Chapter 2, Section 2

Accounting: The Universal

Language of Business
What Do You Think?
What kinds of financial decisions do you make? What
information do you use to make decisions?

Glencoe Accounting Unit 1 Chapter 2 Copyright

SECTION 2.2

Accounting: The Universal

Language of Business
Main Idea
The accounting system produces information used to
make decisions.

You Will Learn

how the accounting system works.
how decision makers use accounting reports.
three important accounting assumptions.

Glencoe Accounting Unit 1 Chapter 2 Copyright

Accounting: The Universal

Language of Business

SECTION 2.2

Key Terms

accounting system
manual accounting system
computerized accounting system
GAAP
financial reports
financial accounting
management accounting
business entity
accounting period
going concern

Glencoe Accounting Unit 1 Chapter 2 Copyright

SECTION 2.2

Accounting: The Universal

Language of Business
The Accounting System
The accounting system is designed to collect, document, and report on
financial transactions.
There are two types of accounting systems:
manual accounting system
computerized accounting system
Accountants must follow GAAP rules issued by the Financial Accounting
Standards Board (FASB).
Financial reports contain a summary of the financial status of a business.

Glencoe Accounting Unit 1 Chapter 2 Copyright

SECTION 2.2

Accounting: The Universal

Language of Business
Using Accounting Reports for Making Business
Decisions
Accounting provides financial information about a business or
organization. There are two groups that use accounting reports:
individuals outside the business who have an interest in
the business
individuals inside the business

Glencoe Accounting Unit 1 Chapter 2 Copyright

SECTION 2.2

Accounting: The Universal

Language of Business
Financial Accounting
In financial accounting, reports are prepared for
individuals outside the business.
Those interested in the financial accounting reports of a
business include
investors,
the local, state, and federal government, and
employees, consumers, and competitors.

Glencoe Accounting Unit 1 Chapter 2 Copyright

SECTION 2.2

Accounting: The Universal

Language of Business
Management Accounting
In management accounting, reports are prepared for
managers inside the business.
Financial accounting reports help a manager decide:
what to do,
how to do it,
when to do it, and
whether or not the results match the plans for the
future.

Glencoe Accounting Unit 1 Chapter 2 Copyright

SECTION 2.2

Accounting: The Universal

Language of Business
Accounting Assumptions
As mentioned before, all businesses follow GAAP, which includes
three assumptions:
A business is a business entity, separate from its owners
personal holdings.
There is a set accounting period.
A business is expected to continue as a going concern, able
to survive and operate indefinitely.

Glencoe Accounting Unit 1 Chapter 2 Copyright

SECTION 2.2

Accounting: The Universal

Language of Business
Key Terms Review
accounting system
A system designed to collect, document, and report on business transactions.
manual accounting system
A type of accounting system in which information is processed by hand.
computerized accounting system
A type of accounting system in which information is recorded by entering it into a computer.

Glencoe Accounting Unit 1 Chapter 2 Copyright

SECTION 2.2

Accounting: The Universal

Language of Business
Key Terms Review
GAAP
The set of rules that all accountants use to
prepare financial reports.
financial reports
Documents that present summarized information
about the financial status of a business.
financial accounting
The type of accounting that focuses on reporting
information to external users.

Glencoe Accounting Unit 1 Chapter 2 Copyright

10

SECTION 2.2

Accounting: The Universal

Language of Business
Key Terms Review
management accounting
The type of accounting that focuses on reporting
information to management; often referred to as
accounting for internal users of accounting
information.
business entity
The accounting assumption that a business exists
independently of its owners personal holdings.
The accounting records and reports are
maintained separately and contain financial
information related only to the business.

Glencoe Accounting Unit 1 Chapter 2 Copyright

11

SECTION 2.2

Accounting: The Universal

Language of Business
Key Terms Review
accounting period
The period of time covered by an accounting
report.
going concern
The accounting assumption that a business is
expected to operate indefinitely.

Glencoe Accounting Unit 1 Chapter 2 Copyright

12