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Distinguish among the different accounting entities involved in business events.

Financial accounting reports disclose the financial activities of particular individuals or organizations described as reporting entitiesParticular businesses or other organizations for which financial statements are prepared.. Each entity is a separate reporting unit. For example, a business, the person who owns the business, and a bank that loans money to the business are viewed as three separate reporting entities. Accountants would prepare three separate sets of financial reports to describe the economic activities of each of the three entities.

This text describes accounting from the perspective of a business entity. This point of view may require that you mentally adjust the way you look at business transactions. You likely think from a customer perspective. For example, as a customer you consider a sales discount a great bargain. The view is different, however, from the perspective of the business granting the discount. A sales discount means an item did not sell at the expected price. To move the item, the business had to accept less money than it originally planned to accept. From this perspective, a sales discount is not a good thing. To understand accounting, train yourself to interpret transactions from the perspective of a business rather than a consumer.

Exercises  1-2A, 1-3A, 1-17A, 1-2B, 1-3B, 1-17B

Problems  1-28A