Introdu ction

to Accounting

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Twitter
hen two teams pair up for a game of Twitter is one of the most visible
W football, there is often a lot of noise. companies on the Internet. It provides
The band plays, the fans cheer, and fireworks a real-time information network where
light up the scoreboard. Obviously, the members can post messages, called
fans are committed and care about the Tweets, of up to 140 characters for free.
outcome of the game. Just like fans at a Millions post Tweets every day throughout
football game, the owners of a business the world.
want their business to "win" against their Do you think Twitter is a successful
competitors in the marketplace. While company? Does it make money? How
having your football team win can be a would you know? Accounting helps to
source ofpride, winning in the marketplace answer these questions.
goes beyond pride and has many tangible This textbook introduces you to
benefits. Companies that are winners are accounting, the language of business.
better able to serve customers, provide Chapter 1 begins by discussing what a
good jobs for employees, and make money business is, how it operates, and the role
for their owners. that accounting plays.
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After studying this chapter, you should be able to: Example Exercises
lfi"t. Describe the nature of a business and the role of accounting and
ethics In business.
\!;I Nature of Business and Accounting
Types of Businesses
Role of Accounting in Business
Role of Ethics In Accounting and Business
Opportunities for Accountants
/ci)\. Summarize the development of accounting principles and
relate them to practice.
\V2 Generally Accepted Accounting
Principles
Business Entity Concept
Cost Concept EE 1-1

AtaGlance 1 Page9

~ Describe the Nature of Business and Accounting

\.!J natureof
business and the role of
accounting and ethics in A business1 is an organization in which basic resources (inputs),
such as materials and
business. labor, are assembled and processed to provide goods or services
(outputs) to customers.
Businesses come in all sizes, from a local coffee house to Starb
ucks, which sells over
$10 billion of coffee and related products each year.
The objective of most businesses is to earn a profit. Profit is the
difference between
the amounts received from customers for goods or services and
the amounts paid for the
inputs used to provide the goods or services. This text focuses on
businesses operating to
earn a profit. However, many of the same concepts and principles
also apply to not-for-
profit organizations such as hospitals, churches, and governmen
t agencies.

Types of Businesses
Three types of businesses operating for profit include servic
e, merchandising, and
manufacturing businesses. Some examples of each type of busin
ess are given below.
Service businesses provide services rather than products to custom
ers.
Delta Air Lines (transportation services)
The Walt Disney Company (entertainment services)
Merchandising businesses sell products they purchase from
other businesses to
customers.
Walrnart (general merchandise)
Amazon.corn (Internet books, music, videos)
Manufacturing businesses change basic inputs into produ
cts that are sold to
customers.
Ford Motor Co. (cars, trucks, vans)
Dell Inc. (personal computers)

1 A complete glossary of terms appears at the end of the text.

 Chapter 1 Introduction to Accounting 3

Role of Accounting in Business

The role of accounting in business is to provide information for managers to use in
operating the business. In addition, accounting provides information to other users in
assessing the economic performance and condition of the business.
Thus, accounting can be defined as an information system that provides reports Note:
to users about the economic activities and condition of a business. You could think of Accounting is
accounting as the "language of business." This is because accounting is the means by an information
which businesses' financial information is communicated to users. system that
provides reports
The process by which accounting provides information to users is as follows: to users about the
1. Identify users. economic activities
and condition of a
2. Assess users' information needs. business.
3. Design the accounting information system to meet users' needs.
4. Record economic data about business activities and events.
5. Prepare accounting reports for users.
As illustrated in Exhibit 1, users of accounting information can be divided into two
groups: internal users and external users.
Internal users of accounting information include managers and employees.
These users are directly involved in managing and operating the business. The area
of accounting that provides internal users with information is called managerial
accounting, or management accounting.

Internal 1 External
·7 EXHIBIT 1
Identify (investors, creditors, Accounting

r~f~
(managers &

----
employees)
Users

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customers, government) as an Information
System

Information
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Prepare
Accounting
Reports
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Accounting Economic ! ~.,
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System Data ~
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The objective of managerial accounting is to provide relevant and timely

information for managers' and employees' decision-making needs. Oftentimes, such
information is sensitive and is not distributed outside the business. Examples of
sensitive information might include information about customers, prices, and .plans to
expand the business. Managerial accountants employed by a business are employed in
private accounting.
4 Chapter 1 Introduction to Accounting

External users of accounting information include investors, creditors, custom~rs,

and the government. These users are not directly involved in manag~ng _and ope~atm_g
the business. The area of accounting that provides external users with mformation 1s
called financial accounting.
The objective of financial accounting is to provide relevant and timely informati~n
for the decision-making needs of users outside of the business. For example, financial
reports on the operations and condition of the business are useful for banks and ot~er
creditors in deciding whether to lend money to the business. General-purpose financial
statements are one type of financial accounting report that is distributed to external
users. The term general-purpose refers to the wide range of decision-making nee?s
that these reports are designed to serve. Later in this chapter, general-purpose financial
statements are described and illustrated.

