Financial Accounting & Reporting

Chapter 1

Introduction to Accounting

    • Accounting is a process of identifying, recording and communicating economic information that is useful in making economic decisions. 
    • Only “accountable events” are recorded in the books of accounts. Accountable events are those that affect the assets, liabilities, equity, income or expenses of a business.
    • The information processed in an accounting system is communicated to interested users through accounting reports (e.g., financial statements).
    • Accounting is considered the “language of business” because it is essential in the communication of financial information.
    • Accounting provides information that is useful in making economic decisions.
    • The common branches of accounting include the following:
      (1) Financial accounting,
      (2) Management accounting,
      (3) Government accounting,
      (4) Auditing,
      (5) Tax accounting,
      (6) Cost accounting,
      (7) Accounting education, and
      (8) Accounting research.
    • Financial accounting focuses on the information needs of external users, while management accounting focuses on the information needs of internal users.
    • External users are those who are not directly involved in managing the business. Internal users are those who are directly involved in managing the business.
    • Accounting information may be either (a) general purpose or (b) special purpose. General purpose accounting information is provided by financial accounting and is prepared primarily for external users. Special purpose accounting information is provided by management accounting or other branches of accounting and is prepared primarily for internal users. 
    • The different forms of business organization are:
      (1) Sole proprietorship, 
      (2) Partnership, 
      (3) Corporation, and
      (4) Cooperative.
    • The types of business according to activities are:
      (1) Service business, 
      (2) Merchandising business, and
      (3) Manufacturing business.