Accounting Introduction Part 1

What is Accounting ?

A. Three Activities 

Accounting is the information system that identifies, records and communicates the economic events and organization to interested users.

Accounting consists of three basic activities :

1. Identify

2. Records

3. Communicates

To identify economic events, a company selects the economic events relevant to its business. Once a company identifies economic events, it records those events in order to provide a history of its financial activities. Recording consists of keeping a systematic and chronological diary of events. In recording, a company also classifies and summarizes economic events. Finally, the company will communicate the collected informations to interested users ( internal and external users ) with accounting reports. The most common of these reports are called financial statements.

B. Group of Users of Financial Information

The information that a user of financial information needs depends on the kind of decision the user makes.  

There are two groups of users of financial information :

 

1. Internal Users

They are those individuals inside a company who pan, organize and run the business such as managers, production supervisors, finance directors and company officers.

2. External Users

They are individuals or organizations outside of a company who want financial information about the company. The two most common types of external users are investors and creditors. Investors use accounting information to make decision to buy, hold, or sell ownership shares of a company. Creditors use accounting information to evaluate the risks of granting credit or lending money.