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Chapter 1 - Accounting in action. The objectives of this chapter are: Identify the activities and users associated with accounting; explain the building blocks of accounting: ethics, principles, and assumptions; state the accounting equation, and define its components; analyze the effects of business transactions on the accounting equation; describe the four financial statements and how they are prepared. | Accounting in Action 1 Learning Objectives Identify the activities and users associated with accounting. Explain the building blocks of accounting: ethics, principles, and assumptions. State the accounting equation, and define its components. 3 Analyze the effects of business transactions on the accounting equation. 2 1 4 Describe the four financial statements and how they are prepared. 5 Accounting consists of three basic activities—it identifies, records, and communicates the economic events of an organization to interested users. LO 1 LEARNING OBJECTIVE Identify the activities and users associated with accounting. 1 Illustration 1-1 The activities of the accounting process The accounting process includes the bookkeeping function. Three Activities LO 1 INTERNAL USERS Illustration 1-2 Questions that internal users ask Who Uses Accounting Data LO 1 LO 1 LO 1 Illustration 1-3 Questions that external users ask Who Uses Accounting Data EXTERNAL USERS Solution: 1. 2. 3. 4. 5. Indicate whether the following statements are true or false. The three steps in the accounting process are identification, recording, and communication. Bookkeeping encompasses all steps in the accounting process. Accountants prepare, but do not interpret, financial reports. The two most common types of external users are investors and company officers. Managerial accounting activities focus on reports for internal users. 1 Basic Concepts LO 1 True False False False True Ethics in Financial Reporting Recent financial scandals include: Enron, WorldCom, HealthSouth, AIG, and other companies. Regulators and lawmakers concerned that economy would suffer if investors lost confidence in corporate accounting. In response, Congress passed Sarbanes-Oxley Act (SOX). Effective financial reporting depends on sound ethical behavior. LO 2 LEARNING OBJECTIVE Explain the building blocks of accounting: ethics, principles, and assumptions. 2 Illustration 1-4 Steps in analyzing ethics cases and situations Ethics in | Accounting in Action 1 Learning Objectives Identify the activities and users associated with accounting. Explain the building blocks of accounting: ethics, principles, and assumptions. State the accounting equation, and define its components. 3 Analyze the effects of business transactions on the accounting equation. 2 1 4 Describe the four financial statements and how they are prepared. 5 Accounting consists of three basic activities—it identifies, records, and communicates the economic events of an organization to interested users. LO 1 LEARNING OBJECTIVE Identify the activities and users associated with accounting. 1 Illustration 1-1 The activities of the accounting process The accounting process includes the bookkeeping function. Three Activities LO 1 INTERNAL USERS Illustration 1-2 Questions that internal users ask Who Uses Accounting Data LO 1 LO 1 LO 1 Illustration 1-3 Questions that external users ask Who Uses Accounting Data EXTERNAL USERS Solution: 1. 2. 3. 4. 5. Indicate .
