Tag Archives: Chapter 1

The Objective of Accounting

Accounting provides information about the business activities to users for their use in decision making. Information provided by accounting helps users make informed decisions about the business operations of the entity. The objective of accounting is to provide users with the information that is useful in their decision making.


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Users of Accounting Information

Accounting information is used by external users and internal users.
External users include investors, creditors, customers, suppliers, employees and government. Internal users include the management, sales managers, production managers, purchasing managers and administrative staff of the entity.
Financial Accounting
Financial accounting is a branch of accounting that provides information to external users.
Managerial Accounting
Managerial accounting is a branch of accounting that provides information to internal users.
Review Questions
1. What is the objective of accounting?
The objective of accounting is to provide useful information for the decision making of users.
2. How are the users of accounting information classified?
External users and internal users
3. Who are the external users of accounting information?
Investors, Creditors, Customers, Suppliers, Employees and Government
4. Who are the internal users of accounting information?
Management, Production managers, Operations managers, Marketing managers and Administrative staff
5. What is the objective of financial accounting?
The objective of financial accounting is to provide useful information to external users.
6. What is the objective of managerial accounting?
The objective of managerial accounting is to provide useful information to internal users.


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Generally Accepted Accounting Principles (GAAP)

Financial accounting information is reported in accordance with the accounting standards. The accounting standards represent a set of principles generally accepted by the accounting profession and the users of accounting information. This set of accounting principles is called as Generally Accepted Accounting Principles (GAAP).
In the United States, the Financial Accounting Standards Board (FASB) develops the accounting standards to be applied by U.S. entities. The accounting standards are organized in the form of codification. The codification of accounting standards is provided on the FASB web site. (http://asc.fasb.org)
International Financial Reporting Standards (IFRS) provide the guidance for public entities operating in the countries that adopted IFRS as its accounting standards. The International Accounting Standards Board (IASB) develops International Financial Reporting Standards (IFRS). IFRS was adopted by more than 100 countries including the member states of the European Union (EU). The text of IFRS is provided on the IASB web site. (http://www.ifrs.org)
Public entities in the United States are required to file the quarterly and annual reports with the Securities and Exchange Commission (SEC). The form 10-K is an annual report and 10-Q is a quarterly report.


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