Role of Ethics in Accounting and Business

The objective of accounting is to provide relevant, timely information for user decision
making. Accountants must behave in an ethical manner so that the information they
provide users will be trustworthy and, thus, useful for decision making. Managers and
employees must also behave in an ethical manner in managing and operating a business.
Otherwise, no one will be willing to invest in or loan money to the business.
Ethics are moral principles that guide the conduct of individuals. Unfortunately,
business managers and accountants sometimes behave in an unethical manner. Many
of the managers of the companies listed in Exhibit 2 engaged in accounting or business
fraud. These ethical violations led to fines, firings, and lawsuits. In some cases, managers
were criminally prosecuted, convicted, and sent to prison.

EXHIBIT 2 Accounting and Business Frauds

Nature of Accounting
Company Result
or Business Fraud

Computer Associates Fraudulently inflated its financial results. CEO and senior executives indicted.
International, Inc. Five executives pied guilty. $225 million
fine.

Enron Fraudulently inflated its financial results. Bankrupcty. Senior executives criminally
convicted. Over $60 billion in stock market
losses.

HealthSouth Overstated performance by $4 billion in false Senior executives criminally convicted.

entries.

Qwest Communications Improperly recognized $3 billion in false receipts. CEO and six other executives criminally
International, Inc. convicted of"massive financial fraud:'
$250 million SEC fine.

Xerox Corporation Recognized $3 billion in revenue prior to when it $10 million fine to SEC. Six executives forced
should have been recorded. to pay $22 million.

What went wrong for the managers and companies listed in Exhibit 2? The answer
normally involved one or both of the following two factors:
Failure of Individual Character. An ethical manager and accountant is
honest and ~air. However, managers and accountants often face pressures
from ~uperv~s~rs to meet company and investor expectations. In many of the
cases 1_n Exh1b1t 2, managers and acco'l:lntants justified small ethical violations
to avmd such pressures. However, these small violations became big violations
as the company's financial problems became worse.
 5
Chapter 1 Introduction to Ac;counting

Culture of Greed and Ethical Indifference. By their

behavior ·and attitude,
of the companies listed in
senior managers set the comp any culture. In most
and indifference to
Exhibit 2, the senior managers created a culture of greed
the truth:
or other types of pressure?
How does one beliave ethically when faced with financial
2
Guidelines for behaving ethically are shown in Exhibit 3.
..,
EXH IBIT 3 1a
g>
ethical standards of honest y and fairness.
1. Identify an ethical decision by using your personal Guidelines for Ethical -.,~
effect on others.
2. identify the consequences of the decision ~nd its Conduct ~
and respon sibilitie s to those who will be affected by your decision. ~
3. Consider your obligat ions C:
d by it.
4. Make a decision that is ethical and fair to those affecte c°l
0

on the fund's actual performance. As long as the invest-

In Tune 200_9, Bernard L. "Bernie" Madoff was sentenced
ment mana ger is able to attrac t new investors, he or
to 150 years in prison for defrauding thousands of in-
she will have new funds to pay existing inve~tors and
vestors in one of the biggest frauds in American history.
contin ue the fraud. While most Ponzi schemes collapse
Madoff's fraud started several decad es earlier when he
quickly when, the investme'~t mana ger runs out of new
began a "Ponzi scheme" in his investment management
· invest ors, Ma9o ffs reputa.tion, popul arity, and perso nal
firm, Bernard L. Madoff Investment Securities LLC.
e, the invest ment manag er uses 1• contacts provided a steady stream of inve,c;tors, which
In a Ponzi schem
new invest ors to pay a return to allowed the fraud to survive for decades.
funds received from ., J

