BASIC CONCEPT of ACCOUNTING and FINANCIAL REPORTING

ACCOUNTING and BUSINESS OPERATIONS 

A. The Definition of Accounting and  Its Purposes

Accounting can be defined from at least two point of views:

• It can emphasize the uses in which accounting information is put.
• It can emphasize the activities of accountants or accounting process.

Emphasis on use  

Accounting has been defined as: a discipline which provides ….. 

essential information to the efficient conducting and evaluation of the activities of any organization or financial transaction.

What is Accounting?

• The central of accounting is the organization (business firm).
• Accounting information is vital to a business firm’s activity. It is used for decision making by inside (management) and outside (investors, creditors, etc) of the organization.

 Emphasis on activity

          In accounting ….. the effects of the economic activities of an enterprise are accumulated, analyzed, quantified, classified, recorded, summarized, and reported as information. 

Accountant Must be...

1. Identifying data are relevant to the decision to be made.
2. Processing or analyzing the relevant data.
3. Transforming data into information that can be used in making better decision.

  
B. The Role and Users of Accounting Information

1. Accounting information is used as source of information for decision making.
2. Financial accounting information usually is directed toward the common needs of a wide variety of users.

 The Users of Accounting Information

• Managers. Accounting information is used by managers to help them for making a plan of company’s activities, evaluating, and making correction.
• Investors or owners. They need the accounting information for decision making to decide whether to keep or give up their ownership interests.

•  Non profit organizations. They need accounting information to help them make a plan, budget and pay many expenses, like salaries, utilities expenses, etc.

• Others (labor unions, customers of the firm, etc). An accounting information is  needed to help them negotiate (discuss arrange) labor contracts, follow the development of the company or make a wide variety decision and make decisions about possible future relationship.

 C. The Accounting Profession

There are two broad fields in which a professionally trained accountant can employ his services:

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1. Public accounting
2. Internal accounting