Overview
This lecture introduces the foundational concepts of financial accounting, its role in society, differences from managerial accounting, key users of accounting information, and outlines potential career paths for accounting majors.
Role and Importance of Accounting
- Accounting organizes, analyzes, and communicates financial information for decision-making.
- Known as the "language of business," accounting is essential for personal and business financial management.
- Accounting is valuable for all career paths, not just accounting-related jobs.
Financial vs. Managerial Accounting
- Financial accounting focuses on measuring and reporting organization performance for external users using standardized rules (GAAP).
- Managerial accounting provides both financial and non-financial information for internal users, aiding in decision-making, budgeting, and cost management.
- Financial accounting serves external stakeholders; managerial accounting primarily helps internal management.
Users of Accounting Information
- Internal users: management and employees use information for daily operations and future planning.
- External users: investors, creditors, analysts, governmental agencies, and customers use information to evaluate business performance and make decisions.
Characteristics of Financial Accounting Information
- Communicated primarily through four financial statements: income statement, statement of owners’ equity, balance sheet, and statement of cash flows.
- Based on historical data and transactions.
- Prepared using Generally Accepted Accounting Principles (GAAP) as set by the Financial Accounting Standards Board (FASB).
- Most accounting systems today are computerized, but manual systems still exist.
Business Types and Accounting Activities
- Three business types: manufacturing (produce goods), retail (buy and resell goods), and service (provide intangible services).
- Financial accounting focuses mainly on retail and some service businesses.
- For-profit businesses aim to generate revenue exceeding expenses (profit).
Stakeholders and Funding
- Stakeholders: stockholders, lenders, governmental agencies, customers, employees, unions, and management rely on accounting information.
- Businesses raise funds through profitable operations (revenue), borrowing (debt funding), and issuing stock (equity funding).
Accounting Careers and Education
- Accounting professionals should be goal-oriented, analytical, detail-focused, and possess good interpersonal skills.
- Entry-level accounting positions require at least a bachelor’s degree; advanced positions need experience and certifications (e.g., CPA).
- Career options include financial analyst, personal financial planner, executive roles, auditor, consultant, and public sector jobs.
Key Terms & Definitions
- Accounting — the process of organizing, analyzing, and communicating financial information for decision-making.
- Financial Accounting — reporting financial data to external users using standardized principles.
- Managerial Accounting — providing financial and non-financial data for internal management use.
- GAAP (Generally Accepted Accounting Principles) — standard rules for preparing financial statements.
- Stakeholder — anyone with an interest in a business’s financial performance (e.g., owners, creditors, employees).
- Transaction — a business event with a measurable cost or value, recorded in accounting.
- Equity Funding — raising money by selling stock or ownership shares.
- Debt Funding — raising money by borrowing.
Action Items / Next Steps
- Read Chapter 1 thoroughly in your textbook.
- Review the provided lecture notes and study guide for examples and key concepts.
- Complete the assigned activities and graded assignments for Chapter 1.
- Explore the Q&A discussion board for any questions or clarifications.