2 Making a Statement CHAPTER 1 Uses of Accounting Information and the Financial Statements T oday, more people than ever before recognize the impor- tance of accounting information and the profound effect that unethical and misleading financial reports can have on a business, its owners, its employees, its lenders, and the financial markets. In this chapter, we discuss the importance of ethical financial report- ing, the uses and users of accounting information, and the financial statements that accountants prepare. We end the chapter with a discussion of generally accepted accounting principles. LEARNING OBJECTIVES LO1 Define accounting and describe its role in making informed decisions, identify business goals and activities, and explain the importance of ethics in accounting. (pp. 4–10) LO2 Identify the users of accounting information. (pp. 10–13) LO3 Explain the importance of business transactions, money measure, and separate entity. (pp. 13–15) LO4 Identify the three basic forms of business organization. (pp. 15–16) LO5 Define financial position, and state the accounting equation. (pp. 17–19) LO6 Identify the four basic financial statements. (pp. 19–23) LO7 Explain how generally accepted accounting principles (GAAP) and international financial reporting standards (IFRS) relate to financial statements and the independent CPA’s report, and identify the organizations that influence GAAP. (pp. 24–27) Financial statements measure how well a business is run. Revenues – Expenses = Net Income INCOME STATEMENT STATEMENT OF OWNER’S EQUITY Beginning Balance + Net Income – Withdrawals = Ending Balance BALANCE SHEET Assets Liabilities Owner’s Equity A = L + OE STATEMENT OF CASH FLOWS = Ending Cash Balance Operating activities + Investing activities + Financing activities = Change in Cash + Beginning Balance