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Detailed Notes

5 Pages
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Department
Management (MGT)
Course Code
MGTA02H3
Professor
Chris Bovaird

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Chapter 14: Understanding Accounting Issues
What is a Accounting and Who Uses It
accounting: a comprehensive system for collecting, analyzing, and communicating financial information
bookkeeping: recording accounting transactions (just one phase of accounting)
by sorting, analyzing, and recording thousands of transactions, accountants can determine how well a business is being managed and
how financially strong it is (but accounting systems can produce distorted results that cause problems for owners and managers)
accounting information system: an organized procedure for identifying measuring, recording, and retaining financial information so
that it can be used in accounting statements and management reports (dependable, consistent, mandatory system)
users of accounting information:
business managers: to set goals , develop plans, set budgets, and evaluate future prospects
employees and unions: to get paid and to plan for and receive such benefits as healthcare, insurance, vacation time and
retirement pay
investors and creditors: to estimate returns to stockholders, to determine a company's growth prospects, and to decide if it is a
good credit risk before investing or lending
taxing authorities: to plan for tax inflows, to determine the tax liabilities of individuals and businesses, and to ensure that
correct amounts are paid in a timely fashion
government regulatory agencies: to fulfill their duties: the provincial securities commissions, for example, require firms to file
financial disclosures so that potential investors hae valid information about a company's financial status
Who are Accountants and What Do They Do
the individual who manages all the firm's accounting activities (head of AIS) < ensures that reports and statements needed for
planning, controlling, and decision making activities are provided
financial accounting system: the process whereby interested groups are kept informed about the financial condition of a firm
(concerned with external users of info such as consumer groups, unions, gov't) < prepares and publishes income statements and
balance sheets at regular intervals < looks at company as a whole
managerial accounting: internal procedures that alert managers to problems and aid them in planning and decision making (serves
internal users, such as different departments) < ex. managers to monitor current projects and plan for future activities < ex. engineers
may look at costs of materials or production to make operations improvement < internal reports are forward looking in nature, not
historical
Professional 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 (granted by The Canadian Institute of Chartered Accountants to people
who have a university degree, competed an educational program and passed the national exam) < half CA are public, half are
government or industry workers < CA focus on external financial reporting
certified general accountant (CGA): an individual who has completed an education program and passed a national exam; works in a
private industry or a CGA firm (formerly not allowed to audit financial statements of publicly held companies, but this is changing in
most provinces) < some work in private CGA firms, CA firms < focus on external financial reporting and use computer as
management accounting tool
certified management accountant (CMA): an individual who has completed a university degree, passed a national examination, and
completed a strategic leadership program; works in industry and focuses on internal management accounting (work in organizations
of all sizes) < CMAs bring a strong market focus to strategic management and resource deployment
Accounting Services
auditing: an accountants examination of a company's financial records to determine if it used proper procedures to prepare its
financial reports (companies must provide audited financial reports for loans or when selling stock) < audit determines if the firm
has control over fraud and errors from going undetected < examine receipts < may even physically check inventories, equipment,
other assets
forensic accountants: an accountant who tracks down hidden funds in business firms, usually as part of criminal investigation ( used
to examine Swiss bank accounts for assets deposited by victims of Nazi persecution during WWII)
generally accepted accounting principles: standard rules and methods used by accountants in preparing financial reports (auditor's
responsibility to ensure that client's accounting system adheres to these principles
tax services: help clients with tax returns, tax planning (tax laws are complex so CA can help a business structure its operations and
investments and save millions of dollars in taxes) < accountants must be aware of changing tax laws
management consulting services: specialized accounting services to help managers resolve a variety of problems in finance,
production scheduling, and other areas (may assist in executive recruitment, plant layout and design, etc
private accountant: an accountant hired as a salaried employee to deal with a company’s day-to-day accounting needs (to ensure
fairness CAs and CGAs must be independent of the firms they audit)
www.notesolution.com
CPA vision project: established (US) to assess the future of accounting (explains how six classes of global forces are driving the
professions reorientation)
Vision Project changes:
Accounting should adopt a broader focus beyond numbers that includes strategic thinking
It should add more value to society by expanding knowledge, education, and experience
CPA education must be revitalized to meet the demands of the future
to attract qualified members, the profession must increase opportunities for advancement, rewards and lifestyle preferences
global forces in the changing CPA profession: economic, political, social, human resource, technical, regulatory
technical forces: displacement of human activity by expert systems and automation; advent of digital technology,
new ways of working, different points of decision, and more complicated decision tasks
economic forces: globalization of capital markets; electronic movement of capital; interdependent worldwide
system of trade, finance, management
political forces: spread of democracy; democratized management styles; public interest groups; globalization of
politics
social forces: new educational methods; new global standards for conducting business; changing worldwide
demographics; colliding and merging of ethnic groups
human resource forces: fragmentation of traditional employer-employee relationships; growth in outsourcing,
permanent temporaries, and just-in-time employment; advent of multiple jobs and multiple careers; premium pay
for knowledge workers and digital-tech employees
regulatory forces: influence of globalized corporations, public interest groups, and professional organizations;
collaboration of organizations and groups to shape reforms for the future; collaboration of organizations and
companies to force viewpoints onto political agendas
Tools of the Accounting Trade
The Accounting Equation
-the accounting equation: used to balance data pertaining t financial transactions
assets = liabilities + ownersequity
-asset: anything of economic value owned by a firm or individual
-liability: any debt owed by a firm or individual to others
-ownersequity: any positive difference between a firm’s assets and its liabilities; what would remain for a firm;s owners if the
company were liquidated, all its assets were sold, and all its debts were paid (consists of two sources - the amount that the
owners originally invested, profits earned b and reinvested in the company)
assets liabilities = ownersequity
Double-Entry Accounting
-double-entry accounting system: a bookkeeping system, developed in the fifteenth century and still in use, that requires every
transaction to be entered in two ways – how it affects assets and how it affects liabilities and ownersequity so that the
accounting equation is always in balance (every transaction affects two accounts)
Financial Statements
-financial statement: any of several types of broad reports regarding a company’s financial status; most often used in reference
to balance sheets, income statements, and/or statements of cash flows
-balance sheets: a type of financial statement that summarizes a firms financial position on a particular date in terms of its
assets, liabilities and ownersequity
Assets
-current assets: cash and other assets tat can be converted into cash within a year
oliquidity: the ease and speed with which an asset can be converted to cash; cash is said to be perfectly liquid (business
debts are satisfied by cash)
omarketable securities: include stocks or bonds of other companies, government securities, and money market
certificates (a little less liquid)< 3 types of other important non-liquid assets held by companies: accounts receivable,
merchandise inventory, and prepaid expenses
- accounts receivable: amounts due to the firm from customers who have purchased goods or services on credit; a form of
current asset
o merchandise inventory: the cost of merchandise that has been acquired for sale to customers but is still on hand
(difficult to account for because inventory is constantly moving in and out, so assumptions must be made)
oprepaid expense: includes supplies on hand and rent paid for the period to come
ofixed assets: assets that have long-term use or value to the firm such as land, buildings, and machinery
www.notesolution.com

