ACCOUNTING AS THE BASIS FOR MANAGEMENT DECISIONS CHAPTER 1 ACCOUNTING AS THE BASIS FOR MANAGEMENT DECISIONS 1-1

Outline What is Accounting? Users of Accounting Information Types of Accounting Organizations Business Transactions Forms of Legal Organization Accounting as an Information System Financial Statements – Output of the Accounting System

The language of business What is Accounting? A system for collecting, summarizing, analyzing, and reporting information about an organization………. in monetary terms. The language of business

ACCOUNTING COLLECTING SYSTEM SUMMARIZING ANALYZING REPORTING MONETARY TERMS INFORMATION ORGANIZATION

Users of Accounting Information OTHER USERS CREDITORS INVESTORS EMPLOYEES OWNERS GOVERNMENT UNIONS FOCUS ON MANAGEMENT MAIN USER OF ACCOUNTING INFORMATION

Types of Accounting Financial Accounting Managerial EXTERNAL USES OF ACCOUNTING INFORMATION (financial statement creation) Financial Accounting Managerial INTERNAL USES OF ACCOUNTING INFORMATION (budgeting, performance control) Both rely upon the accounting system

Organizations Distinct Entities A person or persons with stated purposes Operating in an environment by interacting with other organizations Each gear is a distinct entity, but they work together.

Business Transactions Interaction between organizations Quid Pro Quos Equal Exchange of values Values Received Equal Values Given Services = Payment

Forms of Legal Organization Sole Proprietorships Partnerships Corporations

Forms of Legal Organization : Sole Proprietorships One owner No sharing of profits Simple to set up Questions of taxation Limited life Unlimited liability

Forms of Legal Organization : Partnerships Easy to set up Combination of capital and experience Questions of taxation Limited life Unlimited liability Mutual agency P

Forms of Legal Organization: Corporations Expensive to set up Limited liability Unlimited life Easy to transfer ownership Access to capital for expansion Double taxation More government control

Accounting as an Information System INPUT ---- PROCESS ---- OUTPUT SOURCE ACCOUNTING INFORMATION DOCUMENTS CYCLE TO MANAGEMENT Financial Statements

Financial Statements-Output of the Accounting System Source Document Process Output Balance Sheet Income Statement Statement of Cash Flow