[0:00]Welcome to the introduction to accounting. This is a five-part series, so let's start with part one, which is the basics. Okay, so what is accounting? Accounting is the language of business. That's a good way to describe it. It's essentially how we track the money that flows in and out of a business. So whether it's money that you're paying to suppliers or money you're receiving from customers, that all has to be tracked. And that's essentially what accounting is. It's the system that allows us to track that. Now, why do we need to track that? Why can't we just, you know, do it in our heads, or why do we need a complex system? Well, there's a couple of reasons. First, it's just helpful in making day-to-day business decisions. So if you're a manager of a firm, you want to know if you can afford to buy a new machine, or if you can afford to hire a new employee, or if you can afford to, you know, sell your product at a lower price. And to do all that, you need to know how much money is coming in and how much money is coming out. Also, we need it for tax reporting. The government wants to know how much money you made because they want to tax you on it. And so you need to provide an accurate accounting of your transactions to the government. And finally, investors and creditors want to know the financial health of your firm. So if you're going to go to a bank and ask for a loan, the bank is going to ask to see your financial statements. They want to know if you're going to be able to pay them back. And same thing with investors. If somebody's going to invest money in your business, they want to know, you know, how good of a financial position you're in. So basically, the information that comes out of an accounting system helps various users make better decisions. Now, who are the users? I've kind of mentioned them already. There's internal users and external users. Internal users are basically managers. They're using the accounting information to plan, organize, and run the business. So again, if you're thinking about, hey, should we introduce a new product line, or should we expand into a new country? That type of thing requires accounting information. You need to know if it's profitable. External users are people outside the business. So this would be like your investors, as I mentioned before. They want to know, hey, if I invest in this company, am I going to get a good return? Am I investing in a financially healthy company? Your creditors, as I mentioned, they want to know, hey, if I lend money to this company, are they going to pay me back? Governmental agencies, as I mentioned, the tax authorities, they want to know, hey, how much money did this company make? Because we want to tax them. So they're looking for that information. And then customers also might be interested. Let's say you're going to buy a car. You might want to make sure that the company is financially healthy, because if you buy the car, you want to make sure the company is still around in case you need to get it serviced or you want to buy replacement parts, or if you need to rely on the warranty. So customers might be interested in the financial health of the business as well. So there's a lot of different users that accounting information can help. Now, what happens if we have all these different users? How do we come up with information that will satisfy the needs of all these different users? Well, we have different fields of accounting. The two big ones are financial accounting and managerial accounting. With financial accounting, this is about providing information to external users. So this would be like your investors, your creditors, governmental agencies. The type of information that's relevant to them, that is financial accounting. We're providing information for people outside the firm. With managerial accounting, we're providing information to internal users, which are essentially managers. So here we don't have to worry about, hey, are we following certain accounting rules that the government has set forth? Or are we following generally accepted accounting principles? No, here we're just worried about, hey, what information is relevant to a manager so they can make better decisions? So, for example, if a manager wants to know, hey, should we make this component for our product or should we buy it from a supplier? That's something that managerial accounting would help with. Or should we, as I said, expand into a new country or introduce a new product? That is managerial accounting. So we're really just focused on helping managers make good decisions. Now, there's another type of accounting called tax accounting. This is basically about preparing tax returns for the government. So if you're a business, you have to prepare a tax return. You have to tell the government how much money you made. And that's what tax accounting is all about. Another one is forensic accounting. Now, this isn't nearly as big as the other three. But forensic accounting is basically about detecting fraud. So if you've got a business and there's a suspicion that someone's embezzling money or someone's stealing, then you might hire a forensic accountant to come in and try and find out who it is and how they're doing it. And how much money they've stolen and so forth. So that's what forensic accounting is. Now, what are some different jobs in accounting? There's a lot of different fields. You could be a bookkeeper, for example. This is basically somebody who just records all of the transactions. So they're just getting all the raw data, whether it's sales receipts or payments, whatever. And they're just putting that into the accounting system. They're just collecting the data. And then you've got financial accountants. They take that data from the bookkeepers and they prepare financial statements. And the financial statements are going to be for external users. So they're going to make sure that the financial statements comply with certain rules, like generally accepted accounting principles, or if it's for another country, maybe international financial reporting standards. You've got managerial accountants. So they're going to use the bookkeeper's data, and they're going to create customized reports for management. So as I mentioned, like, hey, should we make this component or buy it? Or should we expand to a new country? They're going to put together reports and financial information to help managers make those decisions. You've got tax accountants. As I mentioned, they prepare tax returns, and they also provide tax planning. So if you've got a business, you might hire a tax accountant to say, hey, how can we reduce our taxes? Or if you're an individual, you might go to a tax accountant to say, hey, how can I minimize my tax burden? Then there's auditors. So auditors basically they examine the financial statements that were prepared by the financial accountants. And they basically say, hey, do these financial statements accurately reflect the financial condition of the firm? So they provide assurance to external users, saying, hey, yeah, these financial statements, they look correct to us. And finally, you've got government and not-for-profit accountants. So this would be like if you're working for the IRS, or if you're working for the FBI, or for some governmental agency, and you're doing accounting there. Or a not-for-profit, so if you're working for the Red Cross, for example, they need accountants too. So there's a lot of different fields in accounting, a lot of different things you can do. And this is just part one, this is just the basics. We're going to go through a lot more in parts two, three, four, and five.