Accounting Information: Users and Uses Accounting Information: Users and Uses C H A P T E R 1

Learning Objective 1 Describe the purpose of accounting and explain its role in business and society.

What are the functions of an accounting system? Analyze business events to determine if information should be captured by the accounting system. Analysis Day-to-day keeping track of things. Bookkeeping Use summary information to evaluate the financial health and performance of the business. Evaluation

What is the Nature of Accounting? Explain What Each Term Means. Deals with numbers. Quantitative Focused on the financial dimension of business. Financial Supported by a theoretical conceptual framework. Useful Past information can only be useful if it impacts decisions about the future. Decision Making

What Are the Four Steps of the Decision-making Process? 1 Step Identify the issue 2 Step Gather information 3 Step Identify alternatives 4 Step Select the option that will most likely result in the desired objective

Sources of Business Capital What are the Sources of Business Capital? Creditors (Lenders) Business Earnings Investors (Owners)

Uses of Business Resources What are Uses of Business Resources? Buy materials and supplies Buy land, buildings, and equipment Pay employees Pay other operating expenses

Why Do Businesses Perform the Following Functions? To produce and market goods and services (resulting in revenues) Buy materials and supplies Buy land, buildings, and equipment Pay employees Pay other operating expenses

How is the Revenue a Business Generates Used? Produce and market goods and services (resulting in revenues) Pay a return to owners Pay loans Pay taxes Continue business activity

Learning Objective 2 Identify the primary users of accounting information.

1.Analyze business event Describe The Accounting Cycle 2.Record, 3.Classify, and 4.Summarize transaction 5.Report summaries Balance sheet, Income statement, Statement of cash flows Account, amount, classification Investment, purchase, sale, or transaction

What are the Two Types of Reports from Accounting Information? Internal Reports (Management Accounting) External Reports (Financial Accounting) Management Lenders Investors Suppliers/Customers Employees Competitors Government Agencies The Press

What Are Accounting Reports Used For? Used by management for planning implementing plans controlling costs making decisions Used by external parties who have an economic interest in the firm. Balance sheet Income statement Statement of cash flows

Learning Objective 3 Describe the environment of accounting, including the effects of generally accepted accounting principles, international business, ethical considerations, and technology.

Accounting Environment Accountants follow generally accepted accounting principles (GAAP), which are authoritative guidelines that define accounting practice at a particular time. 1. Financial statements must be comparable and reliable. 2. External users need to understand the rules and assumptions used by companies when constructing financial statements.

What are the Standard-Setting Organizations in the United States? Congress Wanted to regulate U.S. stock exchanges. SEC Created to make sure investors are provided with full and fair information on publicly traded companies. FASB Publicly supported by SEC to set U.S. accounting standards for companies soliciting investment funds.

What is a CPA? CPA: Certified Public Accountant Has taken a minimum number of college-level accounting classes. Has passed the exam administered by the AICPA. Has met other requirements set by his/her state. AICPA: American Institute of Certified Public Accountants The national organization of CPAs in the U.S. Not a government agency.

Name Some Other Accounting Organizations AICPA: American Institute of Certified Public Accountants National organization of certified public accountants (CPAs) IMA: Institute of Management Accountants National organization of management accountants (CMAs) IRS: Internal Revenue Service Government agency--prescribes rules and regulates the collection of tax revenues in the U.S. SEC: Securities and Exchange Commission Created by Congress to regulate U.S. stock exchanges. IASC: International Accounting Standards Committee Formed to develop worldwide accounting standards.

The Code of Professional Conduct. Adopted by the AICPA. Holds to what three key principles? Integrity Objectivity Independence Ethics in Accounting Members are subjectto disciplinary action.

What are Three Advantages of Technology? Allows companies to easily gather vast amounts of information about individual transactions. Allows large amounts of data to be compiled quickly and accurately, significantly reducing error. Creditors and investors can receive and process large amounts of data.

Why Doesn’t Technology Replace People? Because technology does not replace judgment. People must still analyze situations and input results. People must still analyze output.

Learning Objective 4 Analyze the reasons for studying accounting.

Why Study Accounting? Everyone makes financial decisions. What types of decisions? Budgeting Investing Buying vs. leasing Financing

Accounting Opportunities Industry Government or Nonprofit Graduate Education Public Accounting Auditor Tax Consultant Management Advisory Services Consultant Controller Internal Auditor Financial Executive Government Agencies: GAO, IRS, FBI State and Local Agencies Hospitals, Schools, Nonprofit Organizations J.D. (Law) Ph.D. M.Acc. MBA

The End of Chapter One