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MGTA02H3 Study Guide - Tax Avoidance, Credit Risk, Working Capital


Department
Management (MGT)
Course Code
MGTA02H3
Professor
Chris Bovaird

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Chapter 4: Understanding Accounting Issues
WHAT IS ACCOUNTING AND WHO USES IT?
-accounting: a comprehensive system for collecting, analyzing, and communicating financial
information
-measures business performance; measures are converted into information for management
decisions
-bookkeeping: recording accounting transactions
-uses performance measures to prepare performance reports for owners, the public, and
regulatory agencies
-keep records of taxes paid, income received, and expenses
-they analyze the effects of these transactions on business activities
-analyzing and sorting transactions can help determine how well a business is being managed and
how financially strong it is
-accounting system can provide distorted results which can cause problems for owners and
managers
-accounting information system (AIS): an organized procedure for identifying, measuring
recording, and retaining financial information so that it can be used in accounting statements and
management reports
-includes all the people, reports, computers, procedures, and resources for obeying financial
transactions
-The below users use accounting for various reasons:
(1)Business managers: to set goals, develop plans, set budgets, and evaluate future
prospects
(2)Employees and unions: to get paid, to plan for and receive such benefits such as health
care
(3)Investors and creditors: to estimate returns to stockholders, to determine a company’s
growth prospects, to decide if a company is a good credit risk before investing or lending
(4)Taxing authorities: to plan for tax inflows, determine tax liabilities of individuals and
businesses, to ensure correct amounts are paid on time
(5)Government regulatory: to fulfil their duties, requires firms to file financial disclosures
so potential investors will have information about a companys financial status
WHO ARE ACCOUNTANTS AND WHAT DO THEY DO?
-the head of the AIS is the controller
-controller: individual who manages at the firms accounting activities
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-ensures that the AS provides the reports and statements needed for planning
-the two main fields of accounting are financial and managerial
Financial and Managerial Accounting
-two fields of accounting: financial and managerial
-can be distinguished by the different users they serve
-users of accounting information can be classified as users outside the company and users inside
the company
-this allows us to categorize accounting systems as either financial or managerial
Financial Accounting
-financial accounting system: the process whereby interested groups are kept informed about
the financial condition of a firm
-concerned with external users of information---consumer groups, unions, shareholders,
government agencies
-prepares and publishes income statements and balance sheets
-these documents focus on the activities as a whole rather than on individual departments
-must conform to standard reporting formats imposed by government agencies and accounting
professions
-information in such reports is mostly historical
-reports summarize financial transactions that have occurring during past accounting periods
Managerial Accounting
-managerial accounting: internal procedures that alert managers to problems and aid them in
planning and decision making
-managers need information to make decisions for the departments, to monitor current projects
and to plan for future projects
-this information can be these to negotiate material costs with suppliers
- reports to these users serve the companys individual units (departments, projects, divisions)
-internal reports are designed in any form, which helps internal users in planning, decision
making, and controlling
-internal reports are very important part of the management accounting system
-they are forward looking rather than historical looking
Professional Accountants
-have a high level of expertise and credibility
-three professional accounting organizations have developed in Canada to certify accounting
expertise
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Chartered Accountants
-chartered accountant (CA): an individual who has met certain experience and education
requirements and has passed a licensing examination
-acts as an outside accountant for other firms
-a person must earn a university degree
-then, completed an educational program and passed a national exam
-half of all CAs work in CA firms that offer accounting services to the public
-the other of CAs work in government or industry
-provide audit, tax, and management services
-focus on external financial reports
-certifying for interested parties such as shareholders, lenders, revenue agency that the financial
records of a company matches the actual financial condition of the firm
Certified General Accountants
-certified general accountant (CGA): an individual who has completed an education program
and passed a national exam
-works in private industry or a CGA firm
-a person must complete an education program and pass a national exam
-to be eligible, a person must have an accounting job with a company
-nowadays CGAs can audit corporate financial statements in most provinces
-work in private companies, but there are a few CGA firms
-also work in CA firms
-focus on external financial reporting
-uses computer as a management accounting tool
-commission reports on issues like pensions
Certified Management Accountants
-certified management accountant (CMA): an individual who has completed a university
degree, passed a national exam, and completed a strategic leadership program
-works in industry and focuses on internal management accounting
-the national exam is two parts
-work in organizations of all sizes
-focuses on applying best management practices in all the operations of a business
-bring a strong market-focus to strategic management and resource development
-analyzes financial and non financial information to help organizations maintain a competitive
advantage
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