McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. Accounting and the Business Environment Chapter 1

2 - 2 is an information system that... measures business activities, processes information, and... communicates financial information to decision makers A) ACCOUNTING...

2 - 3 is called the language of business. Accounting... € is a means to an end.

2-4 Accounting Information The Accounting Process Decision Makers Economic Activities Actions (decisions) Accounting links decision makers with economic activities and with the results of their decisions. Reported Results of Actions (decisions)

2-5 Decision Makers Individuals Businesses Investors Creditors Taxing Authorities

2-6 B) TYPES of ACCOUNTING INFORMATION & ITS USERS Financial Management Tax

2-7 1)Financial Accounting Information Provides information about the financial resources, obligations, and activities of an enterprise that is intended for use primarily by external decision makers - investors and creditors in deciding where to place their scarce investment resources.

2-8 External Users of Accounting Information Owners Creditors Potential investors Labor unions Governmental agencies Suppliers Customers Trade associations General public

2-9 Objectives of External Financial Reporting The primary financial statements. Balance Sheet Statement of Cash Flows Income Statement

2-10 2)Management Accounting Information Management (or managerial) accounting involves the development and interpretation of accounting information intended specifically to assist management in operating the business. A company’s managers and employees constantly need information to run and control daily business operations. Much management accounting information is financial in nature but is organized in a manner relating directly to the decision at hand.

2-11 Internal Users of Accounting Information Board of directors Chief executive officer (CEO) Chief financial officer (CFO) Vice presidents Business unit managers Plant managers Store managers Line supervisors

2-12 Objectives of Management Accounting Information To help achieve goals and missions To help evaluate and reward decision makers

2-13 3) Tax Accounting Information Tax accounting is a specialized field within accounting and focuses on the preparation of income tax returns and tax planning strategies.

2-14 C) ACCOUNTING SYSTEMS An accounting system consists of the personnel, procedures, technology, and records used by an organization to develop accounting information and to communicate this information to decision makers.

2-15 Basic Functions of an Accounting System Summarize and communicate information to decision makers. Classify similar transactions into useful reports. Interpret and record business transactions.

2-16 D) Professional Organizations - Financial Accounting Standards Board (FASB) - The Securities and Exchange Commission (SEC) -American Institute of Certified Public Accountants -Institute of Management Accountants -Insstitute of Internal Auditors -American Accounting Association -Committee of Sponsoring Organizations of the Treadway Commission (COSO) -Association of Charter Certified Accountants (ACCA) GAAP: Generally accepted accounting principles are the ground rules for financial reporting.

2-17 E) Ethics Audit ◦ Examination of company’s financial situation ◦ Performed by independent accountants Sarbanes-Oxley Act ◦ Criminal offense to falsify financial statements Public Companies Accounting Oversight Board ◦ Monitors work of accountants

2-18 F) Careers in Accounting Public Accounting Management Accounting Governmental Accounting Accounting Education Bank Accounting

2-19 End of Chapter 1