Accounting: The Universal

Language of Business

Accounting System

Accounting System: Designed to collect, document and report on financial transactionsaffecting a business.

Two types:

Manual Accounting System: Processed by hand

Computerized Accounting System: Processed by entering information into a computer

Accounting System

INPUTS PROCESSING OUTPUTS

Source Documents• Checks• Invoices• Sales Slips• Receipts

Task• Analyzing• Classifying• Recording

Financial and Management Accounting Reports• Financial conditions• Results of operations• Investments by and

distributions to owners

How it Works

Accountants report the results of operations and the financial conditions of the businessin which people invest

Generally Accepted Accounting Principles (GAAP)

A set of rules followed by accountants to prepare financial statements

These rules are issued by the Financial Accounting Standards Board (FASB)

User Groups

Two groups

Internal users (People inside the organization)

External users (People outside the organization who have interest in the business)

Accounting Types

Financial Accounting

Managerial Accounting

Financial Accounting Reports

Used by external users

Who are external usersInvestors

Banks and lending institutions

Governments

Labor Unions

Competitors

Managerial Accounting Reports

Used by internal users

Who are internal users

Managers

Accounting Assumption

Taking for granted that something is true

Based on three key assumptions

1) Business Entity: Business is a separate entity and operates independently of a persons holdings

2) Accounting Period: A time frame covered by an accounting report

3) Going Concern: The assumption that a business possesses survivability indefinitely