Chapter 1 Outline

Chapter 1 Outline - Chapter 1 "Accounting as a Form of...

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Chapter 1 “Accounting as a Form of Communication” I. Chapter 1 – “Accounting as a Form of Communication” (Pages 12-30) a. What is accounting? i. Accounting is “the process of identifying, measuring, and communicating economic information  to permit informed judgments and decisions by user of the information.” b. Users of Accounting Information and Their Needs i. Internal Users 1. Management accounting is the branch of accounting concerned with providing internal  users with information to facilitate planning and control ii. External Users 1. Financial accounting is the branch of accounting concerned with communication with  outsiders through financial statements 2. Stockholders and Potential Stockholders a. Both existing and potential stockholders need financial information about a  business 3. Bondholders, Bankers, and Other Creditor a. They need the information to decide whether to purchase a bond, or whether  to lend money to that organization 4. Government Agencies a. Numerous agencies have information needs specified by law b. The IRS is empowered to collect a tax on income from both individuals and  corporations. A company prepares tax returns to the IRS the amount of income  it earned. c. The SEC is a regulatory agency that sets the rules under which financial  statements must be prepared for corporations that sell their stock to the public  on organized stock exchanges. iii. The Accounting Equation and the Balance Sheet 1. The accounting equation is the foundation of the accounting system a. Assets = Liabilities + Owners’ Equity i. The assets are valuable economic resources that will provide future  benefit to the company ii. Owners’ equity is the owners’ claims on the assets of an entity 2. Stockholders’ equity is the mathematical difference between a corporation’s assets and  its obligations or liabilities a. After the amounts owed to the bondholders, banks, suppliers, and other  creditors are subtracted from the assets, the amount remaining is the 
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Chapter 1 Outline - Chapter 1 "Accounting as a Form of...

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