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Description
Chapter 14: Understanding Accounting Issues What is a Accounting and Who Uses It accounting: a comprehensive system for collecting, analyzing, and communicating financial information bookkeeping: recording accounting transactions (just one phase of accounting) by sorting, analyzing, and recording thousands of transactions, accountants can determine how well a business is being managed and how financially strong it is (but accounting systems can produce distorted results that cause problems for owners and managers) accounting information system: an organized procedure for identifying measuring, recording, and retaining financial information so that it can be used in accounting statements and management reports (dependable, consistent, mandatory system) users of accounting information: business managers: to set goals , develop plans, set budgets, and evaluate future prospects employees and unions: to get paid and to plan for and receive such benefits as healthcare, insurance, vacation time and retirement pay investors and creditors: to estimate returns to stockholders, to determine a companys growth prospects, and to decide if it is a good credit risk before investing or lending taxing authorities: to plan for tax inflows, to determine the tax liabilities of individuals and businesses, and to ensure that correct amounts are paid in a timely fashion government regulatory agencies: to fulfill their duties: the provincial securities commissions, for example, require firms to file financial disclosures so that potential investors hae valid information about a companys financial status Who are Accountants and What Do They Do the individual who manages all the firms accounting activities (head of AIS) < ensures that reports and statements needed for planning, controlling, and decision making activities are provided financial accounting system: the process whereby interested groups are kept informed about the financial condition of a firm (concerned with external users of info such as consumer groups, unions, govt) < prepares and publishes income statements and balance sheets at regular intervals < looks at company as a whole managerial accounting: internal procedures that alert managers to problems and aid them in planning and decision making (serves internal users, such as different departments) < ex. managers to monitor current projects and plan for future activities < ex. engineers may look at costs of materials or production to make operations improvement < internal reports are forward looking in nature, not historical Professional 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 (granted by The Canadian Institute of Chartered Accountants to people who have a university degree, competed an educational program and passed the national exam) < half CA are public, half are government or industry workers < CA focus on external financial reporting certified general accountant (CGA): an individual who has completed an education program and passed a national exam; works in a private industry or a CGA firm (formerly not allowed to audit financial statements of publicly held companies, but this is changing in most provinces) < some work in private CGA firms, CA firms < focus on external financial reporting and use computer as management accounting tool certified management accountant (CMA): an individual who has completed a university degree, passed a national examination, and completed a strategic leadership program; works in industry and focuses on internal management accounting (work in organizations of all sizes) < CMAs bring a strong market focus to strategic management and resource deployment Accounting Services auditing: an accountants examination of a companys financial records to determine if it used proper procedures to prepare its financial reports (companies must provide audited financial reports for loans or when selling stock) < audit determines if the firm has control over fraud and errors from going undetected < examine receipts < may even physically check inventories, equipment, other assets forensic accountants: an accountant who tracks down hidden funds in business firms, usually as part of criminal investigation ( used to examine Swiss bank accounts for assets deposited by victims of Nazi persecution during WWII) generally accepted accounting principles: standard rules and methods used by accountants in preparing financial reports (auditors responsibility to ensure that clients accounting system adheres to these principles tax services: help clients with tax returns, tax planning (tax laws are complex so CA can help a business structure its operations and investments and save millions of dollars in taxes) < accountants must be aware of changing tax laws management consulting services: specialized accounting services to help managers resolve a variety of problems in finance, production scheduling, and other areas (may assist in executive recruitment, plant layout and design, etc private accountant: an accountant hired as a salaried employee to deal with a companys day-to-day accounting needs (to ensure fairness CAs and CGAs must be independent of the firms they audit) www.notesolution.com
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