 Hello, and welcome to the session. This is Professor Farhad. In this session, we're gonna be starting an introductory course in financial accounting. And in this topic, we're gonna look at, what is accounting? You know what accounting is. And who are the users of accounting information? Once again, this topic is covered in a financial accounting. And also it's helpful if you're studying for your CPA exam, here we are talking about the basics. So if you're starting, this is as basic information as it gets. So as always, I would like to remind you to connect with me on LinkedIn if you haven't done so. YouTube is where you would need to subscribe. I have over 1,600 plus accounting, auditing, finance and tax lecture. I have managerial accounting, cost accounting, intermediate accounting, income tax, governmental auditing. I have all sorts of courses. So if you're an accounting student, please let your classmate knows about this. Like my videos, share the videos, put them in playlist. If you're benefiting from my videos, it means other people might benefit as well. On my website, you'll have additional resources such as true, false, multiple choice, PowerPoint slides. If you're studying for your CPA exam, 2,000 plus CPA questions. I have a list of courses over 12 courses, different courses covering various accounting topics. So what is accounting? Accounting is a system that does three things in a nutshell. It identifies, records and communicate financial information to certain users. And we're gonna talk about who are these users and what do they use the information for. So let's start with the term identify. What does it mean identify? It means if something happened, if a transaction, if an event happens, the accounting system capture it. Like take a picture of it, capture the event. For example, Walmart sells a pair of shoes. This is a transaction. It's a sale transaction. They sell it and they either received cash or they sold it on credit. So that's an event. The next thing we do is we're going to record this event. We're gonna record this event. Now for a place like Walmart and most business places, they capture the transaction by scanning the item. Once you scan the item, once you sell it at the register, it captures the transaction. It automatically record that you made a sale for $30. So in those sales are kept in a chronological order, chronological means by time, and they are also organized by group. For example, all the sales together, all the purchases together, all the purchase returns together, so on and so forth. But we have some sort of an input. So we have to log in the transaction, but most of the time it's logged in automatically by a computer system. Then we're gonna have to communicate the information. What does it mean communicate? We're gonna have to prepare, analyze and interpret reports that's gonna help the users make a better decision. Now think about Walmart. How many sale you think they make per day or per hour? Thousands, if not millions of transactions per day, if not per hour. So what we're gonna have to do, we're gonna have to make sense of all of this. How do you make sense of all of this? We're gonna have to prepare financial statements. We have to prepare reports that's gonna communicate this information that's gonna talk about the information in a way that makes sense to the users. For example, here, let's assume those are the managers. They don't have to be the managers. Users can be, anyone will talk about the users shortly. But the point is we have to prepare reports. So we have to prepare what's called financial statements and that's something we're gonna have to learn about in this course. Now, why do we prepare reports? Because the users, and we'll talk about the users in the next slide, they need to make a decision. How do they make a decision? They rely on us, on accounting people because accounting is the language of business. It tells them what's going on. What is the total sales? What's total purchases? Is sales increasing? Is sales decreasing? And here we're talking about sales only but we can't keep track of any and every single transaction or account in the company. So simply put, accounting is an information and measurement system that identifies, records and communicate an organization business activity to users. Again, important is to users. And we're gonna talk about those users on the next slide. Now, users of accounting information. Accounting is the language of business because all organizations set up accounting information system to communicate data to help people make better decision. Well, let me tell you something about accounting. Accounting, it's not only the language of business. Accounting is the oxygen of the business. Without accounting, we will not have large companies. Without accounting, we will not have Microsoft. We will not have Googles. We will not have the apples of the world. You might be asking why? Here's why. People with ideas, Bill Gates, as an example, the founder of Microsoft or Steve Jobs, often time don't have the money to expand their idea. So when Bill Gates found his company in his garage, that's great. It's a great idea but Bill Gates cannot expand without the money. So Bill Gates need to have access to the money people with money. Now people with money, they need to know, they need to learn about the business. Now, to learn about the business, there's only one language and that's the accounting language. So that's why we called accounting as the language of business because people with money, people on Wall Street, investors, the only way they can find out what's going on at your company is if you prepare for them, prepare properly accounting reports, proper accounting reports. So that's why the accounting is the language. That's how you communicate. It doesn't matter who you are. As long as you prepare an income statement for me, as long as you properly prepare an income statement, as long as you properly prepare a balance sheet, I can read what's going on at your company because accounting is that language. And that's what happened when we have accounting, it breaks that barrier between people with money and people with ideas and this is how the economy grows and all these companies grow larger and larger because they need the fund to expand and accounting is the oil of the economy, is the oxygen of the stock market, the oxygen of capital raising, okay? So, but we're gonna break the users into two groups because we always talk about users but we're gonna break users into two groups. We have external users and we have internal users. Obviously external, external to the company, internal is internal to the company. And we need to talk about those two users a little bit further, okay? Who are the external users? Here's a list of them, lenders, external auditors, shareholders, board of directors, regulators. But I'm gonna focus on two groups. I'm gonna focus on lenders and I'm gonna focus on shareholders. So when we prepare accounting information, frankly, we are focusing, we are targeting those two groups, lenders and