A BUSINESS PERSPECTIVE
Seventh Edition
ROGER H. HERMANSON
JAMES DON EDWARDS
MICHAEL W. MAHER
I-1

Introduction Chapter
Pages 1-11
Very Broad Overview
I-2

Administration
Bring book to class.
How to take notes.
I-3

Major Challenge
What do you think is the biggest problem/challenge for most students taking introductory accounting?
The Vocabulary!
Accounting is often called “the language of business”.
This is why all business students must take this course.
I-4

Text’s Definition of Accounting
“The process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by the users of the information.”
I-5
2

Rice’s Definition of Accounting
The process of:
Identifying,
Measuring,
Recording,
Classifying,
Summarizing,
Reporting, and Interpreting ...
I-6

I-7
Rice’s Definition of Accounting
… What?
Financial transactions
… For whom?
For interested users.
Who are these interested users?

Interested Users (pg. 6-7)
Customers
(Why?)
Creditors and lenders
Owners and prospective owners
Employees and their unions
(Why?)
Government units
General
Public
I-8

Accounting vs. Bookkeeping
 Bookkeeping
Mechanical process
May not know why ...
 Accounting
Must know theory behind why...
Should be able to apply theory to ...
I-9

Classification of Accounting Jobs
I-10
 Public Accounting
 Private industry
 Government
 Education

Public Accounting
 Public Accounting Firms offer professional accounting services to clients.

Generally, the public accountant’s goal is to become a Certified Public
Accountant, or CPA.
 The CPA certificate is generally considered to be required to be a
“member of the profession”
I-11

CPA Exam
 National, two-day exam
 Given twice a year
May and November
 Given at same time in all states
 Has four parts
 CPA is licensed by the state
I-12

Public Accounting Services
 Audit Services
Auditor’s Opinion or Report
Auditor “attests”
Only unique service
 Tax Services
Competition?
Today’s emphasis?
 Management Advisory/
Consulting Services
Competition?
Largest in world?
I-13

Big Six Five International
CPA Firms (pg. 4)
 Arthur Andersen & Co.
 Deloitte & Touche
 Ernst & Young
 KPMG Peat Marwick
 PricewaterhouseCoopers
As of 7-1-98
I-14

Other Professional Accounting
Certifications
I-15
Management Accounting (CMA)
Internal Auditing (CIA)
See Department of Accounting Web site for important links.

Two Types of Accounting
I-16
 Financial Accounting
 Managerial Accounting

Financial Accounting
Generating financial statements for external users of information about the company’s:
 Results of Operations
 Financial Position
 Inflows and Outflows of Cash
I-17

Financial Accounting
Income
Statement
Balance
Sheet
Statement of Cash
Flows
Financial
Statements must be prepared in accordance with Generally
Accepted
Accounting
Principles
(GAAP)
I-18

Generally Accepted Accounting
Principles (GAAP)
I-19
 Common set of accounting rules followed by all public businesses.
 Required by the Securities and Exchange
Commission (SEC)
 Often required by other external stakeholders, such as
 Creditors, Lenders, Vendors, Investors
 Auditors make sure they have been followed

More on GAAP
 Defined by the
Financial
Accounting
Standards
Board (FASB)
 The FASB is the seven short fat guys (the
Gurus) who hang out in
Norwalk, CT
I-20

Managerial Accounting
Generates information for internal use which is crucial for decision making
I-21
Financial decisions
Marketing decisions Production decisions
Resource allocation decisions

Important Organizations
(pp. 8 & 9)
 Financial Accounting Standards Board (FASB)
 American Institute of Certified Public Accountants (AICPA)
 Governmental Accounting Standards Board (GASB)
 Securities and Exchange Commission (SEC)
 American Accounting Association (AAA)
 Financial Executives Institute (FEI)
 Institute of Management Accountants (IMA)
I-22

Ethical Behavior of Accountants
Ethical conduct includes:
Obeying the profession’s
Code of
Ethics.
Doing the
“right” thing.
Obeying the laws.
Maintaining honesty and integrity.
I-23

Miscellaneous
How to Study the
Chapters in this Text
See pp. 10 & 11
I-24

I-25