In a large organization, supervisors are not usually responsible for accounting and generating financial statements. Those tasks are performed by an accountant or accounting department. However, all organizations set financial standards for each department that must be met, and supervisors are responsible for meeting those standards. Supervisors need to be able to understand key financial reports and concepts in order to maintain proper control over their department. For example, supervisor needs to understand when costs are too high relative to standards so that they can investigate the problem and implement a solution. Accounting is essential to the proper and efficient functioning of the business. In fact, it is often referred to as the language of business. It is the process of identifying, recording, measuring, classifying, verifying, summarizing, interpreting, and communicating financial information that reveals profit or loss for a given period and the value and nature of a firm's assets, liabilities, and owners equity. Accounting provides information on the resources available to a firm, the means employed to finance those resources, and the results achieved through their use. One important purpose of accounting is to provide relevant information to managers and supervisors that will aid them in making good decisions. Another is to report financial information about the company to interested parties like stockholders, the media, financial advisors, government agencies, and consumers. An accounting system is very simply the methods by which firm records and summarizes accounting data. Many years ago, companies kept track of their finances by hand using thick paper volumes called ledgers, balance sheets, and journals to record transactions and compile reports. A lot of the terminology we use today dates to those times. Like an organization's production system, an accounting system has inputs like sales records, processing, and outputs like reports. These days, almost all companies use software to record and report the financial information. Today's accounting programs can gather information instantly from multiple locations, making financial information available whenever the organization needs it. As a result, accountants can spend more time on more important tasks like financial analysis and forecasting. The accounting cycle is the process of identifying, analyzing, and recording the accounting events of accompany. The sequence begins when a transaction occurs and ends with its inclusion in the financial statements. Most companies balance their books quarterly and then again at year end. Based on the transactions recorded as part of the accounting cycle, financial statements such as cash flow reports, profit and loss statements, and balance sheets can be prepared. Once all the business accounts have been balanced, they are closed out for that period and new ones created for the next accounting period. Financial statements are written records that convey the business activities and financial performance of a company. Financial statements are often audited by government agencies, accountants, other firms, etc, to ensure accuracy and for tax, financing, or investment purposes. Financial statements are also used by investors, market analysts, and creditors to evaluate a company's financial health and their earning potential. Investors and financial analysts rely on financial data to analyze the performance of the company and predict the future direction of the company stock price. The three major financial statement reports are the balance sheet, income statement, and statement of cash flows. We'll talk about all three in the next few videos.