ACC1701 Mid-Term NotesChapter 1What is AccountingAccounting is an information and measurement system that identifies, records, and communicates relevant, reliable andcomparable information about an organization’s business activities. Identifying biz activities: Requires selecting transaction and events relevant to an organization. Recording biz activities: Requires keeping a chronological log of transactions and events measured in $ and classified &summarized in a useful format.Communicating biz activities: Requires preparing accounting reports such as financial statements. Also requiresanalyzing and interpreting such reports.A system that records biz activities, converts data into useful info, reports results of biz operations to users.Users of Accounting informationExternal information users (Financial Accounting)Not directly involved in running the organizationHave limited access to an organisation’s informationBusiness decisions depends on information that is reliable, relevant and comparableEg: Shareholders (investors), lenders, directors, customers, suppliers, government, lawyers, brokers & pressFinancial Accounting: Serve external users by providing them general-purpose financial statements with assurance thatthe statements are reliable and presented in conformity with GAAP. Aid decision-making by a wide range of users byproviding info on financial position & performance of the biz entity.Internal information users (Management Accounting)Directly involved in managing and operating an organizationUse information to improve efficiency and effectiveness of an organizationEg: R&D, Purchasing, HR, Production, Distribution, Marketing, Internal Auditors, Budget Officers, ControllersManagerial Accounting: Serves the decision-making needs of internal users. Internal reports are designed with thespecial needs of the internal users.EthicsBeliefs that distinguish right from wrong, accepted standards of good & bad behavior Process: Identify ethical concerns > Analyse options > Make ethical decisionsMay extend to social responsibility – concern for the impact of actions on societyThe right ethical path is a course of actions that avoids casting doubt on one’s decisionEg: Accountant are less likely to trust an auditor’s report if auditor’s pay depends on the success of the client’s biz.Auditors are banned from direct investment in client & cannot accept pay that depends on figures in the client’sreport. Generally Accepted Accounting Principles (GAAP)Refers to a set of widely accepted concepts & rules that governed the financial accounting practice. Accountants are guided by GAAP (Generally Accepted Accounting Principles). GAAP helps accountants in providingreliable & relevant info to users.