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Chapter 4

Chapter 4

12 Pages

Management (MGT)
Course Code
Chris Bovaird

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Chapter 4 Understanding Accounting Issues WHAT IS ACCOUNTING AND WHO USES IT? Accounting is a comprehensive information system for collecting, analyzing, and communicating financial information. It is a system for measuring business performance and translating those measures into information for management decisions. Bookkeeping is just one phase of accountingthe recording of accounting transactions. Accounting also uses performance measures to prepare performance reports for owners, the public, and regulatory agencies. By sorting, analyzing, and recording thousands of transactions, accountants can determine how well a business is being managed and how financially strong it is. Accounting information system (AIS) is an organized procedure for identifying, measuring, recording, and retaining financial information so that it can be used in accounting statements and management reports. There are numerous users of accounting information: o Business managers use accounting information to set goals, develop plans, set budgets, and evaluate future prospects. o Employees and unions use accounting information to get paid and to plan for and receive such benefits as health care, insurance, vacation time, and retirement pay. o Investors and creditors use accounting information to estimate returns to stockholders, to determine a companys growth prospects, and to decide if the company is a good credit risk before investing for lending. o Taxing authorities use accounting information 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. o Government regulatory agencies rely on accounting information to fulfill their duties; the provincial securities commissions, for example, require firms www.notesolution.com to file financial disclosures so that potentials investors have valid information about a companys financial status. WHO ARE ACCOUNTANTS AND WHAT DO THEY DO? The controller is the one who manages all the firms accounting activities. As chief accounting officer, the controller ensures that the accounting system provides the reports and statements needed for planning, controlling, and decision- making activities. Financial and Managerial Accounting In any company, financial and managerial accounting can be distinguished by the different users they serve. Financial Accounting Financial accounting system is concerned with external users of information consumer groups, unions, shareholders, and government agencies. It prepares and publishes income statements and balance sheets at regular intervals. o These documents focus on the company as a whole. In reporting data, financial accountants must conform to standard reporting formats and procedures imposed by both the accounting professions and government regulatory agencies. This information is mostly historical because it summarizes financial transactions that have occurred during past accounting periods. Managerial Accounting Managerial accounting serves internal users. Managers at all levels need information to make decisions for the departments, to monitor current projects, and to plan for future activities. www.notesolution.com
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