Introduction to Accounting
Accounting is the language of business. It is the system of recording, summarizing, and
analyzing an economic entity's financial transactions. Effectively communicating this
information is key to the success of every business. Those who rely on financial
information include internal users, such as a company's managers and employees, and
external users, such as banks, investors, governmental agencies, financial analysts,
and labor unions. These users depend upon data supplied by accountants to answer the
following types of questions:
Is the company profitable?
Is there enough cash to meet payroll needs?
How much debt does the company have?
How does the company's net income compare to its budget?
What is the balance owed by customers?
Has the company consistently paid cash dividends?
How much income does each division generate?
Should the company invest money to expand?
Accountants must present an organization's financial information in clear, concise
reports that help make questions like these easy to answer. The most common
accounting reports are called financial statements.
Financial Reporting Objectives
Financial statements are prepared according to agreed upon guidelines. In order to
understand these guidelines, it helps to understand the objectives of financial reporting.