10 June 2014
Chapter 14: Accounting and Financial Statements
The Nature of Accounting: Accounting is the recording, measurement, and interpretation of financial information.
*Public Accountants include CPA’s which are individuals who have been state certified to provide accounting services ranging from the preparation of financial records and the filing of tax returns, to the complex audits of corporate financial records.
*Private Accountants are accountants that are employed by large corporations, government agencies, and other organizations to prepare and analyze their financial statements.
Accounting and Bookkeeping are often mistaken for one another. Bookkeeping is typically limited to the day-to-day recording of business transactions, while Accountants complete course work beyond their basic four to five year accounting degrees. This extra training helps tremendously in understanding, interpreting, and developing the sophisticated accounting systems necessary to analyze complex financial information.
Uses of Accounting Information:
Internal- Managerial Accounting (cash flow, budget)
External- Annual Reports (income taxes, growth plans)
The Accounting Equation: Consists of assets, liabilities, and owner’s equity.
Equation: Assets + Liabilities = Owner’s Equity
Double Entry Bookkeeping: Recording and classifying business transactions that maintains the balance of the accounting equation.
Equation: Assets = Liabilities + Owner’s Equity
$325 = $325 (Example)
Step One: Examine Source Documents
Step Two: Record