Chapter Summary

Accounting is often called the “language of business.” The financial information about a business is communicated to interested parties in financial statements.

Accounting is the process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties. Accurate accounting information is essential for making business decisions.

• There are many job opportunities in accounting.
• Accounting clerk positions, such as accounts receivable clerk, accounts payable clerk, and payroll clerk, require the least education and experience.
• Bookkeepers usually have experience as accounting clerks and a minimum of one to two years of accounting education.
• Most entry-level accounting positions require a college degree or significant experience as a bookkeeper.
• Accountants usually specialize in one of three major areas.
• Some accountants work for public accounting firms and perform auditing, tax accounting, or management advisory functions.
• Other accountants work in private industry where they set up and supervise accounting systems, prepare financial reports, prepare internal reports, or assist in determining the prices to charge for the firm’s products.
• Still other accountants work for government agencies. They keep track of public funds and expenditures, or they audit the financial records of businesses and individuals to determine whether the records are in compliance with regulatory laws, tax laws, and other laws. The Securities and Exchange Commission, the Internal Revenue Service, the Federal Bureau of Investigation, and Homeland Security employ many accountants.

All types of businesses need and use financial information. Users of financial information include owners and managers, employees, suppliers, banks, tax authorities, regulatory agencies, and investors. Nonprofit organizations need similar financial information.

• A sole proprietorship is owned by one person. The owner is legally responsible for the debts and taxes of the business.
• A partnership is owned by two or more people. The owners are legally responsible for the debts and taxes of the business.
• A corporation is a separate legal entity from its owners.
• Note that all three types of business entities are considered separate entities for accounting purposes.

• The SEC has delegated the authority to develop generally accepted accounting principles to the accounting profession. The Financial Accounting Standards Board handles this task. A series of steps used by the FASB includes issuing a discussion memorandum, an exposure draft, and a statement of principle.
• The SEC oversees the Public Company Accounting Oversight Board that was created by the Sarbanes-Oxley Act. The Board regulates financial reporting by accountants and auditors of publicly held companies.
• Each year firms that sell stock on stock exchanges or in over-the-counter markets must publish audited financial reports that follow generally accepted accounting principles. They must submit their reports to the Securities and Exchange Commission. They must also make the reports available to stockholders.