Lecture Notes for Intermediate Accounting, 9th Edition

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1-1Copyright © 2020McGraw-HillEducation.All rights reserved.No reproduction or distribution without the prior written consent of McGraw-HillEducation.CHAPTER 1ENVIRONMENT AND THEORETICAL STRUCTURE OF FINANCIALACCOUNTINGAuthors’ PerspectivesPART A: Financial Accounting EnvironmentLO1–1Describe the function and primary focus of financial accounting.LO1–2Explain the difference between cash and accrual accounting.LO1–3Define generally accepted accounting principles (GAAP) and discuss thehistoricaldevelopment of accounting standards, including convergencebetween U.S. and internationalstandards.LO1–4Explain why the establishment of accounting standards is characterized asa politicalprocess.LO1–5Explain factors that encourage high-quality financial reporting.LO1–11 Discuss the primary differences between U.S. GAAP and IFRS with respectto thedevelopment of accounting standards and the conceptual frameworkunderlying accountingstandards.Remind Students Why We Bother—Start Day 1byasking why we bother learning financialaccounting.All students have taken introductory accounting, butit’shelpful to point out that theyvery quicklyplungedinto the trees and might have lost sight of the forest.Why is financialaccounting important? What does it add?This is a nice opportunity for discussion, and inevitablythere will bethe chance tohighlightthe followingillustrations.•Illustration 1-1 presents the Pathways Commission visualization: “THIS is accounting!”Thepoint here is that we are focusing on providing useful information about a business’s economicactivity. That leads to some motivation for the conceptual framework, because itrequires thatwedefine terms like “useful” and determine what does and doesn’t qualify as economicactivity that is captured by accounting. Because decisions have consequences, this discussionthen brings up the idea that everyone in the financial reporting process has incentives,whichwe need to understand when navigating the many gray areas we will cover in this course, andwhich helps us understand that thestandard settingprocessis inevitably political. These areconversations to return to later,in Part Bof the chapter.[Be sure to note that this and most other Illustrations throughout the textbook are available toinstructors in the “Digital ImagesLibrary”for presentationas well as being incorporated intothe PowerPoint presentations,all of which are availablein the Instructor Resources section ofConnect.]•Illustrations 1-3 and 1-4 provide a simple contrast of cash-basis v. accrual accounting. Theseillustrations constitute a nice mini-review of some simple financial accounting transactions, butthe big takeaway is thatbothcash flows and accruals are important–having only one of themis not sufficient for the other.That can lead to a conversation of what decisions are informed

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