Ch 1, 2, 6 Notes.docx - Chapter 1 The Accounting...

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Chapter 1 The Accounting Environment Accounting is called the language of business. An accounting systems of a profit- seeking business is an information system designed to provide relevant financial information on the resources of a business and the effects of their use. Accounting : the process of identifying, measuring, and communicating economic information to permit informed judgements and decisions by the users of the information. It is a measurement and communication processes used to report on the activities of businesses. Accounting info is valuable because it allows decision makers to evaluate the financial consequences of various alternatives. Accountants can reduce uncertainty Bookkeeping : mechanical process that records the routine economic activities of a business. Public Accounting Firms : offer professional accounting and related services for a fee to companies and individuals. One tier states require candidates to meet all requirements before being granted CPA certificate and license to practice Two tier states issue CPA certificate immediately after they pass the exam but issue license to practice after all other requirements are met. Tax service CPA’s : provide expert advice on tax planning and preparing tax returns There are two types of accounting; financial and managerial. Financial accounting is for those outside of the business and managerial accounting is for those inside. - Financial accounting appears on financial statements that are intended for external use (stockholders and creditors who decide on matters pertaining to the entire company). - Managerial accounting focuses on parts/segments of the company. Prepare the financial statements and must know about financial accounting and reporting. 6 groups of external users: - Owners/prospective owners - Creditors and lenders - Employees and their unions - Customers - Governmental units - General public Annual report : contains independent auditor opinion as to the fairness of statements and include financial position, cash flows/outflows, and results of operations
4 major types of internal management decisions: - Financial - Resource allocation - Production - Marketing Accounting Principles Board (APB) is influential in providing input to the financial accounting standards board and the SEC. Financial Accounting Standards Board (FASB) replaced the APB. The private sector responsible for the development of new financial accounting standards. Governmental Accounting Standards Board (GASB) issues statements on acct and reporting. Private sector responsible for the development of new governmental accounting concepts and standards. Has authority to issue interpretations of standards SEC administers important acts dealing with the interstate sale of securities (stocks and bonds).

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