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Unformatted text preview: ze the complexity of accomplishing this task. It
involves a talented blending of technical knowledge and measurement artistry that can only be fully
appreciated via extensive study of the subject. The best analogy is to say that you probably know what
a heart surgeon does, but you no doubt appreciate that considerable knowledge and skill is needed to
successfully treat a patient. If you were studying to be a surgeon, you would likely begin with some
basic anatomy class. In this chapter, you will begin your study of accounting by looking at the overall
structure of accounting and the basic anatomy of reporting.
Be advised that a true understanding of accounting does not come easily. It only comes with
determination and hard work. But, if you persevere, you will be surprised at what you discover about
accounting. Knowledge of accounting is very valuable to business success. And, once you conquer the
basics, accounting is actually quite an interesting subject. 1.1 Accounting Defined
It seems fitting to begin with a more formal definition of accounting: Accounting is a set of concepts
and techniques that are used to measure and report financial information about an economic unit. The
economic unit is generally considered to be a separate enterprise. The information is potentially
reported to a variety of different types of interested parties. These include business managers, owners,
creditors, governmental units, financial analysts, and even employees. In one way or another, these
users of accounting information tend to be concerned about their own interests in the entity. Business
managers need accounting information to make sound leadership decisions. Investors hold out hope
for profits that may eventually lead to distributions from the business (e.g., “dividends”).
Creditors are always concerned about the entity’s ability to repay its obligations. Governmental units
need information to tax and regulate. Analysts use accounting data to form their opinions on which
they base their investment recommendations. Employees want to work for successful companies to
further their individual careers, and they often have bonuses or options tied to enterprise performance.
Accounting information about specific entities helps satisfy the needs of all these interested parties.
The diversity of interested parties leads to a logical division in the discipline of accounting: financial
accounting and managerial accounting. Financial accounting is concerned with external reporting of
information to parties outside the firm. In contrast, managerial accounting is primarily concerned with
providing information for internal management. You may have some trouble seeing why a distinction
is needed; after all aren’t we just reporting financial facts? Let’s look closer at the distinctions. Download free eBooks at bookboon.com
8 Basics of Accounting & Information Processing Accounting Information 1.2 Financial Accounting
Consider that financial accounting is targeted towa...
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This document was uploaded on 09/24/2013.
- Summer '13