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the Importance of Accounting and Distinguish between Financial and
- Accounting is the process of organizing, analyzing, and
communicating financial information that is used for
- Accounting is often called the “language of business.”
- Financial accounting measures performance using financial
reports and communicates results to those outside of the
organization who may have an interest in the company’s performance,
such as investors and creditors.
- Managerial accounting uses both financial and nonfinancial
information to aid in decision-making.
Identify Users of Accounting Information and How They Apply
- The primary goal of accounting is to provide accurate, timely
information to decision makers.
- Accountants provide information to internal and external
- Financial accounting measures an organization’s performance in
- Accountants use common conventions to prepare and convey
- Financial accounting is historical in nature, but a series of
historical events can be useful in establishing predictions.
- Financial accounting is intended for use by both internal and
- Managerial accounting is primarily intended for internal
Describe Typical Accounting Activities and the Role Accountants
Play in Identifying, Recording, and Reporting Financial
- Accountants play a vital role in many types of
- Organizations can be placed into three categories: for profit,
governmental, and not for profit.
- For-profit organizations have a primary purpose of earning a
- Governmental entities provide services to the general public,
both individuals and organizations.
- Governmental agencies exist at the federal, state, and local
- Not-for-profit entities have the primary purpose of serving a
particular interest or need in communities.
- For-profit businesses can be further categorized into
manufacturing, retail (or merchandising), and service.
- Manufacturing businesses are for-profit businesses that are
designed to make a specific product or products.
- Retail firms purchase products and resell the products without
altering the products.
- Service-oriented businesses provide services to customers.
Why Accounting Is Important to Business Stakeholders
- Stakeholders are persons or groups that rely on financial
information to make decisions.
- Stakeholders include stockholders, creditors, governmental and
regulatory agencies, customers, and managers and other
- Stockholders are owners of a business.
- Publicly traded companies sell stock (ownership) to the general
- Privately held companies offer stock to employees or to select
individuals or groups outside the organization.
- Creditors sometimes grant extended payment terms to other
businesses, normally for short periods of time, such as thirty to
- Lenders are banks and other institutions that have a primary
purpose of lending money for long periods of time.
- Businesses generally have three ways to raise capital (money):
profitable operations, selling ownership (called equity financing),
and borrowing from lenders (called debt financing).
- In business, profit means the inflows of resources are greater
than the outflows of resources.
- Publicly traded companies are required to file with the
Securities and Exchange Commission (SEC), a federal government
agency charged with protecting the investing public.
- Guidelines for the accounting profession are called accounting
standards or generally accepted accounting principles (GAAP).
- The Securities and Exchange Commission (SEC) is responsible for
establishing accounting standards for companies whose stocks are
traded publicly on a national or regional stock exchange, such as
the New York Stock Exchange (NYSE).
- Governmental and regulatory agencies at the federal, state, and
local levels use financial information to accomplish the mission of
protecting the public interest.
- Customers, employees, and the local community benefit when
businesses are financially successful.
Describe the Varied Career Paths Open to Individuals with an
- It is important for accountants to be well versed in written
and verbal communication and possess other nonaccounting skill
- A bachelor’s degree is typically required for entry-level work
in the accounting profession.
- Advanced degrees and/or professional certifications are
beneficial for advancement within the accounting profession.
- Career paths within the accounting profession include auditing,
taxation, financial accounting, consulting, accounting information
systems, cost and managerial accounting, financial planning, and
- Internal control systems help ensure the company’s goals are
being met and company assets are protected.
- Internal auditors work inside business and evaluate the
effectiveness of internal control systems.
- Accountants help ensure the taxes are paid properly and in a
- Accountants prepare financial statements that are used by
decision makers inside and outside of the organization.
- Accountants can advise managers and other decision makers.
- Accountants are often an integral part of managing a company’s
computerized accounting and information system.
- Cost accounting determines the costs involved with providing
goods and services.
- Managerial accounting incorporates financial and nonfinancial
information to make decisions for a business.
- Training in accounting is helpful for financial planning
services for businesses and individuals.
- Accounting helps entrepreneurs understand the financial
implications of their business.
- Accountants have opportunities to work for many types of
organizations, including public accounting firms, corporations,
governmental entities, and not-for-profit entities.
- Professional certifications offer many benefits to those in the
accounting and related professions.
- Common professional certifications include Certified Public
Accountant (CPA), Certified Management Accountant (CMA), Certified
Internal Auditor (CIA), Certified Fraud Examiner (CFE), Chartered
Financial Analyst (CFA), and Certified Financial Planner
- process of organizing, analyzing, and communicating financial
information that is used for decision-making
- process of ensuring activities are carried out as intended or
- process of giving advice or guidance on financial and
nonfinancial impact of a course of action
- cost accounting
- recording and tracking of costs in the manufacturing
- business that grants extended, but short-term, payment terms to
- financial accounting
- measures the financial performance of an organization using
standard conventions to prepare financial reports
- Financial Accounting Standards Board
- independent, nonprofit organization that sets financial
accounting and reporting standards for both public and private
sector businesses in the United States that use Generally Accepted
Accounting Principles (GAAP)
- for-profit business
- has the primary purpose of earning a profit by selling goods
- generally accepted accounting principles
- common set of rules, standards, and procedures that publicly
traded companies must follow when composing their financial
- governmental accounting
- process of tracking the inflows and outflows of taxpayer funds
using prescribed standards
- Governmental Accounting Standards Board
- source of generally accepted accounting principles (GAAP) used
by state and local governments in the United States; is a private
- governmental entity
- provides services to the general public (taxpayers)
- bank or other institution that has the primary purpose of
- managerial accounting
- process that allows decision makers to set and evaluate
business goals by determining what information they need to make a
particular decision and how to analyze and communicate this
- manufacturing business
- for-profit business that is designed to make a specific product
- nonprofit (not-for-profit) organization
- tax-exempt organization that serves its community in a variety
- not-for-profit (NFP) accounting
- including charities, universities, and foundations, helps
ensure that donor funds are used for the intended mission of the
- privately held company
- company whose stock is available only to employees or select
individuals or groups
- publicly traded company
- company whose stock is traded (bought and sold) on an organized
- retail business
- for-profit business that purchases products (called inventory)
and resells the products without altering them
- Securities and Exchange Commission (SEC)
- federal regulatory agency that regulates corporations with
shares listed and traded on security exchanges through required
- service business
- business that does not sell tangible products to customers but
rather sells intangible benefits (services) to customers; can be
either a for-profit or a not-for-profit organization
- someone affected by decisions made by a company; may include an
investor, creditor, employee, manager, regulator, customer,
supplier, and layperson
- owner of stock, or shares, in a business
- business activity or event that has an effect on financial
information presented on financial statements