26-07-2014, 12:09 PM
Accounting: The Language of Business
Accounting The Language.ppt (Size: 267.5 KB / Downloads: 170)
Introduction
Accounting - a process of identifying, recording, summarizing, and reporting economic information to decision makers in the form of financial statements
Financial accounting - focuses on the specific needs of decision makers external to the organization, such as stockholders, suppliers, banks, and government agencies
The Nature of Accounting
The accounting system is a series of steps performed to analyze, record, quantify, accumulate, summarize, classify, report, and interpret economic events and their effects on an organization and to prepare the financial statements.
Accounting as an Aid toDecision Making
Accounting information is useful to anyone who makes decisions that have economic results.
Managers want to know if a new product will be profitable.
Owners want to know which employees are productive.
Investors want to know if a company is a good investment.
Creditors want to know if they should extend credit, how much to extend, and for how long.
Government regulators want to know if financial statements conform to requirements.
Financial and Management Accounting
Annual report - a document prepared by management and distributed to current and potential investors to inform them about the company’s past performance and future prospects.
The annual report is one of the most common sources of financial information used by investors and managers
Balance Sheet Transactions
The balance sheet is affected by every transaction that an entity encounters.
Each transaction has counterbalancing entries that keep total assets equal to total liabilities and owners’ equity, i.e., the balance sheet equation must always be balanced.
Transaction Analysis
Transactions are recorded in accounts, which are summary records of the changes in particular assets, liabilities, or owners’ equity.
The account balance is the total of all entries to the account.
Types of Ownership
Sole Proprietorship
A separate organization with a single owner
Tend to be small retail establishments and individual professional or service business - for example, a single dentist, attorney, or public accountant
The sole proprietorship is an individual entity that is separate and distinct from the owner.
Advantages and Disadvantages of Forms of Ownership
Corporations
Advantages
limited liability
easy transfer of ownership - shares of stock can be bought and sold easily (stock exchanges)
ease of raising ownership capital - many potential stockholders
continuity of existence - life of the corporation continues even if its ownership changes