|
|||||
Introduction
to Business MGT 211
VU
Lesson
43
ACCOUNTING
By
collecting, analyzing, and
communicating financial information,
accountants provide
business
managers and investors with
an accurate picture of the
firm's financial
health.
Certified
public accountants (CPAs)
are licensed professionals
who provide auditing, tax,
and
management
advisory services for other
firms and individuals.
Public accountants who
have
not
yet been certified perform
similar tasks. Private
accountants provide diverse
specialized
services
for the specific firms
that employ them.
The
Vision Project is a profession-wide
assessment to see what the
future of the
accounting
profession
will be like. It was
initiated because of the
declining number of students
entering the
accounting
profession and because of
rapid changes in the
business world. Practicing
CPAs
and
other industry leaders have
participated in identifying key
forces that are affecting
the
profession.
Then the developed
recommendations for change,
including a set of core
services
that
the profession should offer
clients and a set of core
competencies that CPAs
should
possess.
Overall, the new vision
reflects changes in the
CPA's culture and
professional
lifestyle.
The
accounting equation (assets =
liabilities + owners' equity) is
used to balance the data
in
accounting
documents. Double-entry accounting
acknowledged the dual
effects of financial
transactions
and ensures that the
accounting equation always
balances.
These
tools enable accountants not
only to enter but to track
transactions. They also
serve as
double
checks for accounting
errors. The balance sheet
summarizes a company's
assets,
liabilities,
and owners equity at a given
point in time. The income
statement details
revenues
and
expenses for a given period
of time and identifies any
profit or loss. The
statement of cash
flows
reports cash receipts and
payments form operating,
investing, and financing
activities.
Drawing
on data from financial
statements, ratios can help
creditors, investors, and
managers
assess
a firm's finances. The
liquidity ratios -- current
and debt-to-equity --measure
solvency
(a
firm's ability to pay its
debt) in both the short
and the long run..
Return on equity and
earnings
per share measure
profitability. inventory turnover
ratios show how efficiently
a firm is
using
its funds.
Accounting
for foreign transactions
requires some special
procedures. First, accountants
must
consider
the fact that the
exchange rates of national
currencies change. Accordingly,
the value
of
a foreign currency at any
given time, its foreign
currency exchange rate, is
what buyers are
willing
to pay for it.
Exchange
rates affect the amount of
money that a firm pays
for foreign purchases and
the
amount
that it gains from foreign
sales. U.S. accountants,
therefore, must always
translate
foreign
currencies into the value of
the U.S. dollar. Then, in
recording a firm's
transactions,
they
must make adjustments to
reflect shifting exchange
rates over time. Shifting
rates may
result
in either foreign currency
transaction gains (a debt,
for example, may be paid
with fewer
dollars)
or foreign currency transaction
losses.
What
Is Accounting and Who Uses
Accounting Information?
Accounting
-- comprehensive
system for collecting,
analyzing, and communicating
financial
information.
Bookkeeping
-- recording of
accounting transactions. It is just
one phase of
accounting.
156
Introduction
to Business MGT 211
VU
Accounting
Information System (AIS) --
Organized means by which
financial information is
identified,
measured, recorded, and
retained for use in
accounting statements
and
management
reports.
Users
of Accounting Information
Business
Managers --- Set goals,
develop plans, set budgets,
and evaluate future
prospects
Employees
and Unions --- Get paid,
plan for and receive
benefits.
Investors
and Creditors --- Estimate
returns to stockholders, determine
company's growth
prospects,
determine creditworthiness before
investing or lending.
Tax
Authorities --- Plan for
tax inflows, determine tax
liabilities, ensure proper
payment
Government
Regulatory Agencies --- Fulfill
their duties to
citizens.
Who
Are Accountants and What Do
They Do?
Controller
-- the
person who manages all of
firm's accounting activities
(chief accounting
officer)
Financial
versus Managerial
Accounting
i.
Financial
Accounting--field of
accounting that informs
external users
of
a company's financial
information.
ii.
Managerial
Accounting--field of
accounting that serves
internal users
of
a company's financial
information.
Certified
Public Accountants ---
Accountant licensed by the
state and offering services to
the
public
i.
Professional
Practice
Some
CPAs work as individual
practitioners, while others
join with one
or
more CPAs in partnerships or
professional corporations.
1.
Nearly one-half of accounting's
total revenues in the U.S.
are
received
by the Big 4 accounting
firms, Deloitte & Touche,
Ernst
&
Young, KPMG LLP, Price
Waterhouse Coopers.
ii.
CPA
Services
1.
Audit--systematic
examination of a company's
accounting
system
to determine whether its
financial reports fairly
represent
its
operations.
a.
Generally
Accepted Accounting Principles
(GAAP)--
accepted
rules and procedures
governing the content
and
form of financial
reports.
2.
Tax
services include
assistance not only with
tax return
preparation
but also with tax
planning.
3.
Management
Advisory Services--specialized
accounting
services
to help managers resolve a
variety of business
problems.
157
Introduction
to Business MGT 211
VU
iii.
Non-certified
Public Accountants may work
for small businesses,
individuals,
and even larger firms,
performing income tax
preparation,
payroll
accounting, and financial
planning services.
Private
Accountants -- salaried
accountant hired by a business to
carryout
its day-to-day
financial
activities.
The
CPA Vision Project
i.
Identifying
Issues for the Future--CPA
success will depend on
public
perceptions
of abilities and roles, CPAs
must respond to market
needs,
market
demands more high-value
consulting and fewer
auditing and
accounting
services, specialization will be
vital, CPAs must be
conversant
in global strategies and
business practices
ii.
Global
Forces as Drivers of
Change--Forces
include political,
economic,
technical, social, human
resources, and
regulatory
iii.
Recommendations
for Change--CPA profession
must adopt broader
focus
to include strategic thinking,
provide more value to
society by
expanding
education and experience,
revitalize itself to meet
future
demands,
and increase opportunities
for achievement, rewards,
and
lifestyle
preferences.
iv.
A
New Direction
1.
Core
Services--A
broader
perspective
is
strongly
recommended
that moves into areas
traditionally outside
the
accounting
realm.
2.
Core
Competencies Vision
Project identifies
unique
combination
of skills, technology, and
knowledge including
strategic
and critical thinking
skills, communication
and
leadership
skills, focus on the client
and the market, skills
in
interpreting
information, and technology
skills.
158
Table of Contents:
|
|||||