Documentos de Académico
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The Language
of Business
CHAPTER
Learning Objectives
After studying this chapter, you should be able to
1. Explain how accounting information assists in
making decisions
2. Describe the components of the balance sheet
3. Analyze business transactions and relate them to
changes in the balance sheet
4. Compare the features of sole proprietorships,
partnerships, and corporations
Learning Objectives
After studying this chapter, you should be able to
5. Identify how the owners equity section in a
corporate balance sheet differs from that in a sole
proprietorship or partnership
6. Describe auditing and how it enhances the value of
financial information
7. Explain the regulation of financial reporting
8. Evaluate the role of ethics in the accounting
profession
Event
Accountants
Analysis and
Recording
Financial
Statements
Users
Accounting as an Aid
to Decision Making
Accounting information is useful to anyone
making decisions that have economic
consequences
These decision makers include
Managers
Owners
Investors
Politicians
Financial Accounting
Financial accounting serves external
decision makers:
Stockholders
Suppliers
Banks
Government agencies
Management Accounting
Management accounting serves internal
decision makers:
Top executives
Department heads
College deans
Hospital administrators
Other managers within the organizations
Liabilities
Owners Equity
Cash
(1)
+ $400,000
Lopez, Capital
=
+$400,000
(Owner Investment)
Cash
Liabilities
+ $400,000
(2)
+ $100,000
+ $100,000
$500,000
$100,000
$500,000
Owners Equity
Note payable
(1)
Bal.
Lopez, Capital
+$400,000
$400,000
$500,000
=
Store Equipment
Bal. $500,000
Liabilities
Note payable
-15,000
+15,000
Bal.
485,000
15,000
$400,000
100,000
$500,000
400,000
$500,000
Owners Equity
Lopez, Capital
= $100,000
(3)
Assets
Cash
Store equipment
Total assets
$100,000
400,000
$500,000
Types of Ownership
Sole proprietorship a business with a single
owner
Partnership an organization that joins two or
more individuals who act as co-owners
Corporation a business organization created
under state laws in the Unites States
Corporation
Publicly owned corporation A corporation owned by
the public through the sale of shares; it may have
thousands of owners
Privately owned corporation A corporation owned by
families or a small group of shareholders; shares are
not publicly sold
Corporation stockholders have limited liability
Creditors have claims against the corporation
assets only, not the personal assets of the owners
Disadvantages
Limited liability
Easy transfer of
ownership
Ability to raise capital
from hundreds or
thousands of potential
stockholders
Continuity of existence
Prestige
Corporations
Owners equities are labeled stockholders equity or
shareholders equity. Total capital investment is called
paid-in capital
Owners equity is recorded in two parts:
Common stock at par value
Paid-in capital in excess of par value
Stockholders
Board of Directors
Managers
Standard-Setting Bodies
The Financial Accounting Standards Board
(FASB) is responsible for establishing GAAP in
the United States by issuing FASB Statements
The Securities and Exchange Commission
(SEC) is responsible for authorizing the GAAP
for companies whose stock is held by the
general investing public
The FASB and SEC work closely together and
seldom have public disagreements
2006 Prentice Hall Business Publishing
Standard-Setting Bodies
The International Accounting Board (IASB)
Is responsible for developing high quality,
understandable and enforceable global accounting
standards
Has 12 full-time and 2 part-time members
Standards will be adopted by the European Union for
financial statements prepared after 2005
Standard-Setting Bodies
The American Institute of Certified Public
Accountants (AICPA) is the principal
professional association in the private sector that
regulates the quality of the public accounting
profession
Sarbanes-Oxley Act
Established the Public Company Accounting
Oversight Board to regulate public accounting
and to set standards for audit procedures
through the issuance of generally accepted
auditing standards (GAAS)
Prohibits public accounting firms from providing
audit clients with certain non-audit services
Requires rotation every 5 years of the lead audit
or coordinating partner and the reviewing partner
on an audit
2006 Prentice Hall Business Publishing
Sarbanes-Oxley Act
Provides regulation of corporate governance
Requiring boards to appoint an audit committee
composed only of independent directors
Requiring CEOs and chief financial officers (CFOs) to
personally sign a statement certifying the
appropriateness and fairness of their companies
financial statements
Increasing criminal penalties for knowingly
misreporting financial information
Professional Ethics
Members of the AICPA must abide by a code of
professional conduct
The Institute of Management Accountants has a
code of ethics for management accounts
Auditors and management accountants have
professional responsibilities concerning
competence, confidentiality, integrity, and
objectivity
Professional Ethics
Ethical standards are personal and depend on
the values of the individual
A successful manager must recognize the
ethical dimensions of a situation and act with
absolute integrity
Professional Ethics
Despite the criticism of accounting ethics,
accountants were responsible for revealing the
problems in many of the recent corporate
scandals
Companies often rely on accountants to
safeguard the ethics of the company
WorldCom and Enron whistle-blowers became
two of the three 2002 Persons of the Year in
Time magazine
2006 Prentice Hall Business Publishing
Career Opportunities
for Accountants
Accounting provides an excellent training ground
for future managers and executives
More CEOs started out in finance or accounting
than any other area
Nonprofit Organizations
Fundamental accounting principles also apply to
nonprofit organizations
The Governmental Accounting Standards
Board (GASB) regulates disclosures for
governmental organizations
The FASB regulates financial reporting for other
nonprofit organizations