Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

Chapter 1Chapter 1Accounting—Present and Past

PowerPoint Authors:Susan Coomer Galbreath, Ph.D.,

CPACharles W. Caldwell, D.B.A., CMAJon A. Booker, Ph.D., CPA, CIACynthia J. Rooney, Ph.D., CPA

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-3

What is Accounting?What is Accounting?

Accounting is the process of:

LO 1

1-3

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-4

Users and Uses of Users and Uses of Accounting InformationAccounting Information

UserDecision/Informed Judgment

MadeManagement Planning, directing, and controllingInvestors/Shareholders Assessing amounts, timing, and

uncertainty of future cash returns on their investment

Creditors/Suppliers Assessing probability of collection and the risk of late (or non-) payment

Employees Planning for retirement and future job prospects

Securities and Exchange Commission

Reviewing for compliance of all required information

LO 2

1-4

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-5

Financial AccountingFinancial Accounting

Financial accountingFinancial accounting generally refers to generally refers to the process that results in the the process that results in the

preparation and reporting of financial preparation and reporting of financial statements for an entity.statements for an entity.

Financial accounting is primarily Financial accounting is primarily externally orientedexternally oriented and concerned with and concerned with

thethe historical historical results of an entityresults of an entity’’s s performance.performance.

LO 3

1-5

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-6

Managerial Accounting/ Managerial Accounting/ Cost AccountingCost Accounting

Managerial accounting is concerned with the use of economic and financial information to plan and control many of the activities of the entity

and to support the management decision-making process.

Cost accounting relates to the determination and accumulation of product, process, or

service costs.

LO 3

1-6

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-7

Auditing—Public Auditing—Public AccountingAccounting

Public accounting firms Public accounting firms and individual and individual Certified Certified

Public Accountants (CPAsPublic Accountants (CPAs) ) provide auditing services provide auditing services and issue and issue an independent an independent

auditorauditor’’s reports report. .

An independent auditorAn independent auditor’’s report usually contains four brief s report usually contains four brief paragraphs and states whether the financial statements are paragraphs and states whether the financial statements are prepared in conformity with prepared in conformity with generally accepted accounting generally accepted accounting principlesprinciples. An auditor. An auditor’’s report can be s report can be unqualifiedunqualified (a (a ““clean clean

opinion) or opinion) or qualifiedqualified..

LO 3

1-7

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-8

Internal AuditingInternal Auditing

Internal auditorsInternal auditors are are professional professional

accountants who accountants who perform functions much perform functions much like those of an external like those of an external

auditor. However, auditor. However, internal auditors are internal auditors are employed in industry employed in industry

rather than public rather than public accounting.accounting.

LO 3

1-8

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-9

Governmental and Not-for-Governmental and Not-for-Profit AccountingProfit Accounting

Governmental units Governmental units (e.g., (e.g., municipal, state, and municipal, state, and

federal agencies) and federal agencies) and not-not-for-profit entitiesfor-profit entities (e.g., (e.g.,

universities, hospitals, and universities, hospitals, and religious organizations) religious organizations)

require the same require the same accounting functions to be accounting functions to be

performed as do other performed as do other accounting entities.accounting entities.

LO 3

1-9

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-10

Income Tax AccountingIncome Tax Accounting

Tax practitioners often develop specialties in

the taxation of individuals,

partnerships, corporations, trusts

and estates, or international tax law

issues.

LO 3

1-10

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-11

How Has Accounting How Has Accounting Developed?Developed?

LO 6

Effective July, 2009, all FASB standards were superseded by the FASB Accounting Standards

Codification (FASB Codification). Essentially, the FASB Codification reorganized divergent sources

of U.S. GAAP in a more accessible and researchable format. The FASB Codification now

represents a single source of U.S. GAAP.

1-11

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-12

Standards for Other Types Standards for Other Types of Accountingof Accounting

Managerial/Cost Managerial/Cost AccountingAccounting

Cost Accounting Cost Accounting Standards Board (CASB) Standards Board (CASB) for government contractsfor government contracts

State and Local State and Local GovernmentsGovernments

Governmental Governmental Accounting Standards Accounting Standards

Board (GASB)Board (GASB)

LO 6

1-12

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-13

International Accounting International Accounting StandardsStandards

The goal of the International Accounting Standards Board (IASB) is to develop a single

set of high-quality, understandable, enforceable and globally accepted financial reporting standards based upon clearly articulated

principles.

LO 6

The IASB has issued 41 IASs and

13 IFRSs.1-13

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-14

Ethics and the Accounting Ethics and the Accounting ProfessionProfession

ObjectivityObjectivityIntegrityIntegrity

IndependenceIndependence CompetenceCompetence

LO 7

1-14

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-15

The Conceptual The Conceptual FrameworkFramework

Statements of Financial Accounting Concepts (SFACs)

describe concepts and relationships that underlie financial

accounting standards.

LO 8

In the mid-1970’s, the Financial Accounting Standards Board (FASB) began creating the Statements of

Financial Accounting Concepts (SFAC) in an effort to define the underlying concepts of accounting principles

and financial reporting practices.

1-15

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-16

Concepts Statement No. 8Concepts Statement No. 8LO 9

Chapter 1: The Objective of General Purpose Financial Statements

Individual firms or Individual firms or entitiesentities External UsersExternal Users Historical costHistorical cost

Timely Timely informationinformation

Notes and Notes and disclosuresdisclosures

Accrual Accrual accountingaccounting

Benefits exceed Benefits exceed costscosts

Does not Does not measure value of measure value of

the firmthe firmEvolvingEvolving

1-16

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.

1-17

End of Chapter 1End of Chapter 1

1-17