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MGTA02H3 (361)
Chapter 4

Chapter 4 - Understanding Accounting Issues.docx

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

Chapter 4 Understanding Accounting Issues Accounting - A comprehensive system for collecting, analyzing, and communicating financial information Bookkeeping - Recording accounting transactions 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 People who use accounting information: - Business Managers - to set goals, develop plans, set budgets, and evaluate future prospects - Employees and unions - to get paid and plan for and receive benefits - Investors and creditors - estimate returns to stockholders - Taxing Authorities - plan for tax inflows, to determine tax liabilities of individuals and businesses - Government Regulatory Agencies - to fulfill their duties; the provincial securities commissions Controller - The individual who manages all the firm's accounting activities Financial and Managerial Accounting Financial Accounting Financial Accounting System - The process whereby interested groups are kept informed about the financial condition of a firm - Consumer groups, unions, shareholders, government agencies - Prepares and publishes income statements, and balance sheets at regular intervals - focuses on the activities of the company as a whole - Information in the reports are historical; summarized financial transaction that occurred Managerial Accounting Managerial (Management) Accounting - Internal procedures that alert managers to problems and aid them in planning and decision making - serves internal users, company's individual units - And used as projections and forecasts of both financial data and business activities Professional Accountants Chartered Accountants (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 Certified General Accountants (CGA) - An individual who has completed an education program and passed a national exam; works in private industry or a CGA firm Certified Management Accountants (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 and accounting Accounting Services Auditing Audit - An accountant's examination of a company's financial records to determine if it used proper procedures to prepare its financial reports Forensic Accountant - an accountant who tracks down hidden funds in business firms, usually as part of a criminal investigation Generally Accepted Accounting Principles (GAAP) - Standard rules and methods used by accountants in preparing financial reports Management Consulting Services Management Consulting Services - Specialized accounting services to help managers resolve a variety of problems in finance, production scheduling, and other areas Private Accountants Private Accountants - An accountant hired as a salaried employee to deal with a company's day- to-day accounting needs Tools of the Accounting Trade The Accounting Equation Assets = Liabilities + Owners' Equity Asset - Anything of economic value owned by a firm or individual Liability - A debt owed by a firm or an individual to others Owners' Equity - Any positive difference between a firm's assets and its liabilities; that would remain for a firm's owners if the company were liquidated, all its assets sold, and all its debts were paid Consists of two sources of capital: - The amount that the owners originally invested - Profits earned by and reinvested in the company 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 owner's equity - so that the accounting equation is always in balance Financial Statements Financial Statements - 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 firm's financial position on a particular date in terms of its assets, liabilities, and owners' equity Assets Current Assets - Cash and other assets that can be converted into cash within a year Liquidit
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