Accounting: The Universal Language of Business The Accounting System

Accounting System Accounting Systems - designed to collect, document, and report on financial transactions affecting business. Manual Accounting System – processed by hand. Computerized System – financial information is recorded by entering it into a computer. Owners and investors who risk their money depend on the financial condition of the businesses in which they invest.

Accounting System GAAP (Generally Accepted Accounting Principles) – all accountants use the same set of rules to prepare financial reports. The Financial Accounting Standards Board (FASB) issue these rules. Financial Reports – summarized information about the financial status of a business. Language of Business – because it is so fundamental to the communication of financial information, accounting is often called the “language of business.

Who Uses Accounting Reports? Informed Decisions Individuals outside the business who have an interest in the business. Individuals inside the business.

Accounting Reports Financial Accounting - focuses on reporting information to external users. Management Accounting (Managerial Accounting) - focuses on reporting information to management, often referred to as accounting for internal users of accounting information. - Describe a few situations in which individuals might use financial and management accounting reports.

Accounting Assumptions Business Entity - The business exists independently of its owner’s personal holdings. For accounting purposes businesses are separate entities from their owners. Accounting Period – A period of time covered by an accounting report. Going Concern – Although many businesses fail within the first five years, the accountant assumes the business will continue to operate unless it is clear that it cannot survive.