Ch1 - Chapter 1 - Accounting and the business environment...

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CHAPTER OVERVIEW Chapter 1 introduces you to accounting. Some of the topics covered in this chapter are the types of business organisation, the basic accounting equation, analysing business transactions, and preparing financial statements. Like many disciplines, accounting has its own vocabulary. An understanding of accounting terminology and the other topics covered in this chapter will give you a good foundation towards mastering the topics in upcoming chapters. The learning objectives for this chapter are to: 1. Use accounting vocabulary. 2. Apply accounting concepts and principles. 3. Use the accounting equation. 4. Analyse business transactions. 5. Prepare the financial statements. 6. Evaluate business performance. CHAPTER REVIEW Objective 1 - Use accounting vocabulary. Accounting is a system that measures business activities, processes that information into reports, and communicates the results to decision-makers. There are many users of accounting information. Individuals use accounting information to make decisions about purchases and investments and to manage their bank accounts. Businesses use accounting information to set goals for their businesses and to evaluate progress toward achieving those goals. Investors (shareholders) use accounting information to evaluate the prospect of future returns on their investments. Creditors use accounting information to evaluate a borrower’s ability to meet scheduled repayments of money loaned. Accounting information is also used by government regulatory agencies, like the Australian Securities and Investments Commission [ASIC], taxing authorities, non-profit organisations, and others, such as employee and consumer groups. Accounting has a long history; it is said to have been used to track the costs of major ancient constructions. Double entry bookkeeping can be traced back to Italy over 500 years ago. Today professional accounting bodies such as Institute of Chartered Accountants in Australia (ICAA), CPA Australia (CPAA) and the Chartered Institute of Management Accountants (CIMA) promote the profession and high ethical standards. The study and practice of accounting may be categorised in a number of ways. In this textbook the first nineteen chapters deal with financial accounting: the gathering and reporting of information to those outside the organisation. The last five chapters look at management accounting: information for internal decision-makers. Accountants may work in industry (for a company, not-for-profit organisation or government department) or in an accounting business (Chartered Accountant or CPA) that consults and provides services to industry. There are many specialist areas in accounting: auditing, tax, management consulting, insolvency, information systems, budgeting, etc. Accounting and the business environment
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Ch1 - Chapter 1 - Accounting and the business environment...

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