Accounting: The Universal Language of Business

Accounting System Accounting System: Designed to collect, document and report on financial transactions affecting a business. Two types: Manual Accounting System: Processed by hand Computerized Accounting System: Processed by entering information into a computer

Accounting System How it Works INPUTS PROCESSING OUTPUTS Source Documents Checks Invoices Sales Slips Receipts Task Analyzing Classifying Recording Financial and Management Accounting Reports Financial conditions Results of operations Investments by and distributions to owners Accountants report the results of operations and the financial conditions of the business in which people invest

Generally Accepted Accounting Principles (GAAP) A set of rules followed by accountants to prepare financial statements These rules are issued by the Financial Accounting Standards Board (FASB)

User Groups Two groups Internal users (People inside the organization) External users (People outside the organization who have interest in the business)

Accounting Types Financial Accounting Managerial Accounting

Financial Accounting Reports Used by external users Who are external users Investors Banks and lending institutions Governments Labor Unions Competitors

Managerial Accounting Reports Used by internal users Who are internal users Managers

Accounting Assumption Taking for granted that something is true Based on three key assumptions Business Entity: Business is a separate entity and operates independently of a persons holdings 2) Accounting Period: A time frame covered by an accounting report 3) Going Concern: The assumption that a business possesses survivability indefinitely