shareholders. Why? Why? Because lenders lend you money, shareholders invest, invest money. So both of these groups, they provide what we call capital. They are capital providers. And this is important because without those capital providers, we can't survive as a business. Therefore, accounting information mainly target those two groups to be more specific when we say external users. For external users, we prepare financial accounting report or for short financial accounting, financial accounting. Also external auditors might be interested, not might be interested external auditor use those reports, board of directors use those reports, regulators, government agencies use those reports. But when we prepare the reports we're mainly targeting lenders and shareholders in a sense we are trying to give them as much information as possible. Now the discipline of external users is called the discipline is called financial accounting and most likely the course that you are taken right now is called financial accounting. And this is what we do is we prepare financial accounting reports for external users. For internal users who are the internal users, people who are inside the company are ND managers, research and development managers, purchasing managers, human resource managers, marketing managers, production managers. So notice all of those, they have the word manager or something internal to the company. Now, can you be an external and internal at the same time? Sure you can. You can be the marketing manager and you can own some stocks, okay? It doesn't, you are an external and an internal but the point here will try to separate them to make the point. Now, the reports that you prepare for internal users is called, the discipline is called managerial accounting versus financial accounting. Now, for managerial accounting, most likely if you are a business students or if you are an accounting students, so you'll take financial accounting first as a course and you'll take managerial accounting. So there's, it has its own discipline. So managerial accounting is a discipline of preparing reports for users, for internal users to make better decisions but those users are internal to the company. For example, the R and D, they want to know how much money they can get from the budget, from the annual budget. You know, they have to prepare a report showing their expenses, showing their expenditure, how much money they need in order to develop that new drug. Purchasing managers, the same thing. They want to know how much, what was our total sales for specific product? Then they need to know what to buy if we are a manufacturing company, they need to know how much you are producing so they can buy raw material. Human resource managers, they want to know how many employees that we need and they need to scan the market to find out how much we should pay so that they use this information for internal decision makings. So very important to differentiate between those two groups, they're both users of accounting information. One is considered external, one is considered internal. Now, this is not a comprehensive list for both but remember, anyone that's inside the company, we call them internal users outside the company external users. Now let's take a look at this exercise to illustrate the concept of internal and external users. Identify the following questions as most likely to be asked by internal or external user of accounting. So who would be asking this question? Is it an internal user or an external user to the company? Which inventory item are out of stock? Do you think that an external or an internal? I would say that's an internal. A manager might be asking about this or a supervisor in a certain department. Should we make a five year loan to that business? Who make loans to the business? Bankers, lenders, creditors, those are external users to the company because they are outside the company. What are the costs of our product ingredient? Who'd be interested in this? The production manager, the production supervisor, the general manager for that division. So that's an internal user. Should we buy, hold, or sell a company stocks? Well, that's an external. That's the investors or potential investors. Those are external. Now they could be internal, but to make our life easier, we're gonna consider them external. Should we spend additional money for the redesign of the product? Who might say something like this? Maybe the head of R&D, maybe the head of engineering, okay? Maybe the production manager, those are internal users. Which firm reports the highest sales and income? Now notice, we're looking at which firm reports the highest sales and income. If we're looking at different companies as investors, that's an external user. Now, if we're assuming the firm is a division within a company that will be an internal users, but here we're gonna consider an investor as asking this, which firm report the highest sales and income because we might wanna invest in them. What are the costs of our services to customer? How much does it cost to serve one customer? Well, that's a budgeting, budget budgeting decision within the company. Those are internal users, internal users. P, identify the following users as either internal or external. R&D executives, well, that's an internal because research and development help the company create new product. Human resources executive, same thing, internal. They help hire, train, fire, people. Politicians, well, those are external users. They have nothing to do with the company. They look at the company and they use the information for their own political end but they're not internal users. Shareholders and important external users. Shareholders are the investors, are the people that give money to the company to invest and grow. Distribution managers, manager, internal, people who work for the company. Creditors are like shareholders. They provide capital but they lend money. Those are external. They give you the money that you expect to give it back to them. Now, shareholders expect to get a profit, they expect to get a profit from the company. Creditors, they expect interest. They expect interest payment plus they expect their money back as well. Production supervisor, well, guess what? Those are internal. They are supervising the process. Purchasing manager, manager works at the company, internal. They want to be, they are interested in how much we need to buy in order to produce or in order to sell what we need to sell. So very important to understand the difference. In the next session, we would look at additional resources. As always, I would like to remind you to go to my website if you are an accounting students and you want additional resources, you can subscribe, yeah, there's additional practices. Good luck, study hard accounting is a rewarding career but you have to work hard. It's a challenging because it's rewarding. It's difficult if it was easy and everyone will be an accounting students. I'm here to help you, my YouTube here to serve you, my website here to serve you, invest in your career and good luck.