- Identify and describe the three basic forms of business organizations.
- Distinguish among the three types of activities performed by business organizations.
- Describe the content and purposes of the income statement, statement of retained earnings, balance sheet, and statement of cash flows.
- State the basic accounting equation and describe its relationship to the balance sheet.
- Using the underlying assumptions or concepts, analyze business transactions and determine their effects on items in the financial statements.
- Prepare an income statement, a statement of retained earnings, and a balance sheet.
- Analyze and use the financial results—the equity ratio.
In this chapter, you study the accounting process (or accounting cycle) that accountants use to prepare financial statements. This accounting process uses financial data such as the records of sales made to customers and purchases made from suppliers. In a systematic manner, accountants analyze, record, classify, summarize, and finally report these data in the financial statements of businesses. As you study this chapter, you will begin to understand the unique, systematic nature of accounting—the language of business.
- 1.5: The financial accounting process
- In this section, we explain the accounting equation—the framework for the entire accounting process. Then, we show you how to recognize a business transaction and describe underlying assumptions that accountants use to record business transactions. Next you learn how to analyze and record business transactions.