CHAPTER1INTRODUCINGFINANCIALACCOUNTING.docVIP

CHAPTER 1: INTRODUCING FINANCIAL ACCOUNTING IMPORTANCE OF ACCOUNTING Accounting is the language of business and is called this because all organizations set up an accounting information system to communicate data to help people make better decisions.  Accounting is a system that(Indentifies(Records(Communicates relevant, reliable, and comparable information about an organization’s business activities. Identifying means selecting transactions and events relevant to an organization.  Example: sale of iPods by Apple, receipt of ticket money by TicketMaster.  Recording means keeping a chronological log of transactions and events measured in dollars and classified and summarized in a useful format.  Communicating means preparing accounting reports such as financial statements, and analyzing and interpreting these reports. Management Accounting provides 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.  Financial accountants are concerned with the preparation of Financial Statements, which are distributed to outside parties in an annual report. Most common experience with accounting is through: credit approvals, checking accounts, tax forms, and payroll. These common experiences are limited and tend to focus on the recordkeeping parts of accounting. Recordkeeping/Bookkeeping—is recording of transactions and events, either manually or electronically of an organization’s day-to-day activities. Recordkeeping is only ONE part of accounting. Accounting—is the process of analyzing and drawing conclusions from this information. Example: bookkeeper of a shoe store keeps the day-to-day records as to how many shoes are sold and what bills need to be paid; accountant analyzes this data to evaluate the profitability and health of the business. Users of Accounting Information External Information Users External Users—are NOT dir