Summary
The purpose and importance of accounting in the information ageWe live in the information age, where that information and its reliable impact s the financial well-being of us all
Accounting is an information and measurement system that identifies record s and communicates relevant and comparable information about an organization’s busine activities.
Users and users of accounting
Accounting is often called the language of busine because all organization s set up an accounting information system to communicate data to make people make better decision .the accounting system serves many kinds of users ,who can be divided in two groups ;external users and internal users
External users of accounting information are not directly involved in running the organization .they include shareholders lenders directors ,customers suppliers ,regulators lawyer ,brokers ,and pre .external users have limited acce to an organization information .yet their busine decision depend on informationthat is reliable ,relevant and comparable .internal users of accounting information are those directly involved in managing and operating an organization .they use the information to help improve the efficiency and effectivene of an organization .they are several types of internal users
and many are managersof key operating activities.
Opportunities in accounting and relevant fields
Accounting information affects many aspects of our lives .when we earn money ,pay taxes ,invest savings ,budget earnings ,and plane for future ,we are influenced by accounting .accounting has four board areas of opportunities : financial ,managerial ,taxation and accounting –related why ethics are crucial to accounting
The goal of accounting is to provide useful information for decision .for informationto be useful, it should be trusted .this demand ethics in accounting .ethics are beliefs that distinguish right form wrong .they are accepted standards of bad and good behavior
Generally accepted accounting principle
Generally accepted accounting principle are a common set of standards unapplied by accountants.
Generally principles consist of four basic principles and four aumptions .the cost principle means that the accounting information is based on actual cost .the revenue recognition principle provides guidance on when a company must recognize revenue .the matching principle prescribes that a company must record its expenses incurred to generate the revenue reported .the full disclosure principles requires a company to report the details report financial statements that would impacts users decisions .the going –concern aumption means accounting information
reflects a presumption that the busine will continue operating instead of being closed or sold .the monetary unite aumption means that we can expre transactions and events in monetary ,or money ,unit .The time period aumption presumes that the life of a company can be divided into time periods such as months and years and that useful reports can be prepared for those period .the busine entity aumption means that a busine is accounted for separately from other busine entity ,including its owner
A busine entity can take one of three legal forms: proprietorship, partnership, or corporation .a sole proprietorship is a busine owned by one person .a partnership is a busine owned by two or more people called partners.A corporation is a busine legally separate form its owner, meaning it is responsible for its own acts and its owner debts.Accounting equity
Aets =liabilities +equity
The term in this equation can be rearranged, for example
Aets –liabilities =equity aets are resources with future benefits owned or controlled by a company.
Liabilities are what a company owned it’s nonowners in future payments, products, or serves .these claims reflects company obligation to provide aets, products, or severs to others
Equity refers to the claims of its owner .equity is equal to aets minus
liabilities .this is the reason equity is also called net aets or residual equity
Transactionanalysis
Busine activities can be described in terms of, transactions and events.External transactions are exchanges of value between two entities, which yield changes in the accounting equation.external transactions are exchanges within an entity ,they can also effect the accounting equation .an example is a company’s use of it’s supply ,which are reported as expenses when used .events refer to happening that affect an entity’s accounting equation and can be reliable measured .they include busine events such asfloods and fires that destroy aets and create loes .they don’t include ,for example ,the signing of service or product contracts ,which by themselves do not impact the accounting equationFinancial statements
Income statement –describes a company’s revenues and expenses with the resulting net income or lo over a period of time due to earning activities.
Statement of owner’s equity –explain changes in equity from income net and from any owner investments and withdrawals over a period of time.Balance sheet –describes a company’s financial position (type and amounts of aets, liabilities and equity)
Statements of cash flow –indentifies cash inflows (receipts) and cash
outflows (payments) over a period of time
