Acct 2301 1st Edition Lecture 2 Outline of Last Lecture I Syllabus Outline of Current Lecture II Introducing Accounting in Business Current Lecture 1 Definition of Accounting What is accounting People in the business world consider it to be quite important When you plan to invest in McDonald s stock buy new equipment or forecast future sales and expenditures you almost certainly use accounting information Why Because accounting provides information for decision making in the business world Accounting is a service based profession that provides reliable and relevant financial information useful in making decisions Financial information may include sales expenses taxes and other figures There are three steps to preparing financial information identification recording and communication First economic events are identified A sale at a gas station payment of taxes by a commercial enterprise or purchase of insurance are all examples of economic events Next all economic events are recorded Recording provides a history of a company s financial activities In this step economic events are also classified and summarized Finally information about classified and summarized economic events is communicated to interested parties Such communication may take several forms One such form is a financial statement 2 Users of Accounting Information 2 Users of accounting information These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute There are two broad categories of interested parties or accounting information users external users internal users External users are parties outside the reporting entity or company who are interested in the accounting information Types of external users include Investors i e owners who use accounting information to make buy sell or keep decisions related to shares bonds etc Creditors i e suppliers banks who utilize accounting information to make lending decisions Taxing authorities i e Internal Revenue Service who need accounting information to determine a company s tax liabilities Customers who may need accounting information to decide which products to buy from which companies Internal users are parties inside the reporting entity or company who are interested in accounting information Types of internal users include A company s senior and middle management who use accounting information to run the business Employees who use accounting information to determine a company s profitability and profit sharing Financial accounting provides information that is designed to satisfy the needs of external users Such reporting is usually done in the form of financial statements Managerial accounting provides information that is useful in running a company by internal users Such reporting is usually accomplished through customdesigned or managerial reports The illustration below shows relationships between the types of accounting and accounting information users Illustration 1 Types of accounting and accounting information users
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