Section 2 Accounting: The
Universal Language of
Business
What You’ll Learn
 How the accounting system works.
 Who uses financial accounting reports.
 Who uses management accounting
reports.
 How accounting is used to help make
business decisions.
 What assumptions provide the foundation
for accounting systems.
Section 2 Accounting: The Universal Language of
Business (con’t.)
The Accounting System
Designed to collect, document, and report on
financial transactions affecting the business.
Key terms:
1. manual accounting system
2. computerized accounting system
3. generally accepted accounting
principles (GAAP)
4. financial reports
Section 2 Accounting: The Universal Language of
Business (con’t.)
How the Accounting System
Works
Inputs
Source
Documents
Processing
Outputs
Tasks
Financial and
Management
Accounting
Reports
 Checks
 Analyzing
 Invoices
 Classifying
 Sales
Slips
 Recording
 Receipts
 Financial
Condition
 Results of
operations
 Investments
by and
distributions to
owners
Section 2 Accounting: The Universal Language of
Business (con’t.)
Using Accounting Reports for
Making Business Decisions
There are two groups that use
accounting reports:
 individuals outside the business
who have an interest in the
business
 individuals inside the business
Section 2 Accounting: The Universal Language of
Business (con’t.)
Financial Accounting
Financial accounting focuses on
reporting information to external users.
Who Uses Financial Accounting
Reports?
 potential investors
 banks that loan money to a business
 local, state, and federal governments
 workers, consumers, union leaders, and
competitors
Section 2 Accounting: The Universal Language of
Business (con’t.)
Management Accounting
Management accounting focuses
on reporting information to
management.
 Managers
Section 2 Accounting: The Universal Language of
Business (con’t.)
Accounting Assumptions
1. business entity
2. accounting period
3. going concern
Section 2 Accounting: The Universal Language of
Business (con’t.)
Check Your Understanding
Consider creating an “accounting
system” for your personal finances.
1. How would you organize the system?
2. What inputs would there be?
3. How might you record your activities?
4. How might you report on those
activities?
Section 2 Accounting: The Universal Language of
Business (con’t.)
Why It’s Important
Understanding accounting systems is the
key to understanding business.
Key Terms
1. accounting system
2. financial accounting
3. management
accounting