Intermediate Accounting 15th Edition PDF

kieso weygand t INTERMEDIATE warfield...

kieso weygand t INTERMEDIATE warfield team for success F I F T E E N T H E D I T I O N Intermediate Intermediate ACCOUNTING Accounting Accounting Prepared by Prepared by Coby Harmon Coby Harmon Prepared by University of California University Santa Coby Santa Barbara of California, BarbaraHarmon Westmont University of California, Santa Barbara College 1-1 Westmont College  PREVIEW OF CHAPTER 1 Intermediate Accounting 15th Edition Kieso Weygandt Warfield 1-2  1 Financial Accounting and Accounting Standards LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. Identify the major financial statements and 6. Explain the meaning of generally accepted other means of financial reporting. accounting principles (GAAP) and the role 2. Explain how accounting assists in the of the Codification for GAAP. efficient use of scarce resources. 7. Describe the impact of user groups on the 3. Identify the objective of financial reporting. rule-making process. 4. Explain the need for accounting standards. 8. Describe some of the challenges facing financial reporting. 5. Identify the major policy-setting bodies and their role in the standard-setting 9. Understand issues related to ethics and process. financial accounting. 1-3  Financial Statements and Reporting Essential characteristics of accounting are: (1) the identification, measurement, and communication of financial information about (2) economic entities to (3) interested parties. 1-4 LO 1 Identify the major financial statements and other means of financial reporting.  Financial Statements and Reporting Economic Entity Financial Statements Additional Information Financial Balance Sheet President’s letter Information Income Statement Prospectuses Accounting? Statement of Cash Reports filed with Identifies Flows governmental and agencies Statement of Owners’ Measures or Stockholders’ News releases and Equity Forecasts Communicates Note Disclosures Environmental impact statements GAAP Etc. 1-5 LO 1 Identify the major financial statements and other means of financial reporting.  Financial Statements and Reporting Question What is the purpose of information presented in notes to the financial statements? a. To provide disclosure required by generally accepted accounting principles. b. To correct improper presentation in the financial statements. c. To provide recognition of amounts not included in the totals of the financial statements. d. To present management’s responses to auditor comments. 1-6 LO 1 Identify the major financial statements and other means of financial reporting.  1 Financial Accounting and Accounting Standards LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. Identify the major financial statements and 6. Explain the meaning of generally accepted other means of financial reporting. accounting principles (GAAP) and the role 2. Explain how accounting assists in the of the Codification for GAAP. efficient use of scarce resources. 7. Describe the impact of user groups on the 3. Identify the objective of financial reporting. rule-making process. 4. Explain the need for accounting standards. 8. Describe some of the challenges facing financial reporting. 5. Identify the major policy-setting bodies and their role in the standard-setting 9. Understand issues related to ethics and process. financial accounting. 1-7  Financial Statements and Reporting Accounting and Capital Allocation Resources are limited. Efficient use of resources often determines whether a business thrives. Illustration 1-1 Capital Allocation Process 1-8 LO 2 Explain how accounting assists in the efficient use of scare resources.  Accounting and Capital Allocation Question An effective process of capital allocation is critical to a healthy economy, which a. promotes productivity. b. encourages innovation. c. provides an efficient and liquid market for buying and selling securities. d. All of the above. 1-9 LO 2 Explain how accounting assists in the efficient use of scare resources.  IT’S THE ACCOUNTING “It’s the accounting.” That’s what many investors seem to be saying these days. Even the slightest hint of any accounting irregularity at a company leads to a subsequent pounding of the company’s stock price. For example, the Wall Street Journal has run the following headlines related to accounting and its effects on the economy. Stocks take a beating as accounting woes spread beyond Enron. Quarterly reports from IBM and Goldman Sachs sent stocks tumbling. VeriFone finds accounting issues; stock price cut in half. Bank of America admits hiding debt. Facebook, Zynga, Groupon: IPO drops due to accounting, not valuation. It now has become clear that investors must trust the accounting numbers, or they will abandon the market and put their resources elsewhere. With investor uncertainty, the cost of capital increases for companies who need additional resources. In short, relevant and reliable financial information is necessary for markets to be efficient. 1-10 LO 2 Explain how accounting assists in the efficient use of scare resources.  1 Financial Accounting and Accounting Standards LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. Identify the major financial statements and 6. Explain the meaning of generally accepted other means of financial reporting. accounting principles (GAAP) and the role 2. Explain how accounting assists in the of the Codification for GAAP. efficient use of scarce resources. 