CHAPTER 1 Accounting in Action

CHAPTER1 Accounting in Action TheChapter Previewdescribes the purpose of the chapter and highlights major topics. Chapter Preview The following Feature Story aboutColumbia Sportswear Companyhighlights the importance of having good financial information and knowing how to use it to make effective business decisions. Whatever your pursuits or occupation, the need for financial information is inescapable. You cannot earn a living, spend money, buy on credit, make an investment, or pay taxes without receiving, using, or dispensing financial information. Good decision-making depends on good information. The purpose of this chapter is to show you that accounting is the system used to provide useful financial information. TheFeature Storyhelps you picture how the chapter topic relates to the real world of accounting and business. Feature Story Knowing the Numbers Many students who take this course do not plan to be accountants. If you are in that group, you might be thinking, "If I'm not going to be an accountant, why do I need to know accounting?" Well, consider this quote from Harold Geneen, a former chairman ofIT&T: "To be good at your business, you have to know the numbers—cold." In business, accounting and financial statements are the means for communicating the numbers. If you don't know how to read financial statements, you can't really know your business. Knowing the numbers is sometimes even a matter of corporate survival. Consider the story ofColumbia Sportswear Company, headquartered in Portland, Oregon. Gert Boyle's family fled Nazi Germany when she was 13 years old and then purchased a small hat company in Oregon, Columbia Hat Company. In 1971, Gert's husband, who was then running the company, died suddenly of a heart attack. Gert took over the small, struggling company with help from her son Tim, who was then a senior at the University of Oregon. Somehow, they kept the company afloat. Today, Columbia has more than 4,000 employees and annual sales in excess of $1 billion. Its brands include Columbia, Mountain Hardwear, Sorel, and Montrail. Columbia doesn't just focus on financial success. Several of its factories have participated in a project to increase health awareness of female factory workers in developing countries. Columbia is also a founding member of the Sustainable Apparel Coalition, which strives to reduce the environmental and social impact of the apparel industry. In addition, the company monitors all of the independent factories that produce its products to ensure that they comply with the company's Standards of Manufacturing Practices. These standards address such issues as forced labor, child labor, harassment, wages and benefits, health and safety, and the environment. Employers such as Columbia Sportswear generally assume that managers in all areas of the company are "financially literate." To help prepare you for that, this text will help you learn how to read and prepare financial statements, and how to use key tools to evaluate financial results using basic data analytics.