What is accounting?

1. Definition
   1. Accounting: the process of
      1. Identifying
      2. Recording, and
      3. Communicating
      to internal and external users the economic events of an organization to interested users of the information. Examples are internal managers or external IRS, SEC, investors, and/or consumers
   2. Identification of economic events
      1. Sale of goods
      2. Rendering of services
      3. Payment of wages
      4. Collection of money
      5. Payment of expenses
   3. Recording of economic events
      1. Economic event is measured in dollars and cents
      2. Recorded in an orderly and systematic manner
      3. Each event is properly classified and summarized
   4. Communication of economic events
      1. Accounting reports (financial statements [F/S]) are prepared
      2. Standardized formats are used for the reports
      3. Accountants analyze and interpret the reports for interested users
      4. Reports are distributed to interested users
   5. Financial statements
      1. balance sheet
      2. income statement
2. Who uses accounting data?
   1. Internal users
      1. Managers who plan, organize, and run a business
      2. Internal accounting reports are needed for
         1. financial comparisons of operating alternatives
         2. income projections
         3. sales forecasts
         4. forecasts of cash needs
         5. financial statements
   2. External users
      1. Investors (stockholders) need accounting information to make decisions regarding buying, holding or selling stock
      2. Creditors (bankers) need accounting information to make decisions regarding granting credit or lending money
      3. Taxing authorities (IRS) need to know if the company complies with tax laws
      4. Regulatory agencies (SEC) need to know if the company is operating withing prescribed rules
      5. Customers need to know if the company will honor product warranties
      6. Labor unions need to know if the company has the ability to pay wages and fringe benefits
      7. Economic planners need to analyze and forecast economic activity
3. Brief history of accounting
   1. Began with an Italian mathematician
   2. Industrial age (nineteenth century) created the need to report financial information
4. Distingushing between bookkeeping and accounting
   1. Bookkeeping
      1. Only recording of economic events
   2. Accounting
      1. Identification of economic events
      2. Recording of economic events
      3. Communicating
5. Accounting and you
   1. Accounting knowledge will be helpful in every field of endeavor
      1. Management: useful accounting information helps make wise decisions
      2. Marketing: useful accounting information helps make profitable sales
      3. Finance: difficult to get a job w/o several accounting courses
6. The accounting profession
   1. Public accounting
      1. Audit: a certified public accountant (CPA) examines the financial statements of a company and expresses an opinion as to the fairness of the presentation
      2. Tax: tax advice, tax planning, tax preparation
      3. Management consulting: assist companies with their business decisions
   2. Private accounting
      1. Employee of a company
      2. Might do
         • cost accounting
         • budgeting
         • general accounting
         • work with accounting information systems
         • tax accounting
         • internal auditing
   3. Not-for-profit accounting
      1. Charitable organizations such as United Way
      2. Hospitals
      3. Colleges and universities
      4. Independent school districts
      5. Local, state, and federal governmental units