7. Describe the impact of user groups on the 3. Identify the objective of financial reporting. rule-making process. 4. Explain the need for accounting standards. 8. Describe some of the challenges facing financial reporting. 5. Identify the major policy-setting bodies and their role in the standard-setting 9. Understand issues related to ethics and process. financial accounting. 1-11  Financial Statements and Reporting Objectives of Financial Reporting Provide financial information about the reporting entity that is useful to ◆ present and potential equity investors, ◆ lenders, and ◆ other creditors in making decisions in their capacity as capital providers. 1-12 LO 3 Identify the objectives of financial reporting.  Objective of Financial Accounting General-Purpose Financial Statements ◆ Provide financial reporting information to a wide variety of users. ◆ Provide the most useful information possible at the least cost. Equity Investors and Creditors ◆ Investors are the primary user group. 1-13 LO 3 Identify the objectives of financial reporting.  Objective of Financial Accounting Entity Perspective ◆ Companies viewed as separate and distinct from their owners. Decision-Usefulness Investors are interested in assessing the company’s 1. ability to generate net cash inflows and 2. management’s ability to protect and enhance the capital providers’ investments. 1-14 LO 3 Identify the objectives of financial reporting.  DON’T FORGET STEWARDSHIP In addition to providing decision-useful information about future cash flows, management also is accountable to investors for the custody and safekeeping of the company’s economic resources and for their efficient and profitable use. For example, the management of The Hershey Company has the responsibility for protecting its economic resources from unfavorable effects of economic factors, such as price changes, and technological and social changes. Because Hershey’s performance in discharging its responsibilities (referred to as its stewardship responsibilities) usually affects its ability to generate net cash inflows, financial reporting may also provide decision-useful information to assess management performance in this role. 1-15 LO 3 Identify the objectives of financial reporting.  1 Financial Accounting and Accounting Standards LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. Identify the major financial statements and 6. Explain the meaning of generally accepted other means of financial reporting. accounting principles (GAAP) and the role 2. Explain how accounting assists in the of the Codification for GAAP. efficient use of scarce resources. 7. Describe the impact of user groups on the 3. Identify the objective of financial reporting. rule-making process. 4. Explain the need for accounting standards. 8. Describe some of the challenges facing financial reporting. 5. Identify the major policy-setting bodies and their role in the standard-setting 9. Understand issues related to ethics and process. financial accounting. 1-16  The Need To Develop Standards Various users Financial Statements need financial Balance Sheet information Income Statement Statement of Stockholders’ Equity Statement of Cash Flows Note Disclosure The accounting profession has attempted to develop a set of Generally Accepted standards that are generally Accounting Principles accepted and universally (GAAP) practiced. 1-17 LO 4 Explain the need for accounting standards.  1 Financial Accounting and Accounting Standards LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. Identify the major financial statements and 6. Explain the meaning of generally accepted other means of financial reporting. accounting principles (GAAP) and the role 2. Explain how accounting assists in the of the Codification for GAAP. efficient use of scarce resources. 7. Describe the impact of user groups on the 3. Identify the objective of financial reporting. rule-making process. 4. Explain the need for accounting standards. 8. Describe some of the challenges facing financial reporting. 5. Identify the major policy-setting bodies and their role in the standard-setting 9. Understand issues related to ethics and process. financial accounting. 1-18  Parties Involved In Standard Setting Three organizations: ◆ Securities and Exchange Commission (SEC). ◆ American Institute of Certified Public Accountants (AICPA). ◆ Financial Accounting Standards Board (FASB). LO 5 Identify the major policy-setting bodies and 1-19 their role in the standard-setting process.  Issues in Financial Reporting Financial Reporting Challenges ◆ Non-financial measurements. ◆ Forward-looking information. ◆ Soft assets. ◆ Timeliness ◆ Understandability 1-20 LO 8 Describe some of the challenges facing financial reporting.  Copyright Copyright © 2013 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this work beyond that permitted in Section 117 of the 1976 United States Copyright Act without the express written permission of the copyright owner is unlawful. Request for further information should be addressed to the Permissions Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages, caused by the use of these programs or from the use of the information contained herein. 1-21