This chapter introduced the role of accounting in society and business: to provide information helpful to operating and evaluating the performance of organizations. Accounting is a measurement discipline. To communicate effectively, users of accounting must agree on the rules of measurement. Generally accepted accounting principles (GAAP) constitute the rules used by the accounting profession in the United States to govern financial reporting. GAAP is a work in progress that continues to evolve.

This chapter has discussed eight elements of financial statements: assets, liabilities, equity, common stock (contributed capital), revenue, expenses, dividends (distributions), and net income. The elements represent broad classifications reported on financial statements. Four basic financial statements appear in the reports of public companies: the balance sheet, the income statement, the statement of changes in stockholders’ equity, and the statement of cash flows. The chapter discussed the form and content of each statement as well as the interrelationships among the statements.

This chapter introduced a horizontal financial statements model as a tool to help you understand how business events affect a set of financial statements. This model is used throughout the text. You should carefully study this model before proceeding to Chapter 2.