Chapter 1: Accounting in Action
1.
-Accounting consists of three basic activities:
oIdentify
oRecord: keep a systematic, chronological diary of events
(bookkeeping)
oCommunicate: analyze and interpret
2. Generally Accepted Accounting Principles
The accounting profession has developed standards that are generally
accepted and universally practiced. This common set of standards is called
generally accepted accounting principles (GAAP). These standards indicate
how to report economic events.
The primary accounting standard-setting body in the United States is the
Financial Accounting Standards Board (FASB). The Securities and Exchange
Commission (SEC) is the agency of the U.S. government that oversees U.S.
financial markets and accounting standard-setting bodies. The SEC relies on
the FASB to develop accounting standards, which public companies must
follow. Many countries outside of the United States have adopted the
accounting standards issued by the Inter- national Accounting Standards
Board (IASB). These standards are called International Financial Reporting
Standards (IFRS).
3. Measurement Principles
-Historical cost: record assets at their cost
-Fair value: reported at fair value (only in investment securities)
4. Assumption
-Monetary unit: only transaction data can be expressed in money terms.
-Economic entity: activities of the entity be kept separate and distinct
from the activities of its owner and all other economic entities.
oProprietorship: a business owned by one person. The owner
(proprietor) receives any profits, suffers any losses, and is
person- ally liable for all debts of the business.
oPartnership: a business owned by two or more persons. Keep
separate from the personal activities of the partners
