 Hello and welcome to this session in which we will discuss what is accounting and we're gonna be discussing the users of accounting information Now this topic is covered in introductory financial accounting course Which I do have a complete course about what is accounting, but to start your course You have to understand the basic concept. What is accounting? How do you define accounting and who are the users who uses accounting information? Having this basic knowledge will make it easier for you later on to understand Why we book certain transaction? How do we book certain transaction? What is the value of the financial statements? But before we start I would like to remind you that if you are an accounting student or a CPA candidate But especially if you are an accounting students, I do have courses and accounting such as financial accounting Managerial accounting all sorts of accounting on my website for hat lectures calm in addition to the lectures I do have multiple choice through false Exercises that's gonna help you reinforce the concepts For you now if you are studying for your CPA exam I do have plenty of resources that's aligned with your CPA review course What I can do is I can be a useful addition to your either CPA review course or to your accounting Courses, so I strongly suggest you check out my website for hat lectures calm If you have not connected with me only then please do so especially if you are an accounting student I do post in addition to my lectures other news jobs events about accounting Like this recording share it with your classmates share it with others if it benefits you It's gonna benefit other connect with me on Instagram and Facebook and let's go ahead and get started What is accounting? Accounting basically consists of three basic activities. What one is identifies? record and communicate economic or we call them financial and information financial and nature of an organization to interested users now We're also gonna be looking at the users who are those users someone is interesting in this information So let's say what this three basic activities entails just to give an example So this way you understand what it means. Let's assume this company here chip city Purchase a computer from Dell is this an economic event or a financial transaction and the answer is yes What is a transaction a transaction is an exchange? between two parties Sometime those parties could be internal in the company itself or some time it could be external just like in this situation Chip city bought a computer from Dell. So that's an External external transaction if you want to classify it as an external transaction So this is a transaction. So as accountant, we need to identify what is identified figure out what's going on Figure out what's going on. So when we find out that we are purchasing a computer or we purchase a computer The next thing we need to do as accountant We need to record and what is record simply put Put it down write it down somewhere in a system record the transaction Basically recorded put it down now We're gonna learn how to properly how to properly record the transaction There are a system called debits and credits which would learn about later how to record the transaction Then we're gonna classify Classify we're gonna classify the transaction. What type of transaction is it? We're gonna classify it Then we're gonna put all the transactions together similar transactions together. For example, we're gonna put all the sales together We're gonna put all the purchases together. We're gonna classify them summarize them Okay, because we're gonna have many transactions. So we want we want it to make sense We're gonna record classify and summarize and at the end of the process the most important thing is to communicate To communicate this information to communicate what happened. How many what was our sales? What was our purchases? What was our profit? okay to communicate the information By preparing accounting reports and you're gonna see later. We're gonna be preparing financial statements. The reports are called the technical word is financial Statements, we're gonna be preparing financial statements and to be more specific. We're gonna prepare something called the income Statement which would learn about later or shortly not in this recording But in future recording, we're gonna prepare something called the balance sheet and we're gonna prepare a statement of retained earning And we're gonna learn about all of those later So the information that we obtain will have to be communicated via financial statement Then we're gonna send this information to users Here are the users who's gonna who we're gonna analyze and interpret this information And what is the purpose of all of this the purpose of accounting is to give the users? We're gonna see who the users are Information to help them make a better decision about the company. So that's the purpose of accounting It's to to give the users good information to make a good business decision. That's basically what it is Okay, we have a term called bookkeeping. What is bookkeeping bookkeeping is the process of Recording the transaction. Okay, the accounting process include bookkeeping bookkeeping is basically recording the transaction Now, how are we how are we gonna record the transaction? You're gonna see would record the transaction in a chronological order It means by date and would learn properly how to do so later on But this is the act of accounting and the purpose of accounting now we talked about users I kept saying we communicate information to users. We're gonna have two type of users We're gonna have the internal users and we're gonna have obviously external users and Guess what internal and external deals with if they are external to the company or internal to the company So who would be internal to the company? For example, the marketing department would be internal to the company So those are we provide them with with information that's gonna help them make a better decision For example, what price should Apple charge for the iPod to maximize the company's net income? So the marketing people they want to know they want data financial information to determine If they can charge 30 50 