Principles of Accounting: Chapter One

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Chapter 1 introduces the study of accounting. Accounting is defined as a set of concepts and techniques that are used to measure and report financial information about an economic entity. Accounting consists of both external reporting issues known as "financial accounting," and internal reporting issues related to "managerial accounting." There are numerous accounting career choices, and these options are discussed in the chapter.

There is a long-standing fundamental accounting equation that is core to the overall reporting model: Assets = Liabilities + Equity. This chapter shows that the equality is preserved as transactions are processed through an accounting system. The system customarily results in the production of certain core financial statements: The Income Statement, Statement of Retained Earnings, Balance Sheet, and Statement of Cash Flows. Each of these statements, and their interrelationships, are illustrated. This chapter is foundational for beginning to understand how business activity is reflected in key financial reports.

Exercises

To aid in your understanding of this chapter, exercises with solutions are available for free download at Bookboon.com. You will find these exercises very helpful in providing models and guidelines for solving all of the problems at principlesofaccounting.com.

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Problems
Goals Achievement
Fill in the Blanks
Multiple Choice
Objectives
Key Terms

Fill in the Blanks: Chapter One

1. ____________ Accounting is a set of concepts and techniques that are used to measure and report financial information about an economic unit.

2. ____________Managerial accounting involves reporting results of operating activity to administrators within an organization.

3. The private sector agency that currently oversees external financial reporting is the ____________Financial Accounting Standards Board (FASB).

4. Public accounting firms perform numerous services including ____________auditing, ____________income tax, and ____________consulting.

5. The shortened form of the accounting equation is ____________ assets equals ____________liabilities plus ____________owners' equity.

6. The historical cost principle holds that accounting valuations be tied to ____________objective and ____________verifiable past transactions.

7. ____________Income is the excess of a company's revenues over expenses for a given time period.

8. The four primary financial statements are the ____________ income statement, ____________statement of retained earnings , ____________ balance sheet, and ____________statement of cash flows.

9. ____________Net income appears in both the income statement and the statement of retained earnings.