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 describe business transactions and how they are reflected in financial statements.

Chapter 2 further 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.

Conceptual

Analytical

Procedural

“Ask everyone to give you money… remember, you hold the opportunity for them”
—Shawn Nelson

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I Should Have Thought of That!

A Decision Feature launches each chapter showing the relevance of accounting for a real entrepreneur. An Entrepreneurial Decision problem at the end of the assignments returns to this feature with a mini-case.

<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif::::/sites/dl/free/0073403970/360891/small_bulb.gif','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (2.0K)</a> SALT LAKE CITY—Trying to get comfortable while watching TV, Shawn Nelson thought “a huge beanbag thing” would be far more relaxing than his old couch. So he made one—a big one! Seven feet across and shaped like a baseball, Shawn’s creation was the talk of friends and neighbors. Shortly after making and selling a few “huge beanbag things,” Shawn knew it needed a better name. Drawing on the 1960s retro spirit of “love and peace,” Shawn named his invention the LoveSac and his company (LoveSac.com) was born.

Yet LoveSac’s launch was anything but smooth. Shawn began by working out of his mother’s basement. He then set up shop at trade shows and even the local drive-in cinema. He got his first big break when Limited Too called after seeing his display at a trade show. “I answered the phone,” says Shawn, “Twelve thousand Sacs? Sure, no problem.” Who was he kidding?

Shawn’s credit card debt swelled to over $50,000 as he worked 19-hour days and slept in the aged building in which he manufactured the Sacs. “It nearly broke me emotionally, physically, mentally,” Shawn recalls. “We finished the order but ate up all our profits.” Without profits his business, too, would soon be retro. So Shawn approached furniture retailers to ask if they would carry Sacs. “Shawn can still hear the laughter,” states LoveSac’s Website.

Just when things seemed bleakest, Shawn’s cousin suggested he open a retail location. Desperate, Shawn took a three-month lease in a shopping mall. His goal: sell one SuperSac per day. This would cover rent and pay him and his cousin a $5 hourly wage. Shawn then developed a transaction-based accounting system to get a handle on orders and sales. He also selected an organizational form and constructed financial measures and reports.

Incredibly, customers crowded into his store within days of opening. Four weeks later and just before Christmas, customers were lined up outside the door waiting for Sacs to arrive from the factory. By Christmas Eve, Shawn’s store was nearly sold out. Today, Shawn has more than 60 stores projected to generate over $30 million in sales. With results like that we’d all croon over Sacs! [Sources: LoveSac Website, January 2006; Entrepreneur, November 2004; LA Confidential, Fall 2004; Life & Style Weekly, June 2005.]

A Preview opens 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 heart 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. 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.

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