Chapter 11 Notes v2.docx

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Department
Business Administration
Course
BUS 100
Professor
Kim Milnes
Semester
Fall

Description
Chapter 11 – Understanding Accounting What is Accounting? 1) Accounting = comprehensive system for collecting, analysing, communicating financial information a) Measures business performance and translates findings into info. for management decisions b) Bookkeeping = recording accounting transactions (invoices, payments, taxes paid, etc.) c) Accounting Information Systems = organized procedure for identifying, measuring, recording and retaining financial information so that it can be used in accounting statements and management reports d) Accounting used by managers, employees/unions, investors/creditors, tax authorities, etc. Who are Accountants and What do they Do? 1) Head of accounting system is controller (individual who manages all the firm’s accounting activities) 2) Financial and Managerial Accounting a) Financial Accounting System = concerned with external uses of information (stock, unions, etc.)…looking at company as a whole b) Managerial Accounting = internal procedures that alert mangers to problems and aid them in planning and decision making 3) Professional Accountants a) Chartered Accountants = individual who has met certain experience and education requirements and has passed a licensing exam; acts as outside accountant for other firms b) Certified General Accountant = individual who has completed education program and passed national exam…works in private industry or CGA firm c) Certified Management Accountant = completed university degree, passed national exam, completed strategic leadership program, works in industry and courses on internal management accounting 4) Accounting Services a) Auditing  Account and examination of company’s financial records to determine if it used proper procedures to prepare its financial reports  Must adhere to generally accepted accounting principles (GAAP) = standard rules and methods used by accountants in preparing financial reports  International accounting standards (1) Global GAAP has been created (called IFRS) to ensure standards  Detecting Fraud (1) Due to recent fraud, forensic accountants may be used to track down hidden funds b) Tax Services  Help clients prepare tax returns, and structure business in most profitable manner c) Management Consulting Services  Specialized services to help managers resolve problems in finance, production, scheduling and others d) Private Accountant  Hired as a salaried employee to deal with day-to-day needs  The accounting cycle (1) 6 step proves used to develop/analyze company’s financial reports (2) Analyze transition documents  record transactions  transfer records to ledger  do trial balance  prepare financial statements  analyze statements The Accounting Equation 1) Accounting equation – Assets = liabilities + owner’s equity a) Assets = anything of economic value owned by firm/individual b) Liability = debt owned by a firm to individual or other c) Owner’s equity = any positive difference between firm’s assets and its liabilities  This is what would remain if firm was liquidated, all assets sold, all debts paid  Comes from 1) initial investment 2) profits earned Financial Statements 1) Double-entry accounting system = bookkeeping system that required every transaction to be entered two ways...how it affects assets, and how it affect liabilities 2) Financial Statements = any of several reports regarding companies’ finances 3) Balance Sheets a) Financial statement that summarizes firms financial position in terms of assets/liabilities/owner’s equity b) Current Assets = cash, money in bank, assets that can be converted into cash within year  Liquidity = ease and speed at which assets can be converted to cash  Accounts receivable = amounts due to firm from customers who have purchased goods on credit  Merchandise inventory = cost of merchandise that has been acquired for sale, but is still on ha
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