0 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Chapter 2, Section 2 Accounting: The Universal Language of Business What Do You Think? What kinds of financial decisions do you make? What information do you use to make decisions?

1 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Main Idea The accounting system produces information used to make decisions. You Will Learn  how the accounting system works.  how decision makers use accounting reports.  three important accounting assumptions. Accounting: The Universal Language of Business SECTION 2.2

2 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms  accounting system  manual accounting system  computerized accounting system  GAAP  financial reports  financial accounting  management accounting  business entity  accounting period  going concern Accounting: The Universal Language of Business SECTION 2.2

3 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. The Accounting System The accounting system is designed to collect, document, and report on financial transactions. There are two types of accounting systems:  manual accounting system  computerized accounting system Accountants must follow GAAP rules issued by the Financial Accounting Standards Board (FASB). Financial reports contain a summary of the financial status of a business. Accounting: The Universal Language of Business SECTION 2.2

4 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Using Accounting Reports for Making Business Decisions Accounting provides financial information about a business or organization. There are two groups that use accounting reports:  individuals outside the business who have an interest in the business  individuals inside the business Accounting: The Universal Language of Business SECTION 2.2

5 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Financial Accounting In financial accounting, reports are prepared for individuals outside the business. Those interested in the financial accounting reports of a business include  investors,  the local, state, and federal government, and  employees, consumers, and competitors. Accounting: The Universal Language of Business SECTION 2.2

6 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Management Accounting In management accounting, reports are prepared for managers inside the business. Financial accounting reports help a manager decide:  what to do,  how to do it,  when to do it, and  whether or not the results match the plans for the future. Accounting: The Universal Language of Business SECTION 2.2

7 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Accounting Assumptions As mentioned before, all businesses follow GAAP, which includes three assumptions:  A business is a business entity, separate from its owner’s personal holdings.  There is a set accounting period.  A business is expected to continue as a going concern, able to survive and operate indefinitely. Accounting: The Universal Language of Business SECTION 2.2

8 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  accounting system A system designed to collect, document, and report on business transactions.  manual accounting system A type of accounting system in which information is processed by hand.  computerized accounting system A type of accounting system in which information is recorded by entering it into a computer. Accounting: The Universal Language of Business SECTION 2.2

9 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  GAAP The set of rules that all accountants use to prepare financial reports.  financial reports Documents that present summarized information about the financial status of a business.  financial accounting The type of accounting that focuses on reporting information to external users. Accounting: The Universal Language of Business SECTION 2.2

10 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  management accounting The type of accounting that focuses on reporting information to management; often referred to as accounting for internal users of accounting information.  business entity The accounting assumption that a business exists independently of its owner’s personal holdings. The accounting records and reports are maintained separately and contain financial information related only to the business. Accounting: The Universal Language of Business SECTION 2.2

11 Glencoe Accounting Unit 1 Chapter 2 Copyright © by The McGraw-Hill Companies, Inc. All rights reserved. Key Terms Review  accounting period The period of time covered by an accounting report.  going concern The accounting assumption that a business is expected to operate indefinitely. Accounting: The Universal Language of Business SECTION 2.2