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

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4 Apr 2011
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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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Document Summary

Accounting: a comprehensive system for collecting, analyzing, and communicating financial information. Measures business performance; measures are converted into information for management decisions. 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 head of the ais is the controller. Controller: individual who manages at the firm"s accounting activities www. notesolution. com. Ensures that the as provides the reports and statements needed for planning.

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