Chapter 4- 12 from textbook. for final and midterm.

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

CHAPTER 4: UNDERSTANDING ACCOUNTING ISSUES Accounting: - system for collecting, analyzing, and communicating financial info -measure business performance - translate this info so managers (or others) can make decision Bookkeeping: recording accounting transactions Accounting information system (AIS): organized procedure for identifying, measuring, recording, and retaining financial info so that it can be used in accounting statements and management reports Users of accounting information: - Business managers - Employees/unions -Investors/creditors -taxing authorities - Government regulatory agencies Controller: manages all the firms accounting activities Financial accounting: - aimed at external users about financial condition - tends to look at business as a whole Managerial (mgt) accounting: - aimed at internal users - communicates info about performance and problems, for planning, decision-making and control purposes - tends to look at individual products Chartered accounting (CA): - earned university degree - completed educational program and passed a national exam (CICA) - half works for the CA firms for the public (typically provide audit, tax & mgt services) - half works for government (focuses on external financial reporting, certifying various interested parties that the financial records of a company accurately reflect the true financial condition of the firm) - 2006, 70 000 CAs in Canada Certified general accountant (CGA): - completed educational program and passed a national exam (CGAAC) - to be eligible, must have an accounting job with a company - formerly, CGAs were not allowed to audit financial statements - focuses on external financial reporting & use of computer as mgt acct tool (pensions) - most works in privately, few CGA firms, sometimes CA firms - 2006, 40 000 CGAs in Canada Certified management accountant (CMA): - earned university degree - passed a 2-part national examination (SMAC) - completed strategic leadership program, while gaining experience - help organizations maintain a competitive advantage; internal mgt acct - 2006, 37 000 CMAs in Canada Audit: accountant examines a companys financial records (AIS) to determine if it used proper procedures to prepare its financial reports Forensic accountant: tracks down hidden funds in the business firms, usually as part of a criminal investigation Generally accepted accounting principle (GAAP): standard rules and methods used by accountants in preparing financial reports (CICA) Tax services: helping clients with preparing their tax returns & tax planning Management consulting services: Specialized accounting services to help managers resolve a variety of problems in finance, production scheduling and etc Private accountant: hired as a salaried employee to deal with a companys day-to-day accounting needs The Accounting Equation: Assets = Liabilities + Owners Equity Asset: anything owned by the firm (land, buildings, equipment, inventory, accounts receivable) Liabilities: debt that the firm owes to others Owners equity: Owners Equity = Assets Liabilities - what would remain if the company were liquidated, all its assets were sold, and all its debts were paid - assets > liabilities, positive - assets < liabilities, negative (assets cannot pay for debt) - consists of 2 sources of capital: 1) the amount that the owners originally invested 2) profits earned by and reinvested in the company Double-entry bookkeeping: - developed in the 15
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