What Is Accouting
Chapter 1
What is accounting?
• Transaction: Business Activities • Accounting: Accounting is the language of business, is the process of identifying, measuring, and communicating financial business information to various users, usually people who need it to make decisions. Accounting is one of the most important sources of information for people and who whish to invest in businesses. • For profit firm: is a firm that creates or adds value to earn money for its owners. • No-for-profit firm: is a firm that provides good or services for the sole purpose of helping people instead of making a profit. Not-for-profit organizations make money what is different is that a not-for-profit organization uses any profit to provide more goods and services to the people it serves rather than distributing profits to its owners.
Accounting information needed to operate a firm
• Profit: the difference between the revenue and the cost of selling those products or providing those services. • Revenue: The amount a business earns for the products it sells or the services it provides
When a firm evaluates new project, it will estimate the amount of revenue it plans to earn and the cost of earning that revenue. The firm wants to be sure the project will generate profit.
Using financial reports to make decisions
• Operating cycle: Is the sequence of business activities of getting cash, using cash to purchase inputs, changing those inputs into products or services, providing the product or services to customers, and eventually getting cash back.
After a firm completes one operating cycle, it has more decisions to make: Should it make more products and go through the operating cycle again? If so, should it buy more components than it bought the first time and from the same supplier? Accountants at the company can help managers answer these questions by providing the following information:
• The revenue from sales during the
What is accounting?
• Transaction: Business Activities • Accounting: Accounting is the language of business, is the process of identifying, measuring, and communicating financial business information to various users, usually people who need it to make decisions. Accounting is one of the most important sources of information for people and who whish to invest in businesses. • For profit firm: is a firm that creates or adds value to earn money for its owners. • No-for-profit firm: is a firm that provides good or services for the sole purpose of helping people instead of making a profit. Not-for-profit organizations make money what is different is that a not-for-profit organization uses any profit to provide more goods and services to the people it serves rather than distributing profits to its owners.
Accounting information needed to operate a firm
• Profit: the difference between the revenue and the cost of selling those products or providing those services. • Revenue: The amount a business earns for the products it sells or the services it provides
When a firm evaluates new project, it will estimate the amount of revenue it plans to earn and the cost of earning that revenue. The firm wants to be sure the project will generate profit.
Using financial reports to make decisions
• Operating cycle: Is the sequence of business activities of getting cash, using cash to purchase inputs, changing those inputs into products or services, providing the product or services to customers, and eventually getting cash back.
After a firm completes one operating cycle, it has more decisions to make: Should it make more products and go through the operating cycle again? If so, should it buy more components than it bought the first time and from the same supplier? Accountants at the company can help managers answer these questions by providing the following information:
• The revenue from sales during the