Page 403 - Introduction to Business

Accounting

R
ow do investors decide what companies are CHAPTER 11
Hthe better investments? How do bankers Accounting for Decision Making
decide whether to lend money to a loan appli-
cant? How do managers within a company keep
track of operations and determine if profits are CHAPTER 12
going up or down? The answer to all three ques- Financial Reporting
tions is accounting information. Accounting is PART FOU
the language of business. Accounting is the
recording, summarizing, and reporting of the
economic activities and events of an
organization.
Accounting generates information used by
people outside and inside the firm to make
important decisions. Outside the firm, financial
statements are used by investors and lending
institutions to make investment and loan deci-
sions, respectively. Within the firm, the account-
ing information system contributes to develop-
ing a sound organizational structure, ensuring
that employees are held responsible for their
actions, and to maintaining cost-effective busi-
ness operations. Chapter 11 provides an
overview of the accounting information system,
the importance of internal controls, and some
accounting career options.
Chapter 12 focuses on the purpose of finan-
cial reporting. Accounting will determine
whether the revenues of a firm exceed its
expenses, thus resulting in a profit. Alterna-
tively, accounting will determine whether
expenses exceed revenues, thus resulting in a
loss. The most important output of the account-
ing information system is the set of financial
statements. They include the income statement,
statement of retained earnings, balance sheet,
and statement of cash flows. Together, the four
financial statements represent a business firm
in financial terms. These statements provide
information that people need to make effective
business decisions. 377

Copyright 2010 Cengage Learning, Inc. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part.