CHAPTER 1

1 1- 1 chapter 1 accounting in ActionASSIGNMENT CLASSIFICATION TABLES tudy whataccounting , 2, the users anduses of , why ethicsis a fundamental generally acceptedaccounting principlesand the cost the monetaryunit assumption andthe economic , 8, 9, the accountingequation, and defineassets, liabilities, andowner s , 12, 131, 2, 3, 45, 6, 7, 111A, 2A4A1B, the effects ofbusiness transactions onthe accounting , 15,16, 185, 6, 7, 86, 7, 8,10, 111A, 2A,4A, 5A1B, 2B,4B, the fourfinancial statementsand how they , 19,20, 219, 109, 12, 13,14, 15, 162A, 3A,4A, 5A2B, 3B,4B.

2 5B 1-2 ASSIGNMENT CHARACTERISTICS TABLEP roblemNumberDescriptionDifficultyLevelTi me Allotted(min.)1 AAnalyze transactions and compute net 502 AAnalyze transactions and prepare income statement,owner s equity statement, and balance 603 APrepare income statement, owner s equity statement, andbalance 604 AAnalyze transactions and prepare financial 505 ADetermine financial statement amounts and prepareowner s equity 501 BAnalyze transactions and compute net 502 BAnalyze transactions and prepare income statement,owner s equity statement, and balance 603 BPrepare income statement, owner s equity statement.

3 Andbalance 604 BAnalyze transactions and prepare financial 505 BDetermine financial statement amounts and prepareowner s equity 50 BLOOM S TAXONOMY TABLE 1-3 Correlation Chart between Bloom s Taxonomy, Study Objectives and End-of- CHAPTER Exercises and ProblemsStudy what accounting the users and uses why ethics is a funda-mental business generally acceptedaccounting principles and thecost the monetary unitassumption and the economicentity the accounting equation,and define assets, liabilities.

4 Andowner s the effects of businesstransactions on the the four financialstatements and how they Your PerspectiveExploring the WebFinancial ReportingComparative AnalysisExploring the WebAll About YouComparative AnalysisDecision Making Across the OrganizationCommunication ActivityEthics Case 1-4 ANSWERS TO QUESTIONS , this is correct.

5 Virtually every organization and person in our society uses accountinginformation. Businesses, investors, creditors, government agencies, and not-for-profit organizationsmust use accounting information to operate effectively. is the process of identifying, recording, and communicating the economic events ofan organization to interested users of the information. The first step of the accounting process istherefore to identify economic events that are relevant to a particular business. Once identifiedand measured, the events are recorded to provide a history of the financial activities of theorganization.

6 Recording consists of keeping a chronological diary of these measured events in anorderly and systematic manner. The information is communicated through the preparation anddistribution of accounting reports, the most common of which are called financial vital element in the communication process is the accountant s ability and responsibility toanalyze and interpret the reported information. 3.(a) Internal users are those who plan, organize, and run the business and therefore are officersand other decision makers.

7 (b) To assist management, accounting provides internal reports. Examples include financialcomparisons of operating alternatives, projections of income from new sales campaigns,and forecasts of cash needs for the next year. 4.(a) Investors (owners) use accounting information to make decisions to buy, hold, or sell stock.(b) Creditors use accounting information to evaluate the risks of granting credit or lending money. usually involves only the recording of economic events and therefore is just one partof the entire accounting process.

8 accounting , on the other hand, involves the entire process ofidentifying, recording, and communicating economic events. Sommers Travel Agency should report the land at $90,000 on its December 31, 2008balance sheet. An important concept that accountants follow is the cost principle. The costprinciple states that assets should be recorded at their cost. Cost has an important advantageover other valuations: it is reliable. Cost can be objectively measured and can be verified. monetary unit assumption requires that only transaction data capable of being expressed interms of money be included in the accounting records.

9 This assumption enables accounting toquantify (measure) economic events. economic entity assumption requires that the activities of the entity be kept separate anddistinct from the activities of its owners and all other economic entities. three basic forms of business organizations are: (1) proprietorship, (2) partnership, and(3) corporation. 1-5 Questions CHAPTER 1 (Continued) of the advantages Maria Gonzalez would enjoy is that ownership of a corporation is repre-sented by transferable shares of stock.

10 This would allow Maria to raise money easily by sellinga part of her ownership in the company. Another advantage is that because holders of the shares(stockholders) enjoy limited liability, they are not personally liable for the debts of the corporateentity. Also, because ownership can be transferred without dissolving the corporation, the corporationenjoys an unlimited basic accounting equation is Assets = Liabilities + Owner s (a) Assets are resources owned by a business. Liabilities are claims against assets.