Finance ch.4

• Accounting - the art of recording, classifying, and summarizing transactions and events, whichare, in part at least, of a financial character and interpreting the results thereof.
• Accounting is a service activity
• Accounting is an information system
• Users of accounting information

  1. Internal users
  2. External users
• Internal users - owners, managers, and employees or those who belong to the organization
• External users - customers, creditors, suppliers, competitors, the government, and the community to where the business belongs
• Finance - the management of money or the money resource itself
• Finance - the effective and efficient acquisition, allocation, and utilization of funds
• Types of capital

  1. Human capital
  2. Non-human capital (tangible and intangible)
• Profit maximization - the ultimate objective of any business firm because it is the best way to increase the owners wealth and the value of the company
• Accounting profits - are used by managers and owners to measure the performance of firms
• Financial statements - the product of accounting, are indispensable tools to management, especially to financial managers
• Basic Financial Statements

  1. Income Statement
  2. Balance Sheet
  3. Statement of changes in Owner(s) equity
  4. Cash Flow Statement
• Financial Accounting - deals with the recording of the business transaction and the preparation of the financial statement
• Financial Accounting - provides objective financial information about the performance and stability of a company or business
• Managerial accounting - the branch of accounting concerned of providing information to managers, those inside the organization, and those direct and control the company's organization
• Managerial Accounting - includes information on the cost of product and services, budgets, performance report and other information
• Managerial Accounting - focuses on the role of accounting information in the decision-making process of managers with responsibilities inside the organization
• Financial Management - concerned with the efficient and effective allocation, acquisition, and use of funds
• Financial Managers - responsible for forecasting and planning, making major investment and financing decisions, coordination and control, and dealings with the financial market.
• Finance - deals with sources and uses of funds
• Accounting - deals with recording financial transactions to determine results of operation and financial condition of the business; helps financial managers make decisions