existing investors, rather than basing invest•ment return s

I J , •

Opp ortu nitie s for Accountants

nts majoring in accou nting.
Num erous career oppo rtuni ties are available for stude
er of new graduates enter ing
Currently, the dema nd for accou ntant s exceeds the numb
of business caused by the
the job market. This is partly due to the increased regulation
more and more businesses
accou nting and business frauds show n in Exhibit 2. Also,
nting information.
have come to recognize the impo rtanc e and value of accou
are employed in private
As indicated earlier, accountants employed by a business
ble caree r options within a
accounting. Private accountants have a variety of possi
it 4 along with their starting
company. Some of these career options are shown in Exhib
auditors, verify the accuracy
salaries. Accountants who provi~e audit services, called
Exhibit 4 on the next page,
of financial records, accounts, and systems. As shown in
ns.
several private accounting careers have certification optio

ment
managers and employees. In addition, the Institute of Manage
2 Many companies have ethical standards of conduc t for codes of conduct .
Accountants have prbfesslonal
Accountants and the American Institute of Certified Public
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EX HI BI T 4 Accounting Career Paths and Salari

es
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Accounting career
Career Options Salaries•
Track
Private Accounting Accountants employed by Bookkee $38,500
per
companies, goverf1ment,
and not-for-profit entitles.
Payroll clerk $37,000 Certified Payroll
Professional (CPP)
General accountant $44,625
Budget analyst $47,250
Cost accountant $46,625 Certified Management
Accountant (CMA)
Internal auditor $51,875 Certified Internal
Auditor (CIA)
Information technology $60,750 Certified Information
auditor Systems Auditor (CISA)

Public Accounting Accountants employed Local firms $47,313 Certified Public

individually or within a Accountant (CPA)
public accounting firm in
tax or audit services.
National firms $57,250 Certified Public
Accountant (CPA)
sou~ce: Robert Half 2012 U.S. Salary Guid
e (Finance and Accounting}, Robe
•Mean salaries of a reported rang rt Half lnternationa!, Inc. (http://ww
e. Private accounting salaries are w.rhl.com/salaryguides)
reported for large companies. Sala
ries may vary by region.

Accountants and their staff who

provide services on a fee basis are
employed in public accounting. In said ~o be
public accounti~g, an account~nt
an individual or as a member of may practice as
a pub
have met a state's education, experie lic accountmg firm. Public accountants who
nce, and examination requirement
Certified Public Accountants (CP s may become
As). CP As typically perform gen
audit, or tax services. As can be see eral accounting,
n in Exhibit 4, CP As have slightly
salaries than private accountants. better starting
Career statistics indicate, howeve
differences tend to disappear over r, tha t these salary
time.
Because all functions within a bus
iness use accounting information,
private or public accounting provid experience in
es a solid foundation for a career
in industry and in government . Many positions
agencies are held by individuals
backgrounds. with accounting

•
Summarize the
development of
accounting
principles and
Generally Accepted Accountin
g Principles
If a company's management could rec
among companies would be difficu
generally accepted accounting pri
ord and report financial data as it saw
lt, if not impossible. Thus, financial
nciples (GAAP) in preparing rep
fit, comparisons
accountants follow
relate them to allow investors and other users to orts. These reports
compare one company to another.
practice. Accounting principles and concep
practices, and pronouncements ts develop from research, accept
ed accounting
of regulators. Within the Un
Financial Accounting Standards ited States, the
Board (FASB) has the primary
developing accounting principle responsibility for
s.
Accounting Standards as well as The FASB publishes Statements of Financial
Interpretations of these Standards
the Securities and Exchange Comm . In addition,
ission (SEC), ·an agency of the U.S
has authority over the accountin . government,
g and financial disclosures for
shares of ownership (stock) are companies whose
traded and sold to the public. Th
accepts the accounting principle e SEC normally
s set forth by the FASB. Howe
issue Staff Accounting Bulletins ver, the SEC may
on accounting matters that ma
addressed by the FASB. y not have been
 Chapter 1 Introduction to Accounting 7

. M~ny countries outside the United States use generally accepted accounting 1111P.P.9!!1.. ~Ill
prmc1~les adopted by_ the Int~ma~onal Accounting Standards Board (IASB). The .....,,. ~
IASB issues_ International Fmancial Reporting Standards (IFRSs). Differences See Appendix Bfor
currently exist betw~en FASB and IASB accounting principles. However, the FASB more information.
a~d IASB are working together to reduce and eliminate these differences into a
smgle set of ac~~unti~g principles. Such a set of worldwide accounting principles
would h~lp facilitate mvestment and business in an increasingly global economy.
. In this chapter and text, accounting principles and concepts are emphasized. It
is through this emphasis on the "why" as well as the "how" that you will gain an
understanding of accounting.

