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1-1

Chapter

Accounting in Action
Financial Accounting, IFRS Edition
Weygandt Kimmel Kieso
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1-2

Study
Study Objectives
Objectives

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1-3

1.

Explain what accounting is.

2.

Identify the uses of accounting in business

3.

Identify the stakeholders that have an interest in accounting

information, presented in financial statement.

4.

Understand why ethics is a fundamental business concept. And

explain accounting standards, the measurement principles and
assumption used in accounting.

5.

Identify the sector of accounting.

6.

Identifies kinds of company and corporation.

What
What is
is Accounting?
Accounting?
The purpose of accounting:
(1)

to identify,
identify record,
record and communicate the economic
events of an

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1-4

(2)

organization to

(3)

interested users.

SO 1 Explain what accounting is.

What
What is
is Accounting?
Accounting?
Three Activities

Illustration 1-1
The activities of the
accounting process

The accounting process includes

the bookkeeping function.
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1-5

SO 1 Explain what accounting is.

What
What is
is Accounting?
Accounting?
Who Uses Accounting Data
Internal
Users

Human
Resources

Taxing
Authorities

External
Users
Labor
Unions

Finance
Management

Customers
Creditors

Marketing

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Regulatory
Agencies

Investors

SO 2 Identify the users and uses of accounting.

What
What is
is Accounting?
Accounting?
Common Questions Asked

User

1. Can we afford to give our

employees a pay raise?

Human Resources

2. Did the company earn a

satisfactory income?

Investors

3. Should any product lines be

eliminated?

Management

4. Is cash sufficient to pay

dividends to shareholders?

Finance

5. What price for our product will

maximize net income?

Marketing

6. Will the company be able to

pay its debts?

Creditors

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SO 2 Identify the users and uses of accounting.

The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Ethics In Financial Reporting
Standards of conduct by which ones actions are judged
as right or wrong, honest or dishonest, fair or not fair,
are Ethics.
Recent financial scandals include: Enron (USA),
Parmalat (ITA), Satyam Computer Services (IND), AIG
(USA), and others.
Effective financial reporting depends on sound ethical
behavior.
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1-8

SO 3 Understand why ethics is a fundamental business concept.

The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Ethics In Financial Reporting

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1-9

SO 3 Understand why ethics is a fundamental business concept.

The
The Building
Building Blocks
Blocks of
of Accounting
Accounting

Review Question
Ethics are the standards of conduct by which one's
actions are judged as:
a. right or wrong.
b. honest or dishonest.
c. fair or not fair.
d. all of these options.

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Solution on
notes page

SO 3 Understand why ethics is a fundamental business concept.

The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Accounting Standards
International Accounting Standards Board (IASB)
http://www.iasb.org/
International Financial Reporting Standards (IFRS)

Financial Accounting Standards Board (FASB)

http://www.fasb.org/
Generally Accepted Accounting Principles (GAAP)

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SO 4 Explain accounting standards and the measurement principles.

The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Measurement Principles
Cost Principle (Historical) dictates that companies record
assets at their cost.
Issues:
Reported at cost when purchased and also over the time the
asset is held.
Cost easily verified, market value is often subjective.
Fair value information may be more useful.

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SO 4 Explain accounting standards and the measurement principles.

The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Measurement Principles
Fair Value Principle indicates that assets and liabilities should
be reported at fair value.
In determining which measurement principle to use, companies
weigh the factual nature of cost figures versus the relevance of
fair value.
Only in situations where assets are actively traded, such as
investment securities, is the fair value principle applied.

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SO 4 Explain accounting standards and the measurement principles.

The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Assumptions
Monetary Unit Assumption include in the accounting records
only transaction data that can be expressed in terms of money.
Economic Entity Assumption requires that activities of the
entity be kept separate and distinct from the activities of its
owner and all other economic entities.
Proprietorship.
Partnership.

