* * Chapter Seventeen Understanding Accounting and Financial Information Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

* * Accounting -- Recording, classifying, summarizing and interpreting of financial events and transactions in an organization to provide interested parties needed financial information. Outside parties - like employees, owners, creditors, unions, investors and the government - make use of a firm’s accounting information. WHAT’S ACCOUNTING? What is Accounting? LG1 17-2

* * The ACCOUNTING SYSTEM What is Accounting? LG1 17-3

ACCOUNTING DISCIPLINES Managerial Accounting For managers inside the organization Assist them in decision making Measuring and Reporting cost of production, marketing and etc Preparing budgets, controlling Designing strategies to minimize taxes CMA Financial Accounting For People outside the organization Information goes out to creditors, government agencies and general public, employee unions, customers, suppliers Annual Report Private and Public Accountant, CPA

* Bookkeeping -- The recording of business transactions. Journal-- Bookkeepers divide a firm’s transactions into meaningful categories and post them FIRST into a record book or computer program called a journal. Double-Entry Bookkeeping -- Bookkeepers record all transactions in two places so they can check one list of transactions against the other for accuracy. Ledger: Accounting book where information from accounting journals are transferred into specific categories and posted Trial Balance: A summary of financial data in the account ledger that ensures the figures are correct and balanced ACCOUNTING TERMS 17-5

* * Accounting Cycle -- A six-step procedure that results in the preparation and analysis of the major financial statements. The ACCOUNTING CYCLE The Accounting Cycle LG3 17-7

* * Financial Statement -- A summary of all the financial transactions that have occurred over a particular period. FINANCIAL STATEMENTS Understanding Key Financial Statements LG3 Key financial statements of business are:  Balance sheet  Income statement  Statement of cash flows 17-8

* * Fundamental Accounting Equation -- The basis for the balance sheet. The equation must always be balanced and includes the formula: o Assets = Liabilities + Owners Equity The FUNDAMENTAL ACCOUNTING EQUATION The Fundamental Accounting Equation LG4 17-9

Classifying Assets and Liabilities Assets: Fixed Asset Current Asset Intangible Asset Liabilities: Current Liability Long-term Liability