external users with financial
statements.
Internal Users
Managerial accountingprovides
information needs for internal
decision makers.
-
8/10/2019 GAAP in Accounting
11/41 The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw11in
Users of Accounting Information-External
Lenders: Whether the firm (borrower) canrepay the money?
Shareholders: whether to buy, hold, or sell
stocks? Governments: whether the firm pay all due
tax?
Customers: whether the firm can exist toprovide post-sale services?
External Auditors: whether the financialstatements are prepared according to GAAP?
Etc.
-
8/10/2019 GAAP in Accounting
12/41 The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw12in
Users of Accounting Information-Internal
Marketing managers: target customers, set
price, monitor sales.
Production managers: monitor cost and ensure
quality.
Purchasing managers: what, when and where
to purchase materials.
Human resource managers: employees
performance and compensation.
-
8/10/2019 GAAP in Accounting
13/41 The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw13in
Learning objective
C3: Identify opportunities in accounting
and related fields.
-
8/10/2019 GAAP in Accounting
14/41 The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw14in
Opportunities in Accounting
Financial
Preparation
Analysis
Auditing
Regulatory
ConsultingPlanning
Criminal
investigation
Managerial
General accounting
Cost accounting
Budgeting
Internal auditing
ConsultingController
Treasurer
Strategy
Taxation
Preparation
Planning
Regulatory
Investigations
ConsultingEnforcement
Legal services
Estate planning
Accounting-
related
Lenders
Consultants
Analysts
Traders
Directors
Underwriters
Planners
Appraisers
FBI investigators
Market researchers
Systems designers
Merger services
Business valuation
Human services
Litigation support
Entrepreneurs
-
8/10/2019 GAAP in Accounting
15/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw15in
Learning objective
C4: Explain why ethics are crucial to
accounting.
-
8/10/2019 GAAP in Accounting
16/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw16in
Beliefs that
distinguish
right fromwrong
Accepted
standards of
good and badbehavior
Ethics
EthicsA Key Concept
-
8/10/2019 GAAP in Accounting
17/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw17in
Identify
ethical concerns
Analyze
options
Make ethical
decision
Use personalethics to
recognize ethical
concern.
Consider all goodand bad
consequences.
Choose bestoption after
weighing all
consequences.
Guidelines for Ethical Decision Making
-
8/10/2019 GAAP in Accounting
18/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw18in
Learning objective
C5: Explain the meaning of GAAP, and
define and apply several key principles
of accounting.
-
8/10/2019 GAAP in Accounting
19/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw19in
Financial accounting practice is governed by
concepts and rules known as generally accepted
accounting principles (GAAP).
Generally Accepted AccountingPrinciples
Relevant
Information
Affects the decision of
its users.
Reliable Information Is trusted by
users.
Comparable
Information
Is helpful in contrasting
organizations.
-
8/10/2019 GAAP in Accounting
20/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw20in
The Securities and Exchange Commission[USA]is the government group that
establishes reporting requirements for
companies that issue stock to the public.
Setting Accounting Principles
Financial Accounting
Standards Boardis the private
group that sets both broad and
specific principles.
-
8/10/2019 GAAP in Accounting
21/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw21in
Setting Accounting Principles
Hong Kong:
Hong Kong Institute of Certified Public
Accountants(HKICPA)
China
Ministry of Finance Peoples Republic of China
International Accounting Standard Board
(IASB)
International Financial Reporting Standards
(IFRS)
http://www.hkicpa.org.hk/http://www.hkicpa.org.hk/http://www.hkicpa.org.hk/http://www.hkicpa.org.hk/ -
8/10/2019 GAAP in Accounting
22/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw22in
Principles of Accounting
General principles: basic assumptions,
concepts, and guidelines for preparing
financial statements.
Usually stem from long-used accounting
practice.
Specific principles: detailed rules used in
reporting business transactions and events.Usually created by a pronouncement from an
authoritative body.
-
8/10/2019 GAAP in Accounting
23/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw23in
Principles of AccountingGeneralPrinciples
Objectivity Principle
Accounting information is supported by independent,
unbiased evidence. It is intended to make financial
statements useful by ensuring they report reliable and
verifible information.
