Chapter 1 lecture 1 - CHAPTER 1: USES OF ACCOUNTING...

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CHAPTER 1: USES OF ACCOUNTING INFORMATION AND THE FINANCIAL STATEMENTS Lecture 1 Learning Objectives 1. Define accounting and describe its role in making informed decisions, identify business goals and activities, and explain the importance of ethics in accounting. 2. Identify the users of accounting information. 3. Explain the importance of business transactions, money measure, and separate entity. Objective 1: Define accounting and describe its role in making informed decisions, identify business goals and activities, and explain the importance of ethics in accounting. Summary Statement Accounting is an information system that measures, processes, and communicates financial information about an identifiable economic entity. A business is an economic unit that aims to sell goods and services to customers at a profit. To survive, a business must achieve satisfactory earnings (the goal of profitability ) and maintain sufficient funds to pay debts as they fall due (the goal of liquidity ). Businesses pursue their goals by engaging in (1) financing activities to obtain funds to sustain operations, (2) investing activities to employ the funds productively, and (3) operating activities, such as buying and selling goods and services, employing people, and paying taxes. An important function of accounting is to provide performance measures that indicate whether business goals are being achieved and whether business activities are being well managed. The role of accounting is to assist decision makers. Management accounting provides information to internal decision makers, such as managers, whereas financial accounting is concerned with communicating financial information via financial statements to external users. Most businesses publish financial statements that report their profitability and financial position.
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Accounting information is processed by bookkeeping, computers, and management information systems. Bookkeeping, a small but important aspect of accounting, deals with the mechanical, repetitive recordkeeping process. The computer is an electronic tool that rapidly collects, organizes, and communicates vast amounts of information. The computer does not take the place of the accountant but is a tool used by the accountant to perform bookkeeping and accounting procedures. A management information system (MIS) is an information network that encompasses all the major functions of a business, which are called subsystems. The accounting information system is an integral part of the management information system. 10. Accounting is an information system that measures, processes, and communicates financial information about an identifiable economic entity. It provides information that is essential for decision making. 20. A
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This note was uploaded on 02/10/2011 for the course ACCOUNTING 201 taught by Professor Notsure during the Spring '11 term at Edmonds Community College.

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Chapter 1 lecture 1 - CHAPTER 1: USES OF ACCOUNTING...

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