Chapter 1-1
Introduction to Accounting
and Business
Objectives
1. Describe the nature of a business.
After studying this
2. Describe the role of accounting
chapter, you shouldin business.
3. Describe the importance
be ableof to:
business ethics and the
basic principles of proper ethical conduct.
4. Describe the profession of accounting.
5. Summarize the development of accounting
principles and relate them to practice.
6. State the accounting equation and define each
element of the equation.
Objectives
7. Explain how business transactions can be
stated in terms of the resulting change in the
basic elements of the accounting equation.
8. Describe the financial statements of a
proprietorship and explain how they interrelate.
9. Use the ratio of liabilities to owner’s equity to
analyze the ability of a business to withstand
poor business conditions.
STEP ONE
ANALYZING
LOOKING AT EVENTS THAT HAVE
TAKEN PLACE AND THINKING
ABOUT HOW THEY AFFECT THE
BUSINESS
STEP TWO
RECORDING
ENTERING FINANCIAL
INFORMATION ABOUT EVENTS
INTO THE ACCOUNTING SYSTEM
STEP THREE
CLASSIFYING
SORTING AND GROUPING SIMILAR
ITEMS TOGETHER
STEP FOUR
SUMMARIZING
BRINGING THE VARIOUS ITEMS OF
INFORMATION TOGETHER TO
DETERMINE A RESULT
STEP FIVE
REPORTING
TELLING THE RESULTS
STEP SIX
INTERPRETING
DECIDING THE MEANING AND
IMPORTANCE OF THE INFORMATION
IN VARIOUS REPORTS
Types of Businesses
Service Business
Product
Triwasana Entertainment
Garuda Indonesia Transportation
Hilton Hotels Hospitality and lodging
Bank BRI Financial
Telkomsel Telecommunication
Types of Businesses
Merchandising Business
Product
Matahari General merchandise
Toys City Toys
Electronic City Consumer electronics
Amazon.com Internet books, music, video
retailer
Types of Businesses
Manufacturing Business
Product
Toyota Astra Motor Cars, trucks, vans
Intel Computer chips
Boeing Jet aircraft
Adidas Athletic shoes and apparel
Coca-Cola Beverages
Polytron Stereos and television
There are three types of
business organizations
Proprietorship
Partnership
Corporation
A proprietorship Advantages
is owned by one • Ease in organizing
individual. • Low cost of
organizing
Disadvantage
Joe’s • Limited source of
financial resources
• Unlimited liability
Advantages
A partnership is • More financial
owned by two or resources than a
more individuals. proprietorship.
• Additional
management skills.
Joe and Marty’s Disadvantage
• Unlimited liability.
A corporation is
organized under state Advantage
or federal statutes as a • The ability to obtain
separate legal entity. large amounts of
resources by issuing
stocks.
J & M, Inc. Disadvantage
• Double taxation.
Business Strategies
A business strategy is an integrated
set of plans and actions designed to
enable the business to gain an
advantage over its competitors, and
in doing so, to maximize its profits.
Business Strategies
Under a low-cost strategy, a business
designs and produces products or
services of acceptable quality at a cost
lower than that of its competitors.
Wal-Mart
Southwest Airlines
Business Strategies
Under a differential strategy, a business
designs and produces products or services
that possess unique attributes or
characteristics which customers are willing
to pay a premium price.
Maytag
Tommy Hilfiger
Value Chain of a Business
A value chain is the way a
business adds value for its
customers by processing inputs
into product or service.
Business Products or Customer
Inputs
Processes Services Value
Business Stakeholders
A business stakeholder is a person or
entity having an interest in the
economic performance of the business.
The Process of
Providing Information
STAKEHOLDERS
Internal: External:
Identify
Owners, Customers,
1 stake-
holders.
managers, creditors,
government
employees
Assess
stakeholders’
2 informational
needs.
The Process of
Providing Information
Design the
Record accounting
economic Accounting
4 data about
business
Information
System
3 information
system to meet
stakeholders’
activities needs.
and events.
The Process of
Providing Information
STAKEHOLDERS
Internal: External:
Owners, Customers,
managers, creditors,
employees government
Prepare
5
accounting
reports for
stakeholders.
Accounting
Information
System
Business Ethics
1. Avoid small ethical lapses.
Sound
2. Focus on your long-term
Principles that reputation.
form the
3. You may expect to suffer
foundation for adverse personal
ethical consequences for holding
behavior to an ethical position.
Profession of Accounting
Accountants employed by a business firm or
a not-for-profit organization are said to be
engaged in private accounting.
Accountants and their staff who provide
services on a fee basis are said to be
employed in public accounting.
Generally Accepted
Accounting
Principles (GAAP)
The business entity concept
limits the economic data in
the accounting system to
data related directly to the
activities of the business.
The cost concept is the
basis for entering the
exchange price, or cost
of an acquisition in the
accounting records.
The objectivity concept
requires that the accounting
records and reports be based
upon objective evidence.
The unit-of-measure
concept requires that
economic data be
recorded in dollars.
