GLENCOE ACCOUNTINGAND

MRS. NICHOLS

Accounting – the language of Business

Key Terms

Accounting Systems Manual Accounting Systems Computerized Accounting

SystemsAccounting Standards

GAAP “gap” IAS

Financial Reports Financial Accounting Management Accounting

Accounting Assumptions Business Entity Accounting Period Going Concern

Objective

You will have an understanding of the computerized accounting system and how the information processed is used to make business decisions.

Decisions like a popular band deciding where to play, the cost of their tour, how profitable their music has been or how much the ticket prices should be?

These decisions are probably made by a financial team!

Accounting Systems

Collect

Document

Report

Source Documents – Transactions

1st step to Financial Reporting

Input

Checks

Invoices

Sales slips

Receipts

Tasks

Processing

Analyzing

Classifying

Recording

Financial and Management Accounting Reports

Outputs

•Financial condition

•Results of operations

•Investments by and distributions to owners

System – Financial Accounting

Outsiders looking in (external reportin)

Investors

Loaning Institutions or Individuals

Local, State and Federal Government

Employees, Unions, Consumers

System – Management Accounting

INTERNAL REPORTING The day-to-day

decision makers. Purchasing Hiring Production Payments Sales Collections

Financial Accounting Reports

Management Accounting Reports

1

2

3

1

2

3

Uses of Accounting ReportsList three ways each type is used.

Accounting Assumptions

Something taken for granted as true What are some assumptions you make daily?

When you go to a movie? Go to a restaurant? Enter school? Wake up in the morning?

Each business needs to set up systems (methods to track transactions)

Accounting Assumptions #1

Business Entity Separate legal entity

from the owners personal finances.

Accounting reports, and records are maintained separately. The most difficult to

separate is farming and ranching, why?

Personal

Business

Accounting Assumption #2

Accounting Period Life of a business is

divided into sections of time. One Month Quarterly (every 3

months) One Year

Reports are printed for each period and compared to make decisions.

Accounting Assumption #3

Going Concern Assume the business

will continue to operate unless it is clear it cannot survive.

Many fail in first 5 years

Accounting Assumptions

#1 Business Entity

#2 Accounting Period

#3 Going Concern

Suppose you work for a company called Greenwood Sky Divers as a sky-diving instructor. Since you have your pilot’s license, you also give flying lessons on the side. You and the owner of Greenwood Sky Divers both belong to a local club, the Greenwood Eagles, whose members get together for sky dives on the weekends. G.S.D is a sole proprietorship that has been in business for six years. The owner of the company regularly reviews the financial reports, prepared by the accountant and compares them from year to year.