Question: Investors are interested (sometimes almost obsessively interested) in the financial information that is produced by a company based on the rules and principles of financial accounting. They want to use this information to make wise investing decisions. What do investors actually hope to learn about a company from this financial information?

Measurement Triggering Transactions and Events

Economists often refer to income as a measure of better-offenses. In other words, economic income represents an increase in the command over goods and services. Such notions of income capture a business’s operating successes, as well as a good fortune from holding assets that may increase in value.

The Meaning of Accounting Income

Preparing Financial Statements

In the previous chapter, you learned all about adjustments that might be needed at the end of each accounting period. These adjustments were necessary to bring a company’s books and records currently in anticipation of calculating and reporting its income and financial position.

However, Information Processing did not illustrate how those adjustments would be used to actually prepare the financial statements. This chapter will begin with that task.

Current Liabilities

The current liabilities section of the balance sheet contains obligations that are due to be satisfied in the near term, and includes amounts relating to accounts payable, salaries, utilities, taxes, short-term loans, and so forth. This casual description is inadequate for all situations, so accountants have developed a very specific definition to deal with more issues.

Answer: In simplest terms, financial accounting is the communication of information about a business or other type of organization (such as a charity or government) so that individuals can assess its financial health and prospects. Probably no single word is more relevant to financial accounting than “information.”

Whether it is gathering financial information about a specific organization, putting that information into a structure designed to enhance communication, or working to understand the information being conveyed, financial accounting is intertwined with information.