INTERMEDIATE ACCOUNTING VOL. 1 Chapter 1.docx - CHAPTER 1...

CHAPTER 1
The Development of Accounting
Profession
THE NATURE OF ACCOUNTING &
THE USERS OF FINANCIAL INFORMATION
Accounting – process of identifying, measuring, and
communicating economic information to permit informed
judgment and decision by users of the information.
Internal Users – users who have ready access to specific types
of accounting information
External Users – do not have ready access to financial reports
and rely heavily on negotiations and regulations to obtain
information about a business enterprise. They have diversified
information needs.
Present and potential creditors
Assess the ability of the enterprise to pay its loans
and interest attaching to such loans.
Suppliers
Dependent upon the continuation of an enterprise as
a major customer
Customers
Interested in the continuance of the enterprise
Government and its Agencies
Determine whether business entities comply w/
prescribed rules and regulations; interested in the allocation of
resources
Public
Interested about the trends and the range of business
entities economic activities
Employees
Stability and profitability of the enterprise
Investors
Make decisions whether they buy, hold, sell equity
investments
Direct Interest Users – use financial information as a tool to
protect their own interest in the enterprise
 Owners
 Managers
 Creditors
 Suppliers
 Customers
 Employees
 Taxing Authority
Indirect Interest Users – provide advice or protect the
interest of a direct user
 Regulatory Agencies – (SEC) protect the interest of
the investors and the public.
 Labor Unions – protect the interest of employees
 Financial and Legal Consultants – provide advice and
assistance to their clients.
Reporting/Accounting/Business Entity
– a business enterprise,
– a government unit
– a not-for-profit organization
– an individual
– a unit within an enterprise
– have a different personality from that of its units.
– capable of controlling its own economic
resources and incurring economic obligations
BRANCHES OF ACCOUNTING
Financial Accounting
- broadest branch of accounting
- for external users
- assumes that the external users have common
information needs (to evaluate the profitability,
liquidity and stability)
Management Accounting
- for internal users
- making and implementing short-term and long-
range plans for the enterprise
- information provided is not structured
- not necessarily conforming to the accounting
standards
Cost Accounting
- measurement and recognition of cost of services
provided or products manufactured
- cost per unit
Tax Accounting
- concerned w/ the computation of taxes and
preparation of tax returns
Government Accounting
- encompasses the process of analyzing, classifying,
summarizing and communicating all transactions involving the
receipt and disposition of government funds
THE DEVELOPMENT OF THE ACCOUNTING
PROFESSION AND THE STANDARD-SETTING PROCESS
Pioneers in the Development of Accounting:
- United States of America & United Kingdom