or 100 dollars for the iPod Okay, for example management For example, which PepsiCo product line is the most profitable management is interested in knowing give me accounting information That's gonna tell me is it the soda the beverages or is it the snack chips? That's more profitable and within the soda beverages. You have many lines. Tell me which one is the best Finance people people and finance is the cash sufficient to pay dividend to Microsoft stockholders Do we have enough cash to pay the shareholders the finance the treasurer is interested in that that's also internal information HR human resources can GM afford to give employee a pay raise Okay, so they're interested in accounting information So the information that we provide to the internal users are considered Those are considered internal users. So they use the information for internal decisions Now we also have external users Now anyone outside the company is external to the company and you could have all sorts of users outside the company But as far as we're concerned, we're interested in two different users external users and those are investors And creditors those are the most important two users One is investors and two are creditors now. We need to define what they are and why are they important Investors they are also called shareholders They could be called stockholders Okay, who are the investors investors are the people that Contribute the individuals that contribute money to the company. So they give money to the company for the company to to operate Yes, why would they give money to the company because they like the company they believe in the company Now, what would the company give them in return the company will give them in return part of the profit We call this dividend. So the company gives them back dividend What is dividend is when the company makes a profit then distribute the profit to the shareholders So investors are very interested in accounting information because they want to know if they should invest in the company Not invest in the company. If they're current investors, should they sell their position and move on? So what they do they invest their money creditors They serve the same purpose creditors also gives you money. Okay But what's the difference between creditors and investors creditors? They're also called lenders and that's all what they are They lend you money investors. Oh, I missed one word for investors. They're also called owners investors are owners lenders Yes, they give you money, but all what they want in return is their money back plus Interest so before they lend you the money They want to take a look at your financial situation to see how well you are doing And by knowing how well you are doing they will determine how much they should charge you an interest rate What should be the term of the loan? And most importantly, they will decide if they should lend you or not lend you money Because based on your accounting information They will they will decide if they should go ahead with that risk or not take that risk because they're not going to get their money back So will united airline be able to pay off? It's that as they become do the lenders They would look at the financial statements of united airlines before before they make that decision Also for investors, it's going to help them compare different companies How does disney compare in size and profitability to time warden? So this way they'll decide if they should invest in disney or they should decide in time warden Now are these the only external users? Absolutely not the irs The government is an external users the securities and exchange commission the sec is an external users Any citizen is an external users suppliers, which is kind of suppliers are very similar to creditors Suppliers people that sell you stuff on account. They're all they're all They are all external users But as far as we're concerned we target two main groups investors and creditors And why do we target those two groups? Because they risk their money they put their money on the line to finance the company therefore they're most interested in this information So let's take a look at this exercise quick exercise and see if we can answer these questions indicate whether the following statement are true or false The three steps in accounting process are identifying recording and communicating. Hopefully, you know, this is correct. This is the This is a correct statement Bookkeeping encompasses all steps in the accounting system. It does not bookkeeping is part of the accounting system. Just the recording part Accounting prepare but do not interpret financial reports. Absolutely not Accountant prepare and can interpret the financial reports. They're the best at interpreting because they're the They are the party that prepare that report. So, you know, the ins and outs of the numbers The two most common type of external users are investors and company officers investors is correct company officers are not Company officers should be replaced with creditors. Those are the two most common or the two most Important not only common the two most important when we prepare information Those two groups investors and creditors Our is our our main audience audience Managerial accounting activities focus on report for internal users. Well, I failed to mention this. Let me go back and mention this When you prepare information to internal users, the process is called Managerial accounting and there's a whole course that's called managerial accounting When you prepare information to external users, the process is called financial Accounting and you you must be taken now financial accounting or financial reporting financial accounting and financial reporting So let's take a look at this question again number four. I'm sorry number five managerial accounting Focuses on report for internal users and that that's and that's a true statement. So number five is true So that's basically the first session in this course If you have any questions any comments by all means email me if you're taking this class see me in class Make sure to read the book complete your homework complete your quiz And if you're studying for your cba exam study hard, it's worth it