llll!D
NAL FINANCIAL REPORTING 17,000 pages, which include numerous industry-specific
NDARDS (IFRS) accounting rules. In contrast, IF.RS allow more judgment
in deciding how business transactions a{e recorded.
-:
IFRS are considered to l>e more "prind ples-based" than. Many believe that the strong regulatory and litigation
' environment in the United States is the cause for the ..,
US. GAAP,-whichis considered to be more "rules-based." la
For example, U.S. GAAP consists of approximately ' · more rules-based GAAP approach. Regar9less,, IFRS "'
C:
c
and GAAP sh~e many common principles.* <ii
j
1l,
•Differences between U.S. GAi'P ana IFRSare further discussed and Illustrated In Appendix B. 1l,
C:

~
@

Business Entity Concept

The business entity concept limits the economic data in an accounting system to data
related directly to the activities of the business. In other words, the business is viewed Note:
Under the business
as an entity separate from its owners, creditors, or other businesses. For example, the entity concept, the
accountant for a business with one owner would record the activities of the business activities of a business
only and would not record the personal activities, property, or debts of the owner. are recorded separately
A business entity may take the form of a proprietorship, partnership, corporation, from the activities of
its owners, creditors, or
or limited liability company (LLC). Each of these forms and their major characteristics other businesses.
are listed below.
Form of Business Entity Characteristics
Proprietorship is owned by one individual. , 70% of business entities in the United States.
, Easy and cheap to organize.
, Resources are limited to those of the owner.
, Used by small businesses.
Partnership is owned by two or more individuals. • 10% of business organizations in the United
States (combined with limited liability
companies).
, Combines the skills and resources of more than
one person.
Corporation is organized under state or federal , Generates 90% of business revenues.
statutes as a separate legal taxable entity. , 20% of the business organizations in the United States.
, Ownership is divided into shares called stock.
, Can obtain large amounts of resources by issuing stock.
, Used by large businesses.

Limited liability company (LLC) combines th,e , 10% of business organizations in the United
attributes of a partnership and a corporation. States (combined with partnerships).
• Often used as an alternative to a partnership.
• Has tax and legal liability advantages for owners.
 8 Chapter 1 Introduction to Accounting

and
The three · types of businesses discussed earlier -servic e, merchandising,
ships, corpor ati?ns,
manuf acturin g-may be organized as proprietorships, partner
d
or limited liability companies. Because of the large amoun t of resources reqmre
Motor
to operate a manufacturing business, most manufactq,rers ·such as Ford
retailer s such as Walma~ t and Home Depot
Company are corporations. Most. large
are also corpo;~tions.
' i,
Cost Concept
at
Under the cost concept, amo~nts are initially recorded in the accounting records
ers purcha sed the
their cost or purchase price. To illustrate, assume that Aaron Publish
following building on February 20, 2012, for $150,000:
$160,000
Price listed by seller on January I, 2012
140,000
Aaron Publishers' initial offer to buy on January 31. 2012
150,000
Purchase price on February 20, 201'2
220,000
Estimated selling price on December 31, 2014
190,000
Assessed value for property taxes, December 31, 2014
on
Under th~ cost concept; Aaron Publishers records the purchase of the building
above
February 20, 2012, at the purchase price of $150,,000. The other amounts listed
have no effect on the accounting records. .
31,
The fact that the building has an estimated selling price of $220,000 on Decembe~
er, to use the $220,00 0
2014, indicates that the building has inc~_eased in value. Howev
in the accounting records would be to record an illusory or unrealized profit. If Aaron
Publishers sells the building on January 9, 2016, for $240,000, a profit of $90,000
record
($240,000 - $150,000) is then realized and recorded. The new owner would
$240,000 as its cost of the building.
The
The cost concept also involves the objectivity and unit of measure concepts.
d in the accoun ting records be
objectivity concept requires that the amounts recorde
and a seller, both try to get
based on objective evidence. In exchanges between a buyer
d
the best price. Only the final agreed-upon amoun t is objective enough to be recorde
in the accounting records. If amoun ts in the accounting records were constan
tly being
als, and opinion s, accoun ting
revised upward or downward based on offers, apprais
reports could become unstable and unreliable.
.
The unit of measure concep t requires that economic data be recorde d in dollars
al data and reports .
Money ·is a commo n unit of measurement for reporting financi

Example Exercise 1-1 Cost Concept . · .

