Accounting and the Business Environment Chapter 1

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

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

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

Decision Makers Individuals Businesses Investors Creditors Taxing Authorities

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

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.

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

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

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.

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

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

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.

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.

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

D) Professional Organizations GAAP: Generally accepted accounting principles are the ground rules for financial reporting. - 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)

E) Ethics Audit Sarbanes-Oxley Act 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

F) Careers in Accounting Public Accounting Management Accounting Governmental Accounting Accounting Education Bank Accounting

End of Chapter 1 End of chapter 2.