Horngren_s Financial & Managerial Accounting, 7th Edition BY Tracie Miller-Nobles
Email: Richard@qwconsultancy.com
Chapter 1 Accounting and the Business Environment
Chapter 1: Overview The chapter begins with an introduction to accounting and a brief discussion of why accounting is important. The differences between financial and managerial accounting are delineated. The text discusses how accounting information is needed by various users—individuals, businesses, investors, creditors, and taxing authorities. Reasons accounting is important to students not majoring in accounting and career paths available to accounting majors are briefly described, including a comparison of various accounting positions. The role of governing organizations such as the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC) as well as the FASB’s relationships with both congressionally created and private accounting groups are explained. Generally Accepted Accounting Principles (GAAP) are introduced. The sole proprietorship, partnership, corporation, and limited liability company (LLC) forms of business are briefly described in the context of the economic entity assumption. In addition, the cost principle, going concern assumption, and monetary unit assumption are explained. The nature of International Financial Reporting Standards (IFRS) and the role of the International Accounting Standards Board (IASB) in their development are explained. The role of ethics in accounting and business is described. The U.S. government’s passing of the Sarbanes-Oxley Act (SOX) and the creation of the Public Company Accounting Oversight Board (PCAOB) are presented. A Data Analytics in Accounting feature highlights the importance of data analytics skills for accountants. The next section of the chapter introduces the accounting equation: Assets = Liabilities + Equity. Each element of the accounting equation is defined. Nine basic business transactions are analyzed, and their impact on the accounting equation is discussed. The financial statements—income statement, statement of retained earnings, balance sheet, and statement of cash flows—are illustrated. The interrelationship of the financial statements is emphasized. A Tying It All Together feature poses four questions regarding a company’s asset, liability, revenue, and expense accounts and the proper financial statement reporting for each. Financial statements and return on assets (ROA) are used to evaluate business performance. A Decisions feature helps students see how financial statements and ROA can be used to make real-world decisions. The Review section includes Things You Should Know which highlights the information students should have acquired from the chapter. A Check Your Understanding feature allows students to record the effects of transactions on the accounting equation, prepare financial statements, and calculate ROA. A list of Key Terms is provided. A Quick Check gives students a chance to assess their knowledge of the chapter learning objectives.
Chapter 1: Learning Objectives LO 1. Explain why accounting is important and list the users of accounting information LO 2. Describe the organizations and rules that govern accounting LO 3. Describe the accounting equation and define assets, liabilities, and equity LO 4. Use the accounting equation to analyze transactions LO 5. Prepare financial statements LO 6. Use financial statements and return on assets (ROA) to evaluate business performance
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Chapter 1: Teaching Outline with Lecture Notes LO 1. Explain why accounting is important and list the users of accounting information a) Define the term accounting and explain what accountants do b) Exhibit 1-1: Pathways Vision Model Lecture Notes: The model emphasizes that good decisions have an impact on accounting judgments and economic activity, thus creating a circular flow of cause and effect. Accounting is defined as the information system that measures business activities, processes the information into reports, and communicates the results to decision makers. However, accountants do not simply prepare various types of accounting reports and tax returns. They also review and interpret business information using critical thinking and judgment to partner with clients and managers to help them make better business decisions. c) Differentiate between financial accounting and managerial accounting d) Exhibit 1-2: Decision Making: Financial Versus Managerial Accounting Lecture Notes: Financial accounting provides historical information—the company reports on events that have already occurred—to external decision makers, including investors and creditors. Managerial accounting provides more future-oriented information—many companies prepare budgets, forecasts, and projections based on future events—for internal decision makers (company managers and executives). e) Identify the users of accounting information: i.
Individuals
ii.
Businesses
iii.
Investors
iv.
Creditors
v.
Taxing authorities
Lecture Notes: The officers of a company may be (and probably are) stockholders as well. Not all investors are “outside” the company. The financial statements are the primary tools for providing information to outside investors; but officers may also use the statements, along with other financial information, to manage the company on a day-to-day basis. f) Describe career options and certifications available in the accounting profession Lecture Notes: Certified Public Accountants, or CPAs, are licensed professional accountants who serve the general public. Certified Management Accountants, or CMAs, are certified professionals
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who specialize in accounting and financial management knowledge. Not all accountants are licensed, and those who are may not necessarily be members of the AICPA and IMA, the professional associations described in the textbook. There are many other types of accounting-related associations and certifications in the United States and elsewhere around the world, including Certified Internal Auditor (CIA), Certified Government Financial Manager (CGFM), Certified Fraud Examiner (CFE), Certified Financial Manager (CFM), Enrolled Agent (EA), Certified Global Management Accountant (CGMA), Chartered Accountant (CA), Certified Financial Planner (CFP), and many more. Accountants also need data analytics skills to be successful. An understanding of how technology is used to process financial information is critical in today’s job market. g) Exhibit 1-3: Comparison of Accounting Positions Suggested In-Class Exercise: E1-17 LO 2. Describe the organizations and rules that govern accounting a) Identify accounting governing organizations, including the Financial Accounting Standards Board (FASB), the Security Exchange Commission (SEC), and the International Accounting Standards Board (IASB) b) Describe Generally Accepted Accounting Principles (GAAP) and introduce the primary objective of financial reporting c) Explain the economic entity assumption i.
Identify the different types of business organizations: ▪
Sole proprietorship
▪
Partnership
▪
Corporation
▪
Limited-liability company (LLC)
ii.
Exhibit 1-4: Business Organizations
iii.
Describe the distinguishing characteristics and organization of a corporation: ▪
Separate legal entity
▪
Continuous life and transferability of ownership
▪
No mutual agency
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