Chapter 4 – Understanding Accounting Issues
WHAT IS ACCOUNTING AND WHO USES IT?
Accounting is a comprehensive information system for collecting, analyzing, and
communicating financial information.
It is a system for measuring business performance and translating those measures
into information for management decisions.
Bookkeeping is just one phase of accounting–the recording of accounting
Accounting also uses performance measures to prepare performance reports for
owners, the public, and regulatory agencies.
By sorting, analyzing, and recording thousands of transactions, accountants can
determine how well a business is being managed and how financially strong it is.
Accounting information system (AIS) is an organized procedure for identifying,
measuring, recording, and retaining financial information so that it can be used in
accounting statements and management reports.
There are numerous users of accounting information:
oBusiness managers – use accounting information to set goals, develop plans,
set budgets, and evaluate future prospects.
oEmployees and unions – use accounting information to get paid and to plan
for and receive such benefits as health care, insurance, vacation time, and
oInvestors and creditors use accounting information to estimate returns to
stockholders, to determine a company’s growth prospects, and to decide if the
company is a good credit risk before investing for lending.
oTaxing authorities use accounting information to plan for tax inflows, to
determine the tax liabilities of individuals and businesses, and to ensure that
correct amounts are paid in a timely fashion.
oGovernment regulatory agencies rely on accounting information to fulfill
their duties; the provincial securities commissions, for example, require firms