DEFINED for ACCOUNTING

It seems fitting to begin with a

more formal definition of

accounting: Accounting is a set

of concepts and techniques that

are used to measure and report

financial information about an

economic unit. The economic

unit is generally considered to be

a separate enterprise. The

information is potentially

reported to a variety of different

types of interested parties.

These include business

managers, owners, creditors,

governmental units, financial

analysts, and even employees.

In one way or another, these

users of accounting information

tend to be concerned about

their own interests in the entity.

Business managers need

accounting information to make

sound leadership decisions.

Investors hold out hope for

profits that may eventually lead

to distributions from the business

(e.g., "dividends"). Creditors are

always concerned about the

entity's ability to repay its

obligations. Governmental units

need information to tax and

regulate. Analysts use

accounting data to form their

opinions on which they base

their investment

recommendations. Employees

want to work for successful

companies to further their

individual careers, and they often

have bonuses or options tied to

enterprise performance.

Accounting information about

specific entities helps satisfy the

needs of all these interested

parties.

The diversity of interested parties

leads to a logical division in the

discipline of accounting:

financial accounting and

managerial accounting. Financial

accounting is concerned with

external reporting of information

to parties outside the firm. In

contrast, managerial accounting

is primarily concerned with

providing information for

internal management.