Accounting Info: Users & Uses
1.1 What is the Purpose of Accounting?
Bookkeeping
● Is the preservation of a systematic, quantitative record of
an activity.
● Rudimentary bookkeeping is ancient
● Double-entry bookkeeping was developed in the 1300s-
1400s in Italy.
● Bookkeeping is not just to keep track of things, but to
evaluate the performance and health of the business.
Accounting System
● The procedures and process used by a business to analyze
transactions, handle routine bookkeeping tasks, and
structure information so it can be used to evaluate the
performance and health of the business.
Functions of an Accounting System
● Analyze business events to determine if the information
should be captured by the accounting system.
● Day-to-day keeping track of transactions
● Use summary information to evaluate the financial health
and performance of the business.
Accounting
● Language of business
● A system for providing quantitative, financial information
about economic entities that is useful for making sound
economic decisions.
● Provides the means of recording and communicating
business activities and the results of those activities.
● Designed to accumulate, measure and communicate
financial information about businesses and other
organizations
● Provides information for making informed decisions about
how to best use available resources.
Accounting VS Bookkeeping
Accounting Bookkeeping
● Involves the analysis of ● It is a component of
transactions/activities accounting
● Has a broader concept ● Is routine recording
which includes providing process subsequent to
information for decision transaction analysis
making and can affect ● Relates only to the
economic consequences. recording of transactions
The Decision-Making Process
1. Identify the issue
2. Gather information
3. Identify alternatives
4. Select the option that will most likely result in the desired
objective.
Business
● An organization operated with the objective of making
profit from the sale of goods or services.
● General term applied to the activities involved in the
production and distribution of goods and services.
Non-profit Organization
● An entity without a profit objective, oriented toward
providing services efficiently and effectively.
Accounting Cycle
● The procedure for analyzing, recording, classifying,
summarizing, and reporting the transactions of a business.
1.2 Who uses Accounting Information?
Management Accounting
● The accounting concerned with providing internal financial
reports to assist management in making decisions.
Annual Report
● A document that summarizes the results of operations and
financial status of a company for the past year and outlines
future plans.
Financial Statements
● Reports such as the balance sheet, the statement of
comprehensive income, the statements of changes in
equity, and the statement of cash flows, which summarize
the financial status and results of operations of a business
entity.
● Are used by interested external parties such as investors,
creditors, supplies, customers, competitors, and the
government, and the press.
Financial Accounting
● The area of accounting concerned with reporting financial
information to interested parties.
● Provides information to meet the needs of external users.
4 Financial statements
The Balance Sheet
● Reports the resources of a company, the company's
obligations, and the owners' equity, which represents the
difference between what is owned and what is owed
The Statement of Comprehensive Income
● Reports the amount of net income and the amount of other
comprehensive income of a company during a period.
The Statement of Changes in Equity
● Reports the amount of each of the following items that
result in changes in equity during a period of time period:
net income, other comprehensive income, owners' capital
contribution, and dividend distribution to the owners.
The Statement of Cash Flows
● Reports the amount of cash collected and paid out by a
company in the following three types of activity: operating,
investing, and financing.
Examples of users of information contained by the four
financial statements
1. Lenders
● Uses this four financial statements to determine if the
business has the capability to pay the principal amount and
the interest in the long run.
2. Investors
● Uses this information, for them to know how much they will
gain from a certain company if they invest in it.
3. Management
● They use the information in order to pinpoint areas of
weakness about which more detailed management
accounting information can be sought.
1.3 Within what kind of environment does
Accounting Operate?
Generally Accepted Accounting Principles (GAAP)
● Authoritative guidelines that define accounting practice at a
particular time.
Accounting Research and Development Foundation
● An organization that is aimed at setting accounting,
auditing, and valuation standards in Taiwan.
International Accounting Standards Board (IASB)
● An organization formed to develop worldwide accounting
standards.
International Financial Reporting Standards (IFRS)
● A general term that describes an international set of
generally accepted accounting standards.
● Issued by IASB
Financial Accounting Standards Board (FASB)
● The private organization responsible for establishing the
standards for financial accounting and reporting in the
United States.
Securities and Exchange Commission (SEC)
● The government body responsible for regulating the
financial reporting practices of most publicly owned
corporations in connection with the buying and selling of
stocks and bonds.
Certified Public Accounting (CPA)
● A special designation given to a accountant who has passed
a national uniform examination and has met other
certifying requirements
American Institute of Certified Public Accountants
(AICPA)
● The national organization of CPAs in the United States.
Internal Revenue Service (IRS)
● A government agency that prescribes the rules and
regulations that govern the collection of tax revenues in the
United States.
