Introduction to Accounting

This chapter introduces you to a variety of financial accounting topics. You will learn about the primary forms of business organization and the three principal types of business activity. You will also learn about users of accounting information and how information is delivered. Further this chapter covers the topics such as different types of accounting, contribution of an accounting system, Auditing and Accounting principles. When you finished studying this chapter, you should be able to:

Describe what a business does and various ways a business can be organized. Classify business transactions as operating, investing or financing activities. Describe who uses accounting information and why accounting information is important to them

Definition of Accounting Accounting consists of two elements, first recording transactions must be recorded as they occur in order to provide up to date information for management. Second is summarizing the transactions for a period are summarized in order to provide information about the company to interested parties. Important stage in summarizing is preparing financial statements, include income statement reflect the performance of a business over a period of time. Balance sheet reflects the position of a business at a point in time. The History of Accounting No one really knows that who invented accounting, references in the bible and the Quran indicate that some form of accounting has existed for centuries. Accounting records were used by ancient traders, farmers, etc. to control their assets, monitor their costs, collect payments , and calculation In 1494 Luca pacioli an Italian monk , codified existing bookkeeping practice , the double-entry bookkeeping system that we know today. Accounting continued to develop, but increased in important with the rise in popularity of companies as the predominant form of business entity. Due to the separation of the ownership and the management, shareholders were required to produce and interpret financial to enable shareholders to make decisions. Accounting standards were later developed to make it easier to compare different companies, and the

accounting profession grew in order to assists in the application of these something complex accounting standards. The growth in computerization saw a reduction in traditional bookkeeping work , and globalization meant that many clients were large multinational companies requiring advice on many areas in additional to accounting. Today the accounting profession is multimillion dollar industry, and gives client advice on wide range of business issues. Many accountants also employed directly by companies, to produce information that is used making decisions. Accounting nowadays could be public accountants work for an accountant firm and serve a variety of clients, or could work in industry be employed directly by a company or organisation. Public accountants perform accounting and audit work, but they also provide a variety of other services, include tax, insolvency, and assurance, business advisory and corporate finance.

Types Of Business Entity Users Of The Financial Statements Types Of Accounting Past Transactions and Other Economic Events in Financial Accounting The Financial Accounting Process Financial Statements Decision Makers Generally Accepted Accounting Principles (GAAP) o The Financial Accounting Standards Board (FASB) o The Securities and Exchange Commission (SEC) The Role of Auditing Economic Consequences and Managerial Preferences for Accounting Principles o Compensation Plans o Debt Contracts o Political Costs The Two Roles of Financial Accounting The Political Nature of Accounting Standard Setting Ethics and Accounting