Acct1501 Chapter 1 Notes

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ACCT1501 Chapter 1 – Introduction to Financial Accounting

Use and Preparation of Accounting * Financial accounting has value because the information it produces is used in a variety of ways. * People study accounting to learn how to use information effectively and do their jobs better. * Accounting information is produced by a large set of people, activities and computers. To be effective users of the information, people need to know how and why the information is prepared. * An accountant’s expertise is all about how and why.

Financial Accounting * Accounting is a process of identifying, measuring and communicating economic information to allow informed decisions by the users of that information. There are two types of accounting systems: * Financial accounting systems – * This is where periodic financial statements are provided to external decision-makers (such as investors, creditors and customers, such as government, small and large businesses). * Financial accounting measures an enterprise’s performance over time and its position at a point in time. * Financial performance means generating new resources from day-to-day operations over a period of time. * Financial position is the enterprise’s set of financial resources and obligations at a point in time. * Financial statements are reports which describe financial performance and position and help to measure whether the enterprise is in a good position.

* Management accounting systems – * This is a branch of accounting that is orientated towards helping managers and others inside the enterprise. This includes information for planning and performance reports to managers and others inside the enterprise (internal decision makers) * Financial accounting in contrast, has a more external focus, and is…...

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