Financial and Managerial Accounting, 8th Edition
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CHAPTER 1
ACCOUNTING IN BUSINESS
Related Assignment Materials
Student Learning Objectives
Questions
Quick
Studies*
Exercises*
Problems*
AA and BTN
Conceptual objectives:
C2. Identify users and uses of, and
3, 6, 7, 8, 9,
10, 12, 23
1-2
1-2, 1-3, 1-4
BTN 1-2, BTN 1-6
19
1-6
C1. Explain the purpose and
1, 2, 4, 5,
1-1
1-1, 1-4, 1-6
BTN 1-4
C5. B Identify and describe the three
major activities of
organizations. (Appendix 1B)
14, 16, 30,
31
1-21
1-13, 1-14
Analytical objectives:
of its components.
1-9, 1-17
1-23
1-8, 1-10
BTN 1- 5
A2. Compute and interpret return
on assets.
28
1-16
1-10, 1-11
AA 1-1, AA 1-2,
AA 1-3, BTN 1-5
29
1-12
A1. Define and interpret the
17, 20, 24
1-7, 1-8,
1-8, 1-9,
1-1, 1-2,
AA 1-1, AA 1-2,
Procedural objectives:
P1. Analyze business transactions
using the accounting equation.
18
1-10, 1-11
1-10, 1-11,
1-12, 1-13
1-1, 1-2, 1-7,
1-8, 1-9, SP
BTN 5
33
1-22
*See additional information on next page that pertains to these quick studies, exercises, and problems.
Financial and Managerial Accounting, 8th Edition
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Additional Information on Related Assignment Material available in Connect®
Available on the instructor’s course-specific website, Connect repeats all numerical Quick Studies, all Exercises, and
Problem Set A. Connect also provides algorithmic versions for Quick Study, Exercises, and Problems. It allows
instructors to monitor, promote, and assess student learning. It can be used in practice, homework, or exam mode.
The Connect Orientation Videos provide an introduction for your students for using Connect to complete assignments to
help get your students up and running in the system. There are videos covering:
• End-of-Chapter Assignments
General Ledger Problems
Assignable within Connect, General Ledger (GL) problems offer students the ability to see how transactions post from the general
journal all the way through the financial statements. Critical thinking and analysis components are added to each GL problem to
ensure understanding of the entire process. GL problems are auto-graded and provide instant feedback to the student.
LearnSmart/Smartbook
Available within Connect, SmartBook makes study time as productive and efficient as possible. SmartBook identifies and closes
knowledge gaps through a continually adapting reading experience that provides personalized learning resources at the precise
moment of need. This ensures that every minute spent with SmartBook is returned to the student as the most value-added minute
possible. The result? More confidence, better grades, and greater success.
Chapter Videos
Financial and Managerial Accounting, 8th Edition
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Know demonstrations are supplemented with narrated, animated, step-by-step walk-through videos led by an instructor
and available via Connect. Select chapters also include Comprehensive Need-to-Knows that draw on materials from the
entire chapter.
LO
Need–to-Know
Title
Time
C1, C2
1-1
Accounting Users
1:29
1-3
1:51
1-5
4:26
Concept Overview
The Concept Overview Videos (COV’s) provide engaging narratives of all chapter learning objectives in an assignable
and interactive online format. The concept overview videos replace the previous edition interactive presentations. They
follow the structure of the text and are organized to match the specific learning objectives within each chapter. The
concept overview videos provide additional explanation and enhancement of material from the chapter, allowing students
to learn, study, and practice with instant feedback, at their own pace. Each video is paired with a Knowledge Check
question.
LO
Title
Time
C1
Explain the purpose and importance of accounting
Importance of Accounting
0:50
Definition Importance of Accounting
0:41
Accounting Versus Recordkeeping
0:58
0:45
1:00
Financial and Managerial Accounting, 8th Edition
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Ethical Decision Making
Sarbanes-Oxley Act
1.44
C4
Explain generally accepted accounting principles and define and apply several accounting
principles
Generally Accepted Accounting Principles
1:12
International Standards and Convergence
1:41
1:44
Assumptions and Constraints
1:17
Sarbanes-Oxley Act
1:58
C5
Appendix 1B—Identify and describe the three major activities of organizations
Business Activities
1:11
A1
Define and interpret the accounting equation and each of its components
2:07
A2
Compute and interpret return on assets
Financial Statement Analysis
1:15
Return on Assets
2:11
Return on Assets Illustration
2:07
A3
Appendix 1A—Explain the relation between return and risk
Return and Risk
1:04
Transaction Analysis
0:52
2:58
Financial and Managerial Accounting, 8th Edition
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Financial Statements
0:17
Income Statement
0:42
Statement of Retained Earnings
1:46
Balance Sheet
1:38
Statement of Cash Flows
2:18
Hints/Guided Examples
The Guided Examples in Connect provide a narrated, animated, step-by-step walk-through of select quick studies,
exercises, and general ledger problems similar to those assigned. These short presentations can be turned on or off by
Synopsis of Chapter Revisions
Updated opener—Apple and entrepreneurial assignment.
Updated salary info for accountants.
Revised business entity section along with adding LLC.
Chapter Outline
impacts the financial well-being of us all.
