1. 1 Learning Objectives After studying the material in this chapter you will be able to do the following: LO1 Define accounting and explain why its important. LO2Describe the accounting environment and understand that the accounting information an entity presents is affected by the accounting environment. LO3 Discuss how the interests of the people that prepare accounting information can conflict with the interests of those who use it. Copyright © 2013 McGraw-Hill Ryerson Limited

2. 2 What is Accounting? Accounting is a system for producing information about an entity and communicating that information to people who want or need the information for making decisions LO1 Copyright © 2013 McGraw-Hill Ryerson Limited

3. 3 Accounting Process The Accounting System LO1 Copyright © 2013 McGraw-Hill Ryerson Limited

4. 4 Decisions that Rely on Accounting Information Whether or not to buy a business and how much to pay Calculate the amount of tax to pay Evaluate whether to lend to a prospective borrower, and terms Evaluate whether or not to expand a business LO1 Copyright © 2013 McGraw-Hill Ryerson Limited

5. 5 Decisions that Rely on Accounting Information Evaluate how well managers have managed a business Assess how well a business has performed Decide whether or not to make a major purchase Assess whether to make a product or to purchase it from an outside supplier, i.e., “make or buy” LO1 Copyright © 2013 McGraw-Hill Ryerson Limited

6. 6 Two Fields of Accounting Financial accounting ▫Aimed at external users Managerial accounting ▫Aimed at internal users LO1 Copyright © 2013 McGraw-Hill Ryerson Limited

7. 7 Financial Accounting Used for investment decisions Follows conventional practices Offers some consistency to users LO1 Copyright © 2013 McGraw-Hill Ryerson Limited

8. 8 Managerial Accounting Used for internal decision making ▫Pricing of products ▫Expansion plans ▫Production decisions Rules are set by company ▫No conventions to follow LO1 Copyright © 2013 McGraw-Hill Ryerson Limited

9. 9 Why does Accounting matter? Accounting matters because it is information, that when it used it has economic consequences It can impact decisions! Copyright © 2013 McGraw-Hill Ryerson Limited LO1

10. 10 Need for Accounting More information leads to better decisions Information that is reliable and relevant to user needs Cannot gather all information Cost/benefit off of gathering information Must avoid information overload LO1 Copyright © 2013 McGraw-Hill Ryerson Limited