>( I .
had been priced for sale at $150 000 On
On August 25, Gallatin Repair Service extended an offer of $125,000 for land that
On October 20, the land was a~ses~ed
September 3, Gallatin Repair Service accepted the seller's counteroffer of $137,00
0.
Repair Service was offered $160,00 0 for the land .
at a valu_e of $98,?00 f~r proper:ty tax purposes. On [?ecember 4, Gallatin records?
land be recorded in Gallatin Repair Service's
by a national retail chain. At what yalue should the

,. Follow My Example 1-1 f, I

he cost to Gallatin Repair Service.

$137,000. Under the cost conce~t,·the la~d ~h~uld be r;cord~d at t_
....... .......... ... .. ;·............·:·:··........·.... ............ ......:·....:,. ............................................................ .................... ...
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Practice Exercises: PE 1-1 A, PE 1-1B

 Chapter 1 Introduction to Accounting 9

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Ata6fance 1
Describe the nature of a business and the role of accounting and ethics in business.

Key Points A business provides goods or services (outputs) to customers with the objective of earning a profit.
Three types of businesses include,service, merchandising, and manufacturing businesses.
Accounting is an informatio n system that provides reports to users about the economic activities and
condition of a business.
Ethics are moral principles that guide the conduct of individuals. Good ethical conduct depends on
individual character and firm culture. '
Accountan ts are engaged in private accounting or public accounting .
Example Practice
Learning Outcomes Exercises Exercises

• Distinguish among service, merchandising, and manufacturing businesses.

• Describe the role of accounting in business, and explain why accounting is
called the "language of business:'
• Define ethics, and list two factors affecting ethical conduct.
• Differentiate between private and public accounting.

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o A
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u Summariz e the developm ent of accou~ting principles and relate them to pra~tice.
. ' .'

Key Points Generally accepted accounting principles (GAAP) are used in preparing financial statements. Accounting
principles and concepts develop from research, practice, and pronouncements of au~oritative bodies.
businesses.
The business entity concept views the business as an entity separate from its owners, creditors, or other
s, and limited liability companies. The cost
Businesses may be,organi~ed as proprietors hips, partnerships, corporation
actual cost. The objectivity concept requires that
concept requires that pur'chases of a business be recorded in terms of
The unit of measure concept requires that economic
the accounting records and reports be based on objective evidence.
data be recorded in dollars. ' · ·
Example Practice
Learning Outcomes Exercises Exercises

• Explain what is meant by generally accepted accounting

principles.
• Describe how generally accepted accounting principles are
developed. ·

• Describe and give an example of what is meant by the business

entity concept.
• Describe the characteristics of a proprietors hip, partnership ,
corporatio n, and limited liability company.
EE 1-1 PE 1-lA, 1-1B
• Describe and give an example of what is meant by the
cost concept.
• Describe and give an example of what is meant by the
objectivi_ty concept.
• Describe and give an example of what is meant by the
unit of measure concept.
10 Chapter 1 Introduction to Accounting

Key Terms

accounting (3) generally accepted accounting merchandising business (2)

business (2) principles (GAAP) (6) objectivity concept (8)
business entity concept (7) general-purpose financial partnership (7)
Certified Public Accountant statements (4) private accounting (3)
(CPA) (6) International Accounting profit (2)
corporation (7) Standards Board (IASB) (7) proprietorship (7)
cost concept (8) limited liability company public accounting (6)
(LLC) (7)
ethics (4) Securities and Exchange
management (or managerial) Commission (SEC) (6)
financial accounting (4) accounting (3)
Financial Accounting Standards service business (2)
manufacturing business (2)
Board (FASB) (6) unit of measure concept (8)

Discussion Questions

1. Name some users of accounting information. 3. Why are most large companies like Microsoft,
PepsiCo, Caterpillar, and AutoZone organized as
2. What is the role of accounting in business? corporations?

Practice Exercises
Example
Exercises
EE 1-1 p. 8 PE 1-1A Cost concept OBJ. 2
On May 19, Integrity Repair Service extended an offer of $335,000 for land that had been priced
for sale at $363,000. On June 4, Integrity Repair Service accepted the seller's counteroffer of
$345,000. On October 10, the land was assessed at a value of $290,000 for property tax purposes.
On February 5 of the next year, Integrity Repair Service was offered $380,000 for the land by
a national retail chain. At what value should the land be recorded in Integrity Repair Service's
records?

