INTRODUCING FINANCIAL ACCOUNTING

INTRODUCING FINANCIAL ACCOUNTING

1. IMPORTANCE OF ACCOUNTING

   • Accounting
     • Language of business
       • All organizations set up an accounting information system to communicate data to help people make better decisions.
     • is a system that
       • Indentifies
         • selecting transactions and events relevant to an organization
       • Records
         • keeping a chronological log of transactions and events measured in dollars and classified and summarized in a useful format
       • Communicates
         • means preparing accounting reports such as financial statements, and analyzing and interpreting these reports
     • Management Accounting
       • information for decision-making activities of management within the business
     • Financial Accounting
       • is concerned with providing useful information to those parties outside of the business

2. ACCOUNTING

   • is the process of analyzing and drawing conclusions from this information.
   • Users of Accounting Information
     • External Information Users
       • are not directly involved in running the organization.
       • Lenders (creditors)
         • Shareholders (investors)
           • Board of Directors
             • Externa l(Independent)Auditors
               • EmployeesandLaborUnions
                 • Regulators
                   • Voters,Legislators,andGovernmentOfficials
                     • Contributors
                       • Suppliers
                         • Customers
     • InternalInformation Users
       • are those directly involved in managing and operating an organization.
       • Managerial Accounting
         • InternalControls
           • Sales staff
             • Budget officers
               • Controllers

3. FUNDAMENTALS OF ACCOUNTING

   • Ethics
     • are beliefsthat distinguish right from wrong; they are accepted standards of good and bad behavior.
   • Generally Accepted Accounting Principles (GAAP)
     • are rules that specify acceptable accounting practices
       • Two main groups establish GAAP in the US:
         • Financial Accounting Standards Board (FASB)
         • Securities and Exchange Commission (SEC)
   • Principles and Assumptions of Accounting
     • Two types:
       • General Principles
         • the basic assumptions, concepts, and guidelines for preparing financial statements
       • Specific Principles
         • Detailed rules used in reporting business transactions and events.