Accounting plays a crucial role in the information age. In this chapter, we discuss the importance of accounting to different types of organizations and describe its many users and uses. We explain that ethics are crucial to accounting. We also explain business transactions and how they are reflected in financial statements.
Chapter 2 describes and analyzes business transactions. We explain the analysis and recording of transactions, the ledger and trial balance, and the double-entry system. More generally, Chapters 2 and 3 show (via the accounting cycle) how financial statements reflect business activities.
Learning Objectives
<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073379573/leftarrow.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a>Learning Objectivesare classified as conceptual, analytical, or procedural.
A Decision Featurelaunches each chapter showing the relevance of accounting for a real entrepreneur. AnEntrepreneurial Decisionproblem at the end of the assignments returns to this feature with a mini-case.
Life Is Good
“People are drawn to Jake usually with a grin or a big laugh … Jake rules!” — Bert Jacobs
<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073379573/wiL79573_Light_Bulb_with_glow.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a>BOSTON—Bert and John Jacobs launched their T-shirt company, Life is good® (Lifeisgood.com), with “nothing in our bank account and $78 in cash,” explains Bert. Sales activities involved peddling T-shirts on college campuses and at street fairs. Although they lived and slept in their van and made only enough to pay for food and gas, they stayed the course. Then, Bert says, “We created Jake, and he showed us the way!”
Jake is the smiling stick figure that now adorns their products. Bert and John first drew Jake on their apartment wall and then printed him on a batch of T-shirts that sold within an hour at a Cambridge street fair. “It scared the hell out of us,” says Bert. “We looked at each other and said, ‘Oh my God, what do we have here?’” What they had was a Hollywood story in the making. Within a few years, Jake was adorning T-shirts, sweatshirts, and headwear and was producing millions in sales.
Bert and John have integrated their fun and quirky style into their business. A walk through the Life is good factory reveals blaring music, popcorn machines, free-roaming dogs, and giant murals on bright-colored walls. “We take our inspiration from Dr. Seuss,” insists Bert. “We like to feel that in our own way we're having a positive impact … and having a lot of fun along the way.” The brothers have successfully organized their business, set up accounting systems, learned to prepare and read financial reports, and apply financial analysis. Adds John, “Consistent performance is what has enhanced and strengthened [our products].”
The brothers' accounting system tracks all transactions, and they regularly prepare financial reports when making business decisions. Those accounting realities have been creatively merged with their fun-loving approach. In recent years, Life is good has held a factory talent show, bowling tournament, and watermelon seed–spitting contest. The brothers exude positive thinking. “The foundation of our brand is optimism,” explains Bert, “and optimism is timeless.”
[Sources: Life is good Website, January 2008; SGB, January 2006; Boston Common, Winter 2006; Worthwhile Magazine, 2005; American Executive, August 2005; Inc., October 2006; Entrepreneur, May 2007]
Chapter Preview
<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073379573/leftarrow.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a>A Previewopens each chapter with a summary of topics covered.
Today's world is one of information — its preparation, communication, analysis, and use. Accounting is at the core of this information age. Knowledge of accounting gives us career opportunities and the insight to take advantage of them. This book introduces concepts, procedures, and analyses that help us make better decisions, including career choices. In this chapter we describe accounting, the users and uses of accounting information, the forms and activities of organizations, and several accounting principles. We also introduce transaction analysis and financial statements.
