Chapter 15: Understanding Accounting and Financial Statements

Introduction
The purpose of this chapter is to identify some of the concepts of Understanding Accounting and Financial Statements in the business world.
Learning objectives

1. Explain the functions of accounting, and identify the three basic activities involving accounting.
2. Describe he roles played by public, management, government, and not-for-profit accountants. 3. Identify the foundations of the accounting system, including GAAP and the role of the Financial Accounting Standards Board (FASB). 4. Outline the steps in the accounting cycle, and define double-entry bookkeeping and the accounting equation. 5. Explain the functions and major components of the four principal financial statements: the balance sheet, the income statement, the statement of owner’s equity, and the statement of cash flows. 6. Discuss how financial ratios are used to analyze a company’s financial strengths and weaknesses. 7. Describe the role of budges in a business. 8. Outline accounting issues facing global business and the move towards one set of worldwide accounting rules.

1. Explain the functions of accounting, and identify the three basic activities involving accounting.
Accounting measure, interpret, and communicate financial information to parties inside and outside the firm to support improved decision making. Accountants gather, record, and interpret financial information to management. They also provide financial information on the status and operations of the firm for evaluation by outside parties, such as government agencies, stockholders, potential investors, and lenders. Accountants plays key roles in financing activities, which help start and expand an organization; investing activities, which provide the assets it needs to continue operating; and operating activities,