Monday, April 19, 2010

Basic Accounting

http://my.uopeople.org/course/view.php?id=35

This course serves as an introduction to the basic theory, principles and techniques of contemporary financial accounting. Topics include the accounting cycle and the preparation of financial statements.
Course Number: BU 1102
Prerequisites: None

Welcome to Basic Accounting BU1102
This course is designed to introduce students to the concepts of financial reporting and financial management. Students will learn to tackle real-world accounting challenges by learning how to correctly make use of financial statements. Many a fortune has been made and lost, owing to the quality of the information used in making important financial decisions. This course will pave the way towards a better understanding of the capital market decision-making process. We will also explore various aspects related to current assets during our 8 weeks of study.

UNIT 1
Introduction to Principles of Financial Accounting

What purpose does Financial Accounting provide in society?

I will start answering the question by quoting the definition of Accounting taken from the textbook 'Principles of Accounting'

"Accounting is a set of concepts and techniques that are used to measure and report financial information about an economic unit. The economic unit is generally considered to be a separate enterprise. The information is potentially reported to a variety of different types of interested parties. These include business managers, owners, creditors, governmental units, financial analysts, and even employees. In one way or another, these users of accounting information tend to be concerned about their own interests in the entity. Business managers need accounting information to make sound leadership decisions. Investors hold out hope for profits that may eventually lead to distributions from the business (e.g., "dividends"). Creditors are always concerned about the entity's ability to repay its obligations. Governmental units need information to tax and regulate. Analysts use accounting data to form their opinions on which they base their investment recommendations. Employees want to work for successful companies to further their individual careers, and they often have bonuses or options tied to enterprise performance. Accounting information about specific entities helps satisfy the needs of all these interested parties."

The definition tells us more or less about the purpose Financial Accounting provides in society:
Financial Accounting can be considered as the language used to communicate a financial-related information from a company to its stakeholders which came from many different backgrounds and have many different interest in the financial condition of the company as said in the quoted section above. The finance division in a company use it to report their activities to other divisions inside the company and in the end it is also used to report the company's financial activities to the so-called 'outsiders' which are people who has interest in the company but not actually involved in day-to-day operations.
Since many people from many different backgrounds need to understand what a financial report is saying, a standardization in financial accounting is needed to enable stakeholders analyze the reports.
For example, financial accounting will provide information about how much a company is making and how much it pays its employees, this way would tell if the company is treating employees fairly. It will also tells how much tax being paid to government, dividend paid to the shareholders, is the company growing or not, etc.

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