Accounting

Liabilities arising from expenses include accounts payable, interest payable, wages payable, sales taxes payable, and income taxes payable. Net income – when revenues exceed expenses.
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INTRODUCTION TO FINANCIAL STATEMENTS
Accounting, Fifth Edition
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Learning Objectives
After studying this chapter, you should be able to:
1. 2. Describe the primary forms of business organization. Identify the users and uses of accounting information.
Net loss – when expenses exceed revenues.


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LO 3 Explain the three principal types of business activity.
Classify each item as an asset, liability, common stock,

Revenues - Amounts earned from the sale of products (sales revenue, service revenue, and interest revenue).
Inventory - Goods available for sale to customers. Accounts receivable - Right to receive money from a customer as the result of a sale.
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LO 2 Identify the users and uses of accounting information.
Users and Uses of Financial Information Review Question
Which of the following did not result from the SarbanesOxley Act?
3.
4.
Explain the three principal types of business activity.
Describe the content and purpose of each of the financial statements.
5.
Explain the meaning of assets, liabilities, and stockholders’ equity, and state the basic accounting equation.
Ethics In Financial Reporting
United States regulators and lawmakers were very concerned that the economy would suffer if investors lost confidence in
corporate accounting because of unethical financial reporting.
Describe the components that supplement the financial statements in an annual report.
6.
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Preview of Chapter 1
Accounting Fifth Edition Kimmel Weygandt Kieso
investing,
and operating.
The accounting information system keeps track of the results of each of these business activities.
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LO 3 Explain the three principal types of business activity.
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LO 2 Identify the users and uses of accounting information.
Business Activities
All businesses are involved in three types of activity —

financing,
Purchase of resources a company needs to operate.

Computers, delivery trucks, furniture, buildings, etc. (property, plant, and equipment).
Resources owned by a business are called assets. Investments are another example of an investing activity.
revenue, or expense.
Solution
1. Cost of renting property. 2. Truck purchased. 3. Notes payable. 4. Issuance of ownership shares. 1. Expense. 2. Asset. 3. Liabilities. 4. Common stock.
b. assets exceed revenues.
c. expenses exceed revenues. d. revenues exceed expenses.
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LO 4 Describe the content and purpose of each of the financial statements.

Payments to stockholders are called dividends.
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LO 3 Explain the three principal types of business activity.
Business Activities
Investing Activities
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LO 2
Users and Uses of Financial Information
External Users
Illustration 1-2 Questions that external users ask 1-7
LO 2
Users and Uses of Financial Information
LO 3


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Business Activities
Operating Activities

Expenses - cost of assets consumed or services used. (cost of goods sold, selling, marketing, administrative, interest, and income taxes expense).
Statement of Cash Flows
International Note The primary types of financial statements required by International Financial Reporting Standards (IFRS) and U.S. generally accepted accounting principles (GAAP) are the same.
Communicating with Users
Companies prepare four financial statements from the summarized accounting data:
Income Statement
Retained Earnings Statement
Balance Sheet
Business Activities
Financing Activities
Two primary source Borrowing money (debt financing)

Amounts owed are called liabilities.
a. Top management must now certify the accuracy of financial information. b. Penalties for fraudulent activity increased. c. Independence of auditors increased. d. Tax rates on corporations increased.
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LO 2 Identify the users and uses of accounting information.
Users and Uses of Financial Information
Illustration 1-3 Steps in analyzing ethics cases
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Forms of Business Organization
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LO 1 Describe the primary forms of business organization.