Understanding
Accounting and Financial Information
Demonstrate the role that accounting and financial information
play for a business and its stakeholders.
Identify the different disciplines within the accounting profession.
List the steps in the accounting cycle, distinguish between
accounting and bookkeeping, and explain how computers are used
in accounting.
Explain how the major financial statements differ.
THE ROLE OF ACCOUNTING INFORMATION
Accounting is the recording, classifying, summarizing, and interpreting of
financial events and transactions in an organization to provide management
and other interested parties the financial information they need to make good
decisions about its operation.
ACCOUNTING DISCIPLINES
Managerial accounting provides information and analysis to managers inside
the organization to assist them in decision making. Managerial accounting is
concerned with measuring and reporting costs costs of production, marketing, and
other functions; preparing budgets.
THE ACCOUNTING CYCLE
FINANCIAL ACCOUNTING
Financial accounting differs from managerial accounting in that the financial information and analyses it generates are for people primarily outside the organization.
AUDITING
Reviewing and evaluating the information used to prepare a company’s finan-
cial statements is referred to as auditing.
The accounting cycle is a six-step procedure that results in the preparation
and analysis of the major financial statements (see Figure 17.4 ). It relies on the work of both a bookkeeper and an accountant.
Using Technology in Accounting
A long while ago, accountants and bookkeepers needed to enter all of a firm’s
financial information by hand.
UNDERSTANDING KEY FINANCIAL STATEMENTS
The balance sheet, which reports the firm’s financial condition on a
specific date.
The income statement, which summarizes revenues, cost of goods, and
expenses (including taxes),for a specific period and highlights the
total profit or loss the firm experienced during that period.
The statement of cash flows, which provides a summary of money
coming into and going out of the firm. It tracks a company’s cash
receipts and cash payments.
An accounting year is either a calendar or fiscal year. A calendar year begins
January 1 and ends December 31.