Forms of Business
Ownership

Corporation.
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SO 5 Explain the monetary unit assumption and the economic entity assumption.

The
The Building
Building Blocks
Blocks of
of Accounting
Accounting

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Proprietorship

Partnership

Corporation

Generally owned
by one person.

Owned by two or
more persons.

Ownership divided
into shares

Often small
service-type
businesses

Often retail and

service-type
businesses

Owner receives
any profits, suffers
any losses, and is
personally liable for
all debts.

Generally unlimited
personal liability

Separate legal
entity organized
under state
corporation law
Limited liability

Partnership
agreement

SO 5 Explain the monetary unit assumption and the economic entity assumption.

The
The Building
Building Blocks
Blocks of
of Accounting
Accounting

Review Question
Combining the activities of Kellogg and General Mills
would violate the
a. cost principle.
b. economic entity assumption.
c. monetary unit assumption.
d. ethics principle.

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Solution on
notes page

SO 5 Explain the monetary unit assumption

and the economic entity assumption.

The
The Building
Building Blocks
Blocks of
of Accounting
Accounting
Indicate whether each of the following
statements presented below is true or false.

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1. The three steps in the accounting process are

identification, recording, and communication.

True

2. The two most common types of external users

are investors and company officers.

False

Solution on
notes page

SO 5 Explain the monetary unit assumption

and the economic entity assumption.

Career
Career Opportunities
Opportunities

APPENDIX

Public accounting KAP (auditing, taxation and

management consulting)
Private accounting
commercial company

as an accountant in

Government as a government tax officer, as

government auditor (BPK in Indonesia)
Forensic
accounting
investigation regarding
(such as KPK)
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any

emphasize
on
accounting fraud

SO 9 Explain the career opportunities in accounting.

The
The Legal
Legal Form
Form of
of Company
Company
Proprietorship

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Partnership

Corporation

SO 5 Explain the monetary unit assumption and the economic entity assumption.

The
The Legal
Legal Form
Form of
of Company
Company
Proprietorship

Perusahaan
Perorangan

Generally owned
by one person.
Often small
service-type
businesses
Owner receives
any profits, suffers
any losses, and is
personally liable for
all debts.
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SO 5 Explain the monetary unit assumption and the economic entity assumption.

The
The Legal
Legal Form
Form of
of Company
Company
Partnership

CV

Owned by two or
more persons.
Often retail and
service-type
businesses
Generally unlimited
personal liability
Partnership
agreement (active
& passive partner)
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SO 5 Explain the monetary unit assumption and the economic entity assumption.

The
The Legal
Legal Form
Form of
of Company
Company
Corporation

Perseroan
Terbatas

Ownership divided into

shares
Separate legal entity
organized under state
corporation law
Limited liability
Public company if the
share traded at stock
exchange (tbk)
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SO 5 Explain the monetary unit assumption and the economic entity assumption.

The
The Building
Building Blocks
Blocks of
of Accounting
Accounting

Review Question
A business organized as a separate legal entity under
state law having ownership divided into shares is a
a. proprietorship.
b. partnership.
c. corporation.
d. sole proprietorship.

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Solution on
notes page

SO 5 Explain the monetary unit assumption

and the economic entity assumption.

Kinds
Kinds of
of Company
Company
2 kinds of company :
merchandising company
service company.

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SO 1 Identify the differences between service and merchandising companies.

Merchandising
Merchandising Operations
Operations
Merchandising Companies
Buy and Sell Goods

Wholesaler

Retailer

Consumer

The primary source of revenues is referred to as

sales revenue or sales.
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SO 1 Identify the differences between service and merchandising companies.

Service
Service company
company
Provide service to their customers, such as auto
repair company, bank, arcihtect, consultant
The primary source of revenues is referred to as
fee or service revenue

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SO 1 Identify the differences between service and merchandising companies.

Operating
Operating Cycle
Cycle of
of Company
Company

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SO 1 Identify the differences between service and merchandising companies.