I. Importance of Accounting—we live in the information age in which information, and its reliability,
II. Users of Accounting Information – accounting is called the language of business because it
communicates data the helps users make better decisions. People using accounting information are
divided into two groups:
1. External Users—those not directly involved with running the company. Examples: shareholders
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marketing, and service managers.
2. Internal Users—those directly involved in managing and operating an organization. Internal users
include research and development, purchasing, human resource, production, distribution,
3. Opportunities in Accounting—four broad areas of opportunities are financial, managerial,
taxation, and accounting-related.
a. Private accounting, which are employees working for businesses, offers the most
opportunities.
III. Fundamentals of Accounting
A. Ethics—A Key concept—Ethics are beliefs that separate right from wrong.
1. Fraud Triangle: Ethics under Attack—model that asserts three factors must exist for a person to
commit fraud: opportunity, pressure, and rationalization.
a. Internal Controls—procedures to protect company property and equipment and ensure
IV. Generally Accepted Accounting Principles (GAAP)—concepts and rules that govern financial
accounting. The purpose of GAAP is to make information in accounting statements relevant, reliable,
and comparable.
A. The Financial Accounting Standards Board (FASB) is given the task of setting GAAP from the
Securities and Exchange Commission (SEC). The SEC oversees proper use of GAAP.
B. International Standards—The International Accounting Standards Board (IASB) issues standards
C. Conceptual Framework—FASB Conceptual Framework consists of:
a. Objectives—to provide information useful to investors, creditors, and others.
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D. Principles, Assumptions and Constraint—two types are general principles (assumptions, concepts,
and guidelines for preparing financial statements; stem from long-used accounting practices) and
specific principles (detailed rules used in reporting transactions and events).
Accounting Principles—General principles consist of four general principles:
a. Measurement principle (cost principle)—accounting information is based on actual costs
Accounting Assumptions –
a. Going-concern assumption—accounting information presumes that the business will continue
operating instead of being closed or sold.
as months and years, and useful reports can be prepared for those periods.
d. Business entity assumption—a business is accounted for separately from other business
entities and its owner. Necessary for good decisions.
e. Exhibit 1.8: Types and Attributes of Businesses
i. Sole proprietorship is a business owned by one person that has unlimited liability. It is
not a separate legal entity. The owner has unlimited liability and is, therefore,
personally liable for the business debts.
f. Accounting Constraints -there are basic constraints on financial reporting.
i. The cost-benefit constraint says that information disclosed by the entity must have
benefits to the user that are greater than the costs of providing it.
ii. The materiality constraint is the ability of information to influence decisions.
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iii. Conservatism and industry practices are sometimes referred to as constraints as well.
V. Business Transactions and Accounting
A. Accounting Equation (Assets = Liabilities + Equity)—elements of the equation include:
2. Liabilities—creditors’ claims on assets. These claims reflect obligations to transfer assets or
3. Equity—owner’s claim on assets; assets minus liabilities. Also called net assets or residual
equity. Increases in equity result from owner investments and revenues. Decreases results from
dividends and expenses. Equity consists of:
a. Common Stock —owner investments are inflows of cash and other net assets from
VI. Transaction Analysis—each transaction and event always leaves the equation in balance. (Assets =
Liabilities + Equity)
1. Investment by owner in exchange for common stock:
2. Purchase supplies for cash:
ASSET = LIABILITIES + EQUITY
3. Purchase equipment for cash:
ASSET = LIABILITIES + EQUITY
4. Purchase supplies on credit:
Financial and Managerial Accounting, 8th Edition
Increase on both sides of equation keeps equation in balance.
6,7. Payment of expenses in cash (salaries, rent, etc.):
8. Provided services and facilities for credit:
9. Receipt of cash from accounts receivable (customers paying on their accounts):
ASSET = LIABILITIES + EQUITY
10. Payment of accounts payable:
11. Dividends paid to stockholder:
ASSET = LIABILITIES + EQUITY
VII. Financial Statements
A. The four financial statements and their purposes are:
over a period of time.
1. Income Statement—describes a company’s revenues and expenses along with the resulting
net income or loss over a period of time. (Net income occurs when revenues exceed
B. Statement Preparation from Transaction Analysis—prepared in the following order using the
procedure indicated below.
1. Income Statement⎯information about revenues and expenses is conveniently taken from
the owner’s equity column. Total revenues minus total expenses equals net income or loss.
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4. Statement of Cash Flows⎯the cash column must be carefully analyzed to organize and
report cash flows in categories of operating, investing, and financing. The net change in
cash is determined by combining the net cash flow in each of the three categories. This
change is combined with the beginning cash. The resulting figure should be the ending
cash that was shown on the balance sheet.
VIII. Decision Analysis—Return on Assets (ROA)—a profitability measure. Also called Return on
Investment (ROI).
A. Useful in evaluating management, analyzing and forecasting profits, and planning activities.
IX. Return and Risk (Appendix 1A)
A. Risk—the uncertainty about the return we will earn on an investment.
X. Business Activities (Appendix 1B)
The accounting equation is derived from business activities.
Three major business activities are:
1. Financing activities—activities that provide the means organizations use to pay for resources such as
land, buildings, and equipment to carry out plans. Two types of financing are:
a. Owner financing—refers to resources contributed by owner including income left in the