EE 1-1 p. 8 PE 1-1 B Cost concept OBJ. 2

On March 31, Higgins Repair Service extended an offer of $415,000 for land that had
been priced for sale at $460,000. On April 15, Higgins Repair Service accepted the seller's
counteroffer of $437,500. On September 9, the land was assessed at a value of $375,000
for property tax purposes. On December 8, Higgins Repair Service was offered $475,000
for the land by a national retail chain. At what value should the land be recorded in
Higgins Repair Service's records?
 Chapter 1 Introduction to Accounting 11

Exercises

EX 1-1 Types of businesses OBJ.1

■
The following is a list of well-known companies.
1. Alcoa Inc.
2. Boeing
3. Caterpillar
4. Citigroup Inc.
5. CVS
6. Dow Chemical Company
7. eBay Inc.
8. Fed.Ex
9. Ford Motor Company
10. Gap Inc.
11. H&R Block
12. Hilton Hospitality, Inc.
13. Procter & Gamble
14. SunTrust
15. Walmart Stores, Inc.

a. Indicate whether each of these companies is primarily a service, merchandise, or

manufacturi ng business. If you are unfamiliar with the company, use the Internet to
locate the company's home page or use the finance website of Yahoo (http://finan ce
.yahoo.com) .
b. For which of the preceding companies is the accounting equation relevant?

EX 1-2 Professional ethics OBJ. 1

A fertilizer manufacturi ng company wants to relocate to Yellowstone County. A report from a

fired researcher at the company indicates the company's product is releasing toxic by-products.
The company suppressed that report. A later report commission ed by the company shows there
is no problem with the fertilizer.
Should the company's chief executive officer reveal the content of the unfavorable
report in discussions with Yellowstone County representatives? Discuss.

EX 1-3 Business entity concept OBJ. 2

Ozark Sports sells hunting and fishing equipment and provides guided hunting and fishing
trips. Ozark Sports is owned and operated by Eric Griffith, a well-known sports enthusiast and
hunter. Eric's wife, Linda, owns and operates Lake Boutique, a women's clothing store. Eric and
Linda have established a trust fund to finance their children's college education. The trust fund
is maintained by Missouri State Bank in the name of the children, Mark and Steffy.
a. For each of the following transactions , identify which of the entities listed should record the
transaction in its records.
Entitles
L Lake Boutique
M Missouri State Bank
0 Ozark Sports
X None of the above
 12 Chapter 1 Introduction to Accounting

1. Linda authorized the trust fund to purchase

mutual fund shares. . .
. f
2. Linda purchased two dozen sprm g dresses rom a St· Lom·s designer for a special sprm g
sale.
ger spaniel to be use d as a h un fmg gm'de
3. Eric paid a breeder's fee for an English sprin
dog.
4. Linda deposited a $2,000 perso nal check . .
in the trust fund at M'.ssoun State Ba nk. ,
s. Eric paid a local doctor for his annual physical, kwh ich was requ
ired by the work men s
compensation insurance policy carried by Ozar 5
ports .
6. Eric received a cash advance from customers
,for a guided hunt ing trip.
7. Linda paid her dues to the YWCA.
8. Linda donated several dresses from inventory
for a local charity aucti on for the benefit
of a women's abuse shelter.
9. Eric paid for dinn er and a movie to celeb
rate their twelfth wedding anniversary.
10. Eric paid for an advertisement in a hunt
ers' magazine.
b. Wha t is a business transaction?

Business Cases ·

B~ 1-1 Ethics and professional conduct in business

C, Group Project ·
Colleen Fernandez, pres iden t of Rhino Enterpris
Bank. The bank requested financial state men
es, applied for a $175,000 loan from First Fede
ts from Rhino Enterprises as a basis for gran
ral
the loan . Colleen has told her acco unta nt to ting
provide th~ bank with a balance sheet. Colle
decided to omit the othe r financial state men en has
ts because there was a net loss during the past
In groups of three or four, discuss the following year .
questions:
1. Is Colleen behaving in a professional
man ner by omit ting some of the finan
statements? cial
2. a. Wha t types of infor mati on abou t their
businesses would owners be willin g to prov
bankers? Wha t types of infor mati on wou ld ide
owners not be willing to provide?
b. Wha t types of infor mati on abou t a busin
ess would bank ers want befor e extending a loan
c. Wha t com mon interests are shared by bank ?
ers and business owners?