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Ebook Financial accounting (6th edition): Part 1

(BQ) Part 1 book "Financial accounting" has contents: Financial accounting and its environment, basic concepts of financial accounting, the income statement, the balance sheet, statement of cash flows, current assets, noncurrent assets,.and other contents. | 1 c h a p t e r 1 Financial Accounting and Its Environment LEARNING OBJECTIVES 1. Define accounting and identify its objectives. 2. Distinguish among the three major types of accounting. 3. List the three primary financial statements and briefly summarize the information contained in each. 4. Identify financial statement users and the decisions they make. 5. Define generally accepted accounting principles and explain how they are determined. 6. Describe the role of auditing. 7. List the economic consequences of accounting principle choice. 8. Assess the importance of ethics in accounting. INTRODUCTION Jane Johnson is considering selling T-shirts in the parking lot during her university’s football games. Jane, of course, will do this only if she expects to make a profit. To estimate her profits, Jane needs certain pieces of information, such as the cost of a shirt, the university’s charge for the right to conduct business on its property, the expected selling price, and the expected sales volume. Suppose Jane has developed the following estimates: Sales price per shirt Cost per shirt Number of shirts sold per game day University fee per game day $ 12 $ 7 50 $100 Although developing estimates is tricky, let’s take these estimates as given. Based on the estimates, Jane would earn a profit of $150 per game day. Sales ($12 )05 ן Less expenses: Cost of merchandise ($7 )05 ן University fee Total expenses Net income $600 $350 100 450 $150 2 Financial Accounting and Its Environment 2 CHAPTER 1 Since this looks like a reasonable profit, Jane puts her plan into action. After her first game day, Jane needs to assess her success (or failure). Based on her actual results, Jane prepares the following information: Sales ($12 )04 ן Less expenses: Cost of merchandise ($7 )04 ן University fee Total expenses Net income $480 $280 100 380 $100 Jane’s business was profitable, but not as profitable as she planned. This is because Jane sold fewer shirts than she .