Ch. 1: What Is Accounting? Flashcards
Accounting consists of 3 basic activities:
—————-
—————-
—————-
the economic (financial in nature) events of an organization to interested users.
- identifies
- records, and
- communicates
What is a transaction?
It is an exchange between 2 parties.
Sometimes the parties can be internal, such as within the company itself. Or external.
Explain how accounting is identified, recorded, communicated.
- identified: For example, Walmart sells a pair of shoes.
- Recorded:Keeping a chronological log of transactions, such as receipts.
- Communicated: Prepare, analyze, and interpret reports such as financial statements to help users make decisions.
Accounting is an information and measurement ———- that ———, —————, and ————— an organization’s business activities to users.
System
Identifies
Records
Communicates
Why is accounting called the [language of business]?
Because all organizations set up an accounting information system to communicate data to help people make better decisions.
Accounting is important because…
- As long as you properly prepare an income statement or a balance sheet, I can read what is going on in your company.
- So The only way people with money can fund ideas for people Who don’t have money is through properly preparing accounting reports.
Accounting serves many users who can be divided into two groups:
- external users (outside the company)
- internal users (inside the company)
Examples of external users are:
- **lenders
- **shareholders
- external auditors
- board of directors
- regulators, such as government agencies.
When we are preparing accounting information, we are targeting mainly lenders and shareholders. Why?
-because lenders lend you money.
-because shareholders invest money.
Both of these groups provide capital. Without capital providers, a business cannot survive. 
——- ———- ———- are prepared for external users.
Financial Accounting Reports.
The discipline of external users is called financial accounting.
Examples of internal users are:
- research and development managers
- purchasing managers
- Human Resource managers
- marketing managers
- production managers
The discipline is called /The reports you prepare for internal users is called:
Managerial Accounting/Managerial Accounting Reports
For example, R&D managers would like to know how much money they can get from the annual budget to develop a new product. What report will help them do that?
Managerial Accounting Reports. Internal users can use these reports to make better decisions.
Identify the following question as most likely to be asked by an internal (I) or external (E) user of accounting information: which inventory items are out of stock?
Internal
Identify the following question as most likely to be asked by an internal (I) or external (E) user of accounting information: Should we make a five year loan to the business?
Bankers and lenders lend money to businesses. External.
