Chapter 1 - An
Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
Accounting provides information that is useful in answering questions about resource allocation
Should I invest money in IBM or
A market is a group of people or entities organized to exchange things of value.
Organizations need financial resources (money) to establish and operate their businesses.
In their most primitive form, physical resources are called natural resources. Owners of physical resources seek to sell those resources to profitable businesses which are able to pay higher prices and make repeat purchases.
Labor resources include both intellectual and physical labor.
Workers seek relationships with businesses that have high earnings potential because these businesses are better able to pay high wages.
Focused on the needs of external users Managerial
Focused on the needs of internal users Public
Certified Internal Auditor
Accountants establish measurement and reporting rules that businesses use to facilitate communication.
Financial accounting reports disclose the financial activities of particular individuals or organizations described as reporting entities. Each entity is treated as a separate reporting unit. Business
Construct an accounting equation using elements of financial statements terminology. 1.
The elements represent broad categories.
1. Assets — Cash, Equipment, Buildings, Land
4. Contributed Capital
8. Net Income
Subclassifications of the elements are frequently called accounts.
Accounts are reported in the financial statements.
Claims on the assets are from two sources:
1. Creditors (liabilities)
2. Investors or owners (equity).
$ 500 = $
200 + $
200 = $
Paid in Capital
1-5A (pg. 30) – Titles and
Accounts Appearing on F/S
1-6A (pg. 30) - Components of the Accounting Equations
1-7A (pg. 30) – Missing information in the accounting equations LO 3 and 4
Record business events in general ledger accounts organized under an accounting equation.
Event 1: Rustic Camp Sites (RCS) was formed on
January 1, 2011, when it acquired $120,000 cash from issuing common stock.
1. RCS increases assets
2. RCS increases stockholders’ equity
Acquired Cash through Stock Issue
N. Pay. + n/a +
Ret. Ear. n/a Recorded
Event 2: RCS…