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Introduction to Business

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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.
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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.
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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.
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Table of Contents:
  1. INTRODUCTION:CONCEPT OF BUSINESS, KINDS OF INDSTRY, TYPES OF TRADE
  2. ORGANIZATIONAL BOUNDARIES AND ENVIRONMENTS:THE ECONOMIC ENVIRONMENT
  3. BUSINESS ORGANIZATION:Sole Proprietorship, Joint Stock Company, Combination
  4. SOLE PROPRIETORSHIP AND ITS CHARACTERISTICS:ADVANTAGES OF SOLE PROPRIETORSHIP
  5. PARTNERSHIP AND ITS CHARACTERISTICS:ADVANTAGES AND DISADVANTAGES OF PARTNERSHIP
  6. PARTNERSHIP (Continued):KINDS OF PARTNERS, PARTNERSHIP AT WILL
  7. PARTNERSHIP (Continued):PARTNESHIP AGREEMENT, CONCLUSION, DUTIES OF PARTNERS
  8. ORGANIZATIONAL BOUNDARIES AND ENVIRONMENTS:ETHICS IN THE WORKPLACE, SOCIAL RESPONSIBILITY
  9. JOINT STOCK COMPANY:PRIVATE COMPANY, PROMOTION STAGE, INCORPORATION STAGE
  10. LEGAL DOCUMENTS ISSUED BY A COMPANY:MEMORANDUM OF ASSOCIATION, CONTENTS OF ARTICLES
  11. WINDING UP OF COMPANY:VOLUNTARY WIDNIGN UP, KINDS OF SHARE CAPITAL
  12. COOPERATIVE SOCIETY:ADVANTAGES OF COOPERATIVE SOCIETY
  13. WHO ARE MANAGERS?:THE MANAGEMENT PROCESS, BASIC MANAGEMENT SKILLS
  14. HUMAN RESOURCE MANAGEMENT:Human Resource Planning
  15. STAFFING:STAFFING THE ORGANIZATION
  16. STAFF TRAINING & DEVELOPMENT:Typical Topics of Employee Training, Training Methods
  17. BUSINESS MANAGERíS RESPONSIBILITY PROFILE:Accountability, Specific responsibilities
  18. COMPENSATION AND BENEFITS:THE LEGAL CONTEXT OF HR MANAGEMENT, DEALING WITH ORGANIZED LABOR
  19. COMPENSATION AND BENEFITS (Continued):MOTIVATION IN THE WORKPLACE
  20. STRATEGIES FOR ENHANCING JOB SATISFACTION AND MORALE
  21. MANAGERIAL STYLES AND LEADERSHIP:Changing Patterns of Leadership
  22. MARKETING:What Is Marketing?, Marketing: Providing Value and Satisfaction
  23. THE MARKETING ENVIRONMENT:THE MARKETING MIX, Product differentiation
  24. MARKET RESEARCH:Market information, Market Segmentation, Market Trends
  25. MARKET RESEARCH PROCESS:Select the research design, Collecting and analyzing data
  26. MARKETING RESEARCH:Data Warehousing and Data Mining
  27. LEARNING EXPERIENCES OF STUDENTS EARNING LOWER LEVEL CREDIT:Discussion Topics, Market Segmentation
  28. UNDERSTANDING CONSUMER BEHAVIOR:The Consumer Buying Process
  29. THE DISTRIBUTION MIX:Intermediaries and Distribution Channels, Distribution of Business Products
  30. PHYSICAL DISTRIBUTION:Transportation Operations, Distribution as a Marketing Strategy
  31. PROMOTION:Information and Exchange Values, Promotional Strategies
  32. ADVERTISING PROMOTION:Advertising Strategies, Advertising Media
  33. PERSONAL SELLING:Personal Selling Situations, The Personal Selling Process
  34. SALES PROMOTIONS:Publicity and Public Relations, Promotional Practices in Small Business
  35. THE PRODUCTIVITY:Responding to the Productivity Challenge, Domestic Productivity
  36. THE PLANNING PROCESS:Strengths, Weaknesses, Threats
  37. TOTAL QUALITY MANAGEMENT:Planning for Quality, Controlling for Quality
  38. TOTAL QUALITY MANAGEMENT (continued):Tools for Total Quality Management
  39. TOTAL QUALITY MANAGEMENT (continued):Process Re-engineering, Emphasizing Quality of Work Life
  40. BUSINESS IN DIGITAL AGE:Types of Information Systems, Telecommunications and Networks
  41. NON-VERBAL COMMUNICATION MODES:Body Movement, Facial Expressions
  42. BUSINESS ORGANIZATIONS:Organization as a System
  43. ACCOUNTING:Accounting Information System, Financial versus Managerial Accounting
  44. TOOLS OF THE ACCOUNTING TRADE:Double-Entry Accounting, Assets
  45. FINANCIAL MANAGEMENT:The Role of the Financial Manager, Short-Term (Operating) Expenditures