ACCOUNTING:Accounting Information System, Financial versus Managerial Accounting

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Introduction to Business MGT 211

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.

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Introduction to Business MGT 211

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

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

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.

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Introduction to Business MGT 211

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

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

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.

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