Accounting

1 Accounting in Action
Chapter
STUDY OBJECTIVES

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p. 10

After studying this chapter, you should be able to: 1 Explain what accounting is. 2 Identify the users and uses of accounting. 3 Understand why ethics is a fundamental business concept. 4 Explain generally accepted accounting principlesand the cost principle. 5 Explain the monetary unit assumption and the economic entity assumption. 6 State the accounting equation, and define its components. 7 Analyze the effects of business transactions on the accounting equation. 8 Understand the four financial statements and how they are The Navigator prepared.

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WorkComprehensive DO IT! Review Summary of Study Objectives Answer Self-Study Questions Complete Assignments

The Navigator is a learning system designed to prompt you to use the learning aids in the chapter and set priorities as you study. Study Objectives give you a framework for learning the specific concepts covered in the chapter.



Feature Story
KNOWING THE NUMBERS Consider this quote from HaroldGeneen, the former chairman of IT&T: “To be good at your business, you have to know the numbers—cold.” Success in any business comes back to the numbers. You will rely on them to make decisions, and managers will use them to evaluate your performance. That is true whether your job involves marketing, production, management, or information systems. In business, accounting and financial statementsare the means for communicating the numbers. If you don’t know how to read financial statements, you can’t really know your business. When Jack Stack and 11 other managers purchased Springfield ReManufacturing Corporation (SRC) (www.srcreman.com) for 10 cents a share, it was a failing

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PDF Watermark Remover DEMO : Purchase from www.PDFWatermarkRemover.com to remove the watermarkdivision of International Harvester. Stack had 119 employees who were counting on him for their livelihood, and he knew that the company was on the verge of financial failure. Stack decided that the company’s only chance of survival was to encourage every employee to think like a businessperson and to act like an owner. To accomplish this, all employees at SRC took basic accounting courses andparticipated in weekly reviews of the company’s financial statements. SRC survived, and eventually thrived. To this day, every employee (now numbering more than 1,000) undergoes this same training. Many other companies have adopted this approach, which is called “openbook management.” Even in companies that do not practice open-book management, employers generally assume that managers in all areas of thecompany are “financially literate.” Taking this course will go a long way to making you financially literate. In this book you will learn how to read and prepare financial statements, and how to use basic tools to evaluate financial results. Appendixes A and B provide real financial statements of two well-known companies, PepsiCo, Inc. and The Coca-Cola Company. Throughout this textbook we attemptto increase your familiarity with financial reporting by providing numerous references, questions, and exercises that encourage you to explore these financial statements.

The Feature Story helps you picture how the chapter topic relates to the real world of accounting and business. You will find references to the story throughout the chapter.


Inside Chapter 1… • How Will Accounting HelpMe?
(p. 11)

The Navigator

• What Do General Mills, Walt Disney, and Dunkin’ Donuts Have in Common? (p. 23) • All About You: Ethics: Managing Personal Financial Reporting (p. 25)

“Inside Chapter x” lists boxes in the chapter that should be of special interest to you.

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