Introduction

In this textbook, you will begin your study of accounting. You will learn to speak and understand accounting, “the language of business.” Without an understanding of accounting, business investments, taxes, and money management will be like a foreign language to you. In brief, an understanding of accounting facilitates the interpretation of financial information, which allows for better economic decisions.

The major objectives of this text are to provide you with a basic understanding of the language of accounting and with the ability to interpret and use financial information prepared using accounting techniques and procedures. With the knowledge you obtain from this exposure to accounting, you will be able to “read” the financial statements of companies, understand the information that is being conveyed, and use accounting information to make good business decisions. Also, through discussion of the business environment in which accounting is used, you will increase your understanding of general business concepts such as corporations, leases, annuities, leverage, investments, and so forth.

You will become convinced that accounting is not “bean counting.” Time after time, you will see that accountants must exercise judgment about how to best summarize and report the results of business transactions. As a result, you will gain a respect for the complexity of accounting and develop a healthy skepticism about the precision of any financial reports you see.

Finally, you will see the power of accounting. Financial statements are not just paper reports that get filed away and forgotten. You will see that financial statement numbers and, indirectly, the accountants who prepare them determine who receives loans and who doesn’t, which companies attract investors and which don’t, which managers receive salary bonuses and which don’t, and which companies are praised in the financial press and which aren’t.

So, let’s get started.