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summary chapter 1 accounting & finance
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Samenvatting Hoofdstuk 1
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Summary Accounting & Finance chapter 1-4Chapter 1
Explain how accounting information assists in making decisions.
Accounting information is useful to anyone making decisions that have economic consequences. Such
decision makers include managers, owners, investors, and politicians. Examples:
When the engineering department of Apple Computer developed the iPad, Accountants
developed reports on the potential profitability of the product, including estimated sales and
estimated production and selling costs. Managers used the reports to help decide whether to
produce and market the product.
When Chase Bank considers a loan to company that wants to expand, it examines the historical
performance of the company and analyzes projections the company provides about how it will
use the borrowed funds to produce new business.
More examples in book (page 6)
Accounting helps decision making by showing where and when a company spends money and makes
commitments. It also helps predict the future effects of decisions, and it helps direct attention to current
problems, imperfections, and inefficiencies, as well as opportunities.
Model in book about basic relationships in the decision-making process (page 7)
Describe the components of the balance sheet.
The balance sheet is also called the statement of financial position. It shows the financial status of an
organization at a particular instant in time. It has to counterbalancing sections. One section lists the
resources of the firm (everything the firm owns and controls---from cash to buildings, etc.). The other
section lists the claims against the resources. The resources and claims form the balance sheet.
Assets = Liabilities + Owners’ equity
Assets Economic resources that a company expects to help generate future cash inflows or help
reduce future cash outflows.
Liabilities Economic obligations of the organization to outsiders, or claims against its assets by
outsiders.
Owners’ equity The owners' claims on an organization's assets, or total assets less total liabilities.
Analyze business transactions and relate them to changes in the balance
sheet.
Transaction 1, initial investment
$400,000 was deposited in a business bank account.
+ $400,000 cash
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