Accounting Information:

1
Chapter 1 Accounting Information Users and Uses
2
Accounting system

• Uses of accounting system
• Analyze transactions
• Handle book keeping
• Structure information to evaluate performance
• Characteristics of accounting information
• Quantitative information
• Financial in nature
• Useful for making economic decisions

3
The Four Steps of the Decision-making Process

• Making good decisions is critical for survival of
  a business
• Steps in the decision-making process
• Identify the issue
• Gather information
• Identify alternatives
• Select the alternative that will most likely
  result in the desired objective
• Accounting plays a critical role in the
  decision-making process

4
Business Activities

• Sources of capital
• Investments by owners
• Loans from creditors
• Plus business earnings retained
• Uses of capital
• Buy assets (land, buildings, equipment)
• Purchase material and supplies

5
Business Activities

• Conduct operations produce, sell products and
  services
• Receive monetary resources from selling products
  and services
• Use monetary resources to
• Pay loans
• Pay a return to owners
• Pay wages and other operating expenses
• Pay taxes
• Continue business activity (buy materials,
  produce, sell products, pay wages)

6
The accounting cycle

• Analyze transactions sale? purchase?
  Investment?
• Record amounts
• Classify and summarize transactions
• Prepare summary reports
• Income statement
• Balance sheet
• Statement of cash flows

7
Users of accounting information

• Reports for internal users management
• Budgets, cost analyses, divisional performance
  reports
• Reports for external users investors,
  creditors, suppliers, customers, employees,
  government agencies
• Balance sheet
• Income statement
• Statement of cash flows
• SEC registration statements
• Corporate tax returns

8
Accounting Environment

• Accountants follow generally accepted accounting
  principles (GAAP), which are authoritative
  guidelines that define accounting practice at a
  particular time.

Financial statements must be comparable and
reliable. External users need to understand
the rules and assumptions used by companies when
constructing financial statements.
9
The environment of accounting

• The Financial Accounting Standards Board (FASB)
• Securities and Exchange Commission (SEC)
• Internal Revenue Service (IRS)
• American Institute of Certified Public
  Accountants (AICPA)
• Other issues
• International Accounting
• Ethics in Accounting
• Technology

10
Ethics in Accounting

• The Code of Professional Conduct adopted by the
  AICPA.
• Members adhere to three key principles
• Integrity
• Objectivity
• Independence
• Members are subject to disciplinary action if
  found to be in violation of principles