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CHAPTER F1: ACCOUNTING AND ORGANIZATIONS I. Information for Decisions A. The proper use of good information usually results in better decisions. 1. Information includes facts, ideas, and concepts that help us to understand the world. 2. Maps provide information that helps travelers decide where they are, how they got there, and where they are going. See Exhibit 1 . B. Accounting information helps decision makers determine where they are, where they have been, and where they are going. 1. Currency is the primary measurement unit used in accounting information. In the U.S. accounting measures the activities of a business by the dollars it receives and spends. 2. Profit is the amount left over after the cost of doing business is subtracted from the amount sold. Exhibit 2 provides an illustration of the expected earnings from Mom’s Cookie Company. 3. Risk is uncertainty about an outcome. Investing in a business is always risky. C. The purpose of accounting is to help people make decisions about economic activities 1. Stakeholders include those who have an economic interest in an organization and are affected by its activities 2. Organizations are groups of people working together to develop, produce, and distribute goods and services II. The Purpose of Organizations A. Organizations differ as to the types of goods or services they offer (Exhibit 3 ). 1. Organizations include merchandising (or retail), manufacturing, and service companies. a. Merchandising (or retail) companies sell to consumers goods that are produced by other companies b. Manufacturing companies produce goods that they sell to consumers, to merchandising companies, or to other manufacturing companies. c. Service companies sell services rather than goods.
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2. Organizations that sell their goods and services to make a profit are business organizations. 3. Nonbusiness organizations (governmental and nonprofit organizations) provide goods or services without the intent of making a profit. 4. B. Transformation of Resources 1. A common purpose of organizations is to transform resources from one form to a different, more valuable form to meet the needs of people. 2. The transformation process combines resources to create goods and services (Exhibit 4 ). The transformation creates value because people are better off after the transformation than before. 3. A major purpose of accounting information is to help decide how to get the most value from scarce resources. C.
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This note was uploaded on 05/12/2008 for the course ACCT 2101 taught by Professor Woods during the Spring '08 term at Middle Georgia State College.

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