GLENCOE ACCOUNTING AND MRS. NICHOLS Accounting – the language of Business

Key Terms Accounting Systems  Manual Accounting Systems  Computerized Accounting Systems Accounting Standards  GAAP “gap”  IAS Financial Reports  Financial Accounting  Management Accounting Accounting Assumptions  Business Entity  Accounting Period  Going Concern

Objective You will have an understanding of the computerized accounting system and how the information processed is used to make business decisions. Decisions like a popular band deciding where to play, the cost of their tour, how profitable their music has been or how much the ticket prices should be? These decisions are probably made by a financial team!

Accounting Systems Collect Document Report

Source Documents – Transactions 1 st step to Financial Reporting Input Checks Invoices Sales slips Receipts

Tasks Processing Analyzing Classifying Recording

Financial and Management Accounting Reports Outputs Financial condition Results of operations Investments by and distributions to owners

System – Financial Accounting Outsiders looking in (external reportin) Investors Loaning Institutions or Individuals Local, State and Federal Government Employees, Unions, Consumers

System – Management Accounting INTERNAL REPORTING  The day-to-day decision makers.  Purchasing  Hiring  Production  Payments  Sales  Collections

Financial Accounting Reports Management Accounting Reports Uses of Accounting Reports List three ways each type is used.

Accounting Assumptions Something taken for granted as true  What are some assumptions you make daily?  When you go to a movie?  Go to a restaurant?  Enter school?  Wake up in the morning? Each business needs to set up systems  (methods to track transactions)

Accounting Assumptions #1 Business Entity  Separate legal entity from the owners personal finances.  Accounting reports, and records are maintained separately.  The most difficult to separate is farming and ranching, why? Personal Business

Accounting Assumption #2 Accounting Period  Life of a business is divided into sections of time.  One Month  Quarterly (every 3 months)  One Year Reports are printed for each period and compared to make decisions.

Accounting Assumption #3 Going Concern  Assume the business will continue to operate unless it is clear it cannot survive.  Many fail in first 5 years

Accounting Assumptions #1 Business Entity #2 Accounting Period #3 Going Concern Suppose you work for a company called Greenwood Sky Divers as a sky-diving instructor. Since you have your pilot’s license, you also give flying lessons on the side. You and the owner of Greenwood Sky Divers both belong to a local club, the Greenwood Eagles, whose members get together for sky dives on the weekends. G.S.D is a sole proprietorship that has been in business for six years. The owner of the company regularly reviews the financial reports, prepared by the accountant and compares them from year to year.