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Chapter 1

Accounting Information:

Users and Uses

Albrecht, Stice, Stice, Swain

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The Purpose of Accounting

Accounting:– Accumulates financial data

– Measures financial performance

– Communicates financial information

– Informed decisions can be made

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What are the Functions of anAccounting System?

Analyze business events to determine if information should be captured by the accounting system.

Day-to-day keeping track of things.

Use summary information to evaluate the financial health and performance of the business.

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Who Uses Accounting Information?

Internal users (Management Accounting):

Management

Examples of reports:– Budgets– Cost analyses– Performance reports

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Who Uses Accounting Information?

External users (Financial Accounting):Investors Competitors

Lenders Government

Employees Press

Customers Suppliers

Examples of reports:– Balance sheet– Income statement– Statement of cash flows– Other regulatory reports

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Rules of the Game

External Reporting:

• General accepted accounting principles– Comparability– Reliability

Internal Reporting:

• No rules

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Who Makes All the Rules?

Generally accepted accounting principles

• Financial Accounting Standards Board– U.S. companies

• International Accounting Standards Board– Most international companies

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The Accounting EnvironmentAccounting Regulators

International Accounting

Standards Board(IASB)

Security and Exchange Commission

(SEC)American

Institute of Certified Public Accountants

(AICPA)

Internal Revenue Service

(IRS)

Public Company Accounting

Oversight Board (PCAOB)

Financial Accounting

Standards Board (FASB)

AccountingWorld

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Other Environmental Factors

• Ethics– Professional judgment– Enron

• Technology– Vast amounts of information about transactions can

be stored– Data can be compiled quickly and accurately

Will computers replace the accountant?

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Why Should I Study Accounting?

Everyone makes financial decisions

To make good financial decisions!

Budgeting Investing

Buying vs. leasing

Financing