You and every other member of society depend on information to function efficiently and effectively. For example, people who invest in business enterprises use economic information to guide their decisions about future financial possibilities. Information about the effects of past actions is accumulated to serve as an aid in making better decisions in the future. Accounting is the system that provides relevant financial information to every person who owns or uses economic resources or otherwise engages in economic activity.
As a financial information system, accounting is the process of identifying, recording, and communicating the economic events of an organization. In this chapter, we: (1) introduce the subject of accounting and GAAP (generally accepted accounting principles), (2) discuss the basic accounting equation and the effects of transactions on its elements, and (3) examine the composition of the four general purpose financial statements required for business enterprises.