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CHAPTER 1. Accounting—Present and Past. What is Accounting?. Identifying Measuring Communicating. Economic information about an entity. For decisions and informed judgments. >. Accounting is the process of:. Users and Uses of Accounting Information. Financial Accounting.

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chapter 1

CHAPTER 1

Accounting—Present and Past

what is accounting
What is Accounting?

Identifying

Measuring

Communicating

Economic information about an entity

For decisions and informed judgments

>

Accounting is the process of:

financial accounting
Financial Accounting

Financial accounting generally refers to the process that results in the preparation and reporting of financial statements for an entity.

Financial accounting is primarily externally oriented and concerned with the historical results of an entity’s performance.

managerial accounting cost accounting
Managerial Accounting/Cost 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.

auditing public accounting
Auditing—Public Accounting

Public accounting firms and individual Certified Public Accountants (CPAs) provide auditing services and issue an independent auditor’s report.

An independent auditor’s report usually contains three brief paragraphs and states whether the financial statements are prepared in conformity with generally accepted accounting principles. An auditor’s report can be unqualified (a “clean” opinion) or qualified.

internal auditing
Internal Auditing

Internal auditors are professional accountants who perform functions much like those of an external auditor. However, internal auditors are employed in industry rather than public accounting.

governmental and not for profit accounting
Governmental and Not-for-Profit Accounting

Governmental units (e.g., municipal, state, and federal agencies) and not-for-profit entities (e.g., universities, hospitals, and religious organizations) require the same accounting functions to be performed as do other accounting entities.

income tax accounting
Income Tax Accounting

Tax practitioners often develop specialties in the taxation of individuals, partnerships, corporations, trusts and estates, or international tax law issues.

how has accounting developed
How Has Accounting Developed?

Mesopotamians record tax receipts on clay tablets.

3000 B.C.

how has accounting developed1
How Has Accounting Developed?

Luca Pacioli published first textbook describing a comprehensive double-entry bookkeeping system.

3000 B.C.

1494

how has accounting developed2
How Has Accounting Developed?

The industrial revolution of the 19th century generated the need for large amounts of capital to finance the enterprises that supplanted individual craftsmen.

3000 B.C.

1494

1800’s

This need resulted in the corporate form of organization and the need to provide investors with reports showing the financial position and the results of operations.

how has accounting developed3
How Has Accounting Developed?

Accounting professionals in this country organized themselves in the early 1900’s and worked hard to establish certification laws, standardized audit procedures, and other attributes of a profession.

3000 B.C.

1494

1800’s

1900’s

how has accounting developed4
How Has Accounting Developed?

Between 1932 to 1934 the American Institute Accountants and the New York Stock Exchange agreed on five broad principles of accounting.

3000 B.C.

1494

1800’s

1900’s

1932to1934

1933&1934

The Securities Act of 1933 and the Securities Exchange Act of 1934 gave the Securities and Exchange Commission (SEC) the authority to establish accounting principles for companies whose securities had to be registered with the SEC.

how has accounting developed5
How Has Accounting Developed?

Although the SEC has the authority to establish accounting principles, the standard-setting process has been delegated to other organizations over the years.

3000 B.C.

1494

1800’s

1900’s

1932to1934

1939to1959

1933&1934

The Committee on Accounting Procedure of the American Institute of Accountants issued 51 Accounting Research Bulletins that dealt with accounting principles.

how has accounting developed6
How Has Accounting Developed?

In 1959, the Accounting Principles Board (APB) replaced the Committee on Accounting Procedure as the standard-setting body.

3000 B.C.

1494

1800’s

1900’s

1932to1934

1939to1959

1959

1933&1934

The APB ultimately issued 39 Opinions on serious accounting issues, but it failed to develop a conceptual underpinning for accounting.

how has accounting developed7
How Has Accounting Developed?

The Financial Accounting Foundation (FAF) was created and established the Financial Accounting Standards Board (FASB) as the authoritative standard-setting body within the accounting profession.

3000 B.C.

1494

1800’s

1900’s

1932to1934

1939to1959

1959

1973

1933&1934

The FASB has issued 145 Statements of Financial Accounting Standards that have established standards of accounting and reporting for particular issues.

how has accounting developed8
How Has Accounting Developed?

The Sarbanes-Oxley Act of 2002 creates a five-member Public Company Accounting Oversight Board (PCAOB) which has the authority to set and enforce auditing, attestation, quality control, and ethics standards for public companies.

3000 B.C.

1494

1800’s

1900’s

1932to1934

1939to1959

1959

1973

1933&1934

2002

slide20

Managerial/Cost Accounting

Cost Accounting Standards Board (CASB)

Auditing/Public Accounting

Auditing Standards Board (part of AICPA)

Governmental Accounting Standards Board (GASB)

Government and Not-for-Profit

Standards for Other Types of Accounting

international accounting standards
International Accounting Standards

The International Accounting Standards Committee (IASC) seeks methods of providing comparability between financial statements prepared according to the differing accounting standards of its member nations.

ethics and the accounting profession
Ethics and the Accounting Profession

Integrity

Objectivity

Independence

Competence

slide23

Time: 2002 Persons of the Year

Cynthia Cooper, Colleen Rowley and Sherron Watkins

Women Who Took Huge Risks as Whistleblowers

the conceptual framework
The Conceptual Framework

Statements of Financial Accounting Concepts (SFACs) describe concepts and relationships that underlie financial accounting standards.

Objectives of Financial Reporting of Business Enterprises 1978

Qualitative Characteristics of Accounting Information 1980

Elements of Financial Statements of Business Enterprises 1980

Objectives of Financial Reporting of Non business Organizations 1980

Recognition and Measurement in Financial Statements 1984

Elements of Financial Statements 1985

Using Cash Flow Information and Present Value in Accounting Measurement 2000

financial reporting highlights
Financial Reporting Highlights
  • Accomplished for Individual Firms
    • Used to make rational investment decisions
    • Users on the outside looking in
  • Financial Accounting Historic in Approach
    • Not future oriented since it is influenced by the past
  • Leads to the Use of Other Tools
    • Cash flow analysis
    • Capital budgeting
    • Enterprise budgeting
business and farm accounting
Business and Farm Accounting
  • Record Keeping Integral to the Farm Business
    • Field and cropping history
    • Chemical and pesticide use
    • Payroll and labor records
    • Enterprise and cash flow analysis
  • Cash vs. Accrual Accounting
    • Accrual accounting “..accounting for the effect of a transaction or expense when it occurs rather than when actual payment is made or received..”
    • Cash accounting “..accounting for expense or income when cash payment is made or received..”
  • Inventories
    • Are generally “manufactured” rather than purchased
core objectives
Core Objectives
  • Examine and Understand Key Financial Documents Used by Business and Ag Firms
  • Develop an Understanding of Basics of Double Entry Accounting
  • Understand Principles Used in Recording Current Assets and Inventories
  • Use Principles Necessary to Record Long Term Assets and Liabilities
  • Understand Basic Financial Statement Analysis