Chapter_1_Lecture - Chapter 1 Lecture Accounting is a...

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Chapter 1 Lecture Accounting is a service activity. Its function is to provide useful financial information about economic entities to interested parties, such as managers, investors, and creditors. Financial accounting provides information to those decision makers who are outside the economic entity, such as investors, creditors, and governmental agencies. Financial accounting information also is used by managers inside the economic entity. A. What is accounting? 1. Identification, measurement, and communication of financial information (discuss difference between financial statements and financial reporting). Review Illustration 1-1 to identify the essential characteristics of accounting and financial reporting. a. Financial statements: (1) Income statement. (2) Balance sheet. (3) Statement of cash flows. (4) Statement of changes in owner’s or stockholders' equity. b. Financial reporting: (1) President's letter or supplementary schedules in the annual report. (2) Prospectuses. (3) Reports filed with the SEC and other government agencies. (4) News releases and management forecasts. 2. About economic entities (such as corporations, partnerships, and proprietorships). 3. To interested parties (discuss stockholders, creditors, government agencies, management, employees, consumers, labor unions, etc.). B. What is the environment in which accounting operates?
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1. A world of scarce resources. Accounting helps to identify efficient and inefficient users of resources. 2. Capital allocation. Accounting assists in the effective capital allocation process by providing financial reports to interested users. 3. Changing user needs. Accounting will continue to be faced with challenges to providing information needed for an efficient capital allocation process. C. Challenges facing financial accounting. 1. Non-financial measurements. 2. Forward-looking information. 3. Soft assets. 4.
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Chapter_1_Lecture - Chapter 1 Lecture Accounting is a...

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