Source documents.
-
8/10/2019 GAAP in Accounting
24/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw24in
Principles of Accounting
Cost Principle
Accounting information is based on actual cost.Cost is measured on a cash or equal-to cash basis
Information based on cost is
considered objective.
-
8/10/2019 GAAP in Accounting
25/41
-
8/10/2019 GAAP in Accounting
26/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw26in
Principles of Accounting
Monetary Unit Principle
Express transactions and events in monetary, or
money, units.
-
8/10/2019 GAAP in Accounting
27/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw27in
Principles of Accounting
Revenue Recognition PrincipleProvides guidance on when a company must recognize
revenue.
1.Recognize revenue when it is earned.
2.Proceeds need not be in cash (Credit sales).3.Measure revenue by cash received plus cash
value of items received.
-
8/10/2019 GAAP in Accounting
28/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw28in
Principles of Accounting
Business Entity Principle
A business is accounted for separately from
other business entities, including its owner.
-
8/10/2019 GAAP in Accounting
29/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw29in
Business Entity Forms
Proprietorship Partnership Corporation
Exh.
-
8/10/2019 GAAP in Accounting
30/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw30in
Characteristics Proprietorship Partnership Corporation
Business entity yes yes yes
Legal entity no no yesLimited liability no no yes
Unlimited life no no yes
Business taxed no no yes
One owner allowed yes no yes
*
* Proprietorships and partnerships that are set up as LLCs
provide limited liability.
Characteristics of Businesses
Exh.
1.8
*
-
8/10/2019 GAAP in Accounting
31/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw31in
Owners of a corporation are called
shareholders(or stockholders).
When a corporation issues only
one class of stock, we call it
common stock (or capital stock).
Corporation
-
8/10/2019 GAAP in Accounting
32/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw32in
Learning objective
Define and interpret the accounting
equation and each of its components.
-
8/10/2019 GAAP in Accounting
33/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw33in
Assets
Liabilities
& Equity
Accounting Equation
Liabilities EquityAssets = +
-
8/10/2019 GAAP in Accounting
34/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw34in
Accounting Equation
Assets are resources with future benefits that are owned
or controlled by a company.
Liabilities are what a company owes its creditors in future
products or services.
Equity refers to the claims of its owner(s).
Forms of funds=Sources of funds ()
What resources does the firm have? (Assets) = Where
do those resources come from? (Liabilities and Equity)
A firm acquires assets by funds. Liabilities and equity
are the sources of funds to acquire those assets.
-
8/10/2019 GAAP in Accounting
35/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw35in
Land
Equipment
Buildings
Cash
Vehicles
Store
Supplies
Notes
Receivable
Accounts
Receivable
Resourcesowned or
controlled
by a
company
Assets
-
8/10/2019 GAAP in Accounting
36/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw36in
Taxes
Payable
Wages
Payable
Notes
Payable
Accounts
Payable
Creditors
claims on
assets
Liabilities
-
8/10/2019 GAAP in Accounting
37/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw37in
Ownersclaims
on
assets
Revenues
Owner
Investments
Owner
Withdrawals
Expenses
Equity
-
8/10/2019 GAAP in Accounting
38/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw38in
Liabilities EquityAssets = +
Expanded Accounting Equation
Revenues ExpensesOwner
Capital
Owner
Withdrawals_
+_
-
8/10/2019 GAAP in Accounting
39/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw39in
Expanded Accounting Equation
Revenues: gross increase in equity from a
companys earnings activities.
Expenses: the cost of assets or services used
to earn revenue. Expenses decrease owners
equity.
Owner investments: the assets an owner puts
into the company. Owner withdrawals: the assets take away from
the company for personal use.
-
8/10/2019 GAAP in Accounting
40/41
The McGraw-H il l Companies, Inc., 2006McGraw-Hill/Irw40in
End of Chapter 1
-
8/10/2019 GAAP in Accounting
41/41
Chapter 1 Homework
Ex. 1-1,1-2,1-7
Problem 1-1A
Due on June 12, 2006 (Monday)