Module 1 Slides.pptx - Module 1 Accounting The overall...

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Module 1
The overall objective ofaccountingis to provide informationthat can be used in making economic decisions.Accountingis a service activity. Its function is to providequantitative information, primarily financial in nature, about economicentities that is intended to be useful in making economic decisions—in making reasoned choices among alternative courses of action.”Statement of the Accounting Principles Board No. 4, par. 40.Accounting
Accounting information is used in makingdecisions about how to allocate scarceresources.Although accountants place much emphasison reporting what has already occurred, thispast information is intended to be useful inmaking economic decisions about the future.Key features in this definition of accounting:Definition of Accounting
USERS OF ACCOUNTINGINFORMATIONStakeholdersare all parties interestedin the financial health of a company.Internal usersare stakeholders whomake decisions that directly affect theinternal operations of the enterprise.External usersare stakeholders whomake decisions concerning theirrelationship to the enterprise.
Users of Accounting Information1.Management accountingis concerned primarily withfinancial reporting for internal users, especiallymanagement.2.Financial accountingfocuses on the developmentand communication of financial information forexternal users.Helps users in determining whether a company’soperations are profitable enough to justifyadditional funding.Helps users in determining how risky a company’soperations are in order to determine what rate ofreturn is necessary to compensate capitalproviders for the investment risk.
FINANCIAL VS. MANAGERIALACCOUNTINGFinancialAccountingManagerialAccountingUsersExternal andInternalInternalAccountingStandardsUS GAAP or IFRSFlexibleType of informationGeneral, overallhealth of thecompanyProduct costing,projectmanagement,decision makingFrequencyAnnual andquarterlyAs needed
information about theCreditorsneedinformation about theprofitability andstability of thecompany to decidewhether to lendmoney to thecompany and, if so,what interest rate tocharge.Investors(both existingstockholders and potentialinvestors) need informationconcerning the safety andprofitability of their investment.External Investors
What is the difference betweenstockholders and stakeholders? Dotheir interests align well? Whoseinterests are more important?Moment of Reflection:Definitions
RegulatoryBodies
Global Accounting StandardsU.S.CongressIRSSECPCAOBFAFFASBU.S.GAAPGASBAICPAAAAIASBIFRSConverge?
The FASBTheFinancial Accounting StandardsBoard (FASB)is the private sector bodythat sets accounting standards in theUnited States(commonly referred to asgenerally accepted accountingprinciples (GAAP)).

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