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Canada (162,376)
MGTA02H3 (363)
H Laurence (23)
Chapter 4

MGTA04 Chapter 4.docx

5 Pages
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Department
Management (MGT)
Course Code
MGTA02H3
Professor
H Laurence

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MGTA04 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 and translates these measures into information for management decisions  Accounting is much more comprehensive than book keeping used for owners, public, and regulatory agencies  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 includes all the people, reports, computers, procedures, and resources for compiling financial transactions.  Users of accounting information: business managers, employees/unions, investors/creditors, taxing authorities and government regulatory agencies  Controller: head of AIS who manages all the firms accounting activities i.e. chief accounting officer ensures that the accounting system provides the reports and statements needed for planning, controlling, and decision-making activities.  Financial accounting: concerned with external users of information i.e. consumer groups, unions, shareholders, and government agencies. It prepares and publishes income statements and balance sheets at regular intervals for the company as a whole process whereby interested groups are kept informed about the financial condition of a firm  Managerial accounting: serves internal users and managers at all levels who need information to make decisions for different departments, to monitor current projects and to plan for future activities. Used to set performance goals, prices, terms negotiating with suppliers, etc  reports to serve the company’s individual units and can be designed in any form that will assist internal users in planning, decision making and controlling  Professional Accountants o 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  provide audit, tax, and management services and certify for many interested parties i.e. shareholders, lenders, Canada Customs and Revenue Agency. Etc) About 70,000 in Canada o Certified General Accountant (CGA): An individual who has completed an education program and has passed a national exam; works in private industry or CGA firm person must have accounting job with a company and emphasize use of computers as a management accounting tool  about 41,000 in Canada o 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 accounting. Help firms gain competitive advantage and emphasize the role of accountants in the planning and overall strategy of the firm in which they work about 37,000 in Canada  Various accounting services and performed by CA’s and CGA’s o Auditing: an accountants examination of a company’s financial records to determine if used proper procedures to prepare its financial reports i.e. detect fraud via many ways such as physically seeing inventories, looking at all receipts, payroll records, equipment’s, etc  Forensic accounting: an accounting who tracks down hidden funds in business firms, usually as part of a criminal investigation  Auditors also make sure that the clients accounting system adheres to generally accepted accounting principles (GAAP) the body of theory and procedure developed and monitored by the CICA i.e. standard riles and methods used by accountants in preparing financial reports. o Tax services: helping clients not only with preparing their tax receipts but also in tax planning and can help their clients business structure (or restructure) its operations and investments and save millions of dollars in taxes o Management consulting services: specialized accounting services to help managers resolve a variety of problems in finance, production scheduling, and other areas  Private accountings: accountants hired as salaried employees who deal with a company’s day-to day accounting needs i.e. for budgeting, financial planning, internal auditing, payroll and taxation Tools of the Accounting Trade  The accounting equation: assets=liabilities + owner’s equity  Asset: anything of economic value owned by a firm or individual  Liability: a debt owed by a firm or individual to others  Owner’s equity: any positive difference between a firms assents and its liabilities; what would remain for a firms owners if the company were liquidated and all its assets were sold/debts paid=assets-debts o Takes into considers two sources of capital: (1) the amount that the owners originally invested and (2) profits earned by and reinvested in the company th  Double entry accounting system: a bookkeeping system developed in the 15 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 done so that the accounting equation is always in balance 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 flow  Balance sheets: supply detailed information about the accounting equation factors i.e. assets, liabilities, and owner’s equity. o Since they show a firms financial condition at one point they are also called statements of financial position o Uses current assets, fixed assets, and intangible assets o Current assets: cash and other assets that can be converted into cash within a year  Liquidity: the ease and speed with which an asset can be converted to cash  Non liquid assets include: accounts receivable merchandise inventory and
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