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Accounting: The Language of Business

What Is Accounting? Section Objectives 1.Define accounting. 2.Identify and discuss career opportunities in accounting. 3.Identify the users of financial information.

The Need for Financial Information Page 4

In running a business, you need answers to questions. $ How much cash does the business have? $ How much money do customers owe? $ What is the cost of the merchandise sold? $ What is the change in sales volume? $ How much money is owed suppliers? $ What is the profit or loss? Page 4

Accounting Defined Page 4

Objective 1 Define accounting. Page 4

QUESTION: What is accounting? recorded,classified,summarized, interpreted,and communicated to owners, managers, and other interested parties. ANSWER: Accounting is the process by which financial information about a business is Page 4

$341 $1,635 $90 $288 $6,134 $73 $6,293 Financial Information is recorded. $416 Page 4

$ 341 1, ,134 $ , classified. Financial Information is Page 4

$ 341 1, ,134 $ , $8,200$7,070 summarized. Financial Information is Page 4

interpreted. Financial Information is What does this mean? $ 8,200 This is what is OWNED. $ 7,070 This is what is OWED. Page 4

interpreted. Financial Information is OR... $ 8,200 This is the amount of expenses. $ 7,070 This is the amount of income. Page 4

interpreted. Financial Information is OR... $ 8,200 This is the amount you deposited in the bank. $ 7,070 This is the amount you withdrew from the bank. Page 4

Financial Information is communicated. Financial Statements Page 4 Owners Managers Other interested parties

Financial statements are periodic reports of a firm’s financial position or operating results. ANSWER: QUESTION: What are financial statements? Page 4

Accounting Careers Page 5

Objective 2 Identify and discuss career opportunities in accounting. Page 5

$ Accounting Clerk Many jobs are available in the accounting profession. Some examples are: $$ Bookkeeper $$$ Accountant Page 5

Accounting Clerk Usually requires one to two accounting courses Generally requires little or no experience Page 5

Bookkeeper Usually requires one to two years of accounting education Generally requires experience as an accounting clerk Page 5

Accountant Usually requires a bachelor’s degree Most entry-level positions do not require experience. Page 5

Public accounting Managerial accounting Governmental accounting Accountants work in one of these areas: Page 5

Public Accounting Page 5

Auditing Page 5 Public accounting firms provide services such as: April 15th Tax accounting Management advisory services

QUESTION: What is a certified public accountant? ANSWER: A certified public accountant, or CPA, is an independent accountant who provides accounting services to the public for a fee. Page 5

Managerial Accounting Page 6

QUESTION: What is managerial accounting? Managerial accounting is accounting work carried on by an accountant employed by a single business in industry. ANSWER: Page 6

Managerial Accounting, or private accounting, involves working for a single business to: Page 6 Establish accounting policies Manage the accounting system Prepare and interpret financial statements Prepare tax forms and do tax planning Prepare internal reports for management

Page 6 Governmental Accounting

Page 6 QUESTION: What is governmental accounting? Governmental accounting is accounting work performed for a federal, state, or local governmental unit. ANSWER:

Securities and Exchange Commission (SEC) Internal Revenue Service (IRS) Federal Bureau of Investigation (FBI) Page 6 Governmental accounting involves keeping financial records and preparing financial reports as part of the staff of federal, state, or local governmental units, such as:

Users of Financial Information Page 6

Objective 3 Identify the users of financial information. Page 6

8 Inside The BusinessOutside The Business

Assess the firm’s ability to pay its bills Set a credit limit for the firm Suppliers Use financial information to: Page 6

Banks Use financial information to: Decide whether to make a loan Determine the terms of the loan Page 7

Tax Authorities Use financial information to determine the tax base for: Page 7 Income taxes Sales taxes Property taxes

Regulatory Agencies and Investors Page 7 The Securities and Exchange Commission (SEC) is the federal agency that oversees the financial information of public corporations. Public corporations are those whose stock is traded on stock exchanges and over-the- counter markets.

Customers Use financial information to: Determine the economic health of the business Determine the likelihood that the firm will remain in business to provide parts, service, and support Page 7

Negotiate wages and benefits Monitor profit- sharing plans Employees and Unions Use financial information to: Page 8

REVIEWREVIEW Financial statements are periodic reports of a firm’s financial ________ or _________ results. Complete the following sentences: positionoperating Accounting is the process by which financial information about business is _________ classified, ___________ interpreted and communicated to interested parties. recorded,summarized, Accountants usually practice in public accounting, ___________ accounting, or governmental accounting. managerial

REVIEWREVIEW CPA stands for ___________ ___________ ___________. The review of financial statements to assess their fairness and adherence to generally accepted accounting principles is called __________. auditing Complete the following sentences: certifiedpublic accountant SEC stands for _________ ___ ________ ____________. Securities and Exchange Commission

Thank You for using College Accounting, Tenth Edition Price Haddock Brock