MGTA01H3 Chapter Notes - Chapter 4: Financial Statement, Financial Accounting, Management Accounting

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Published on 14 Apr 2013
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Accounting: a comprehensive system for collecting, analyzing, and communicating financial
information
--as such, it is a system for measuring business performance and translating those measures into
information for management decisions
Bookkeeping: recording accounting transactions (it is just one phase of accounting)
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
--its job is to ensure there is consistent dependable financial information
--the system includes all the people, reports, computers, procedures, and resources for
compiling financial transactions
o There are numerous users of accounting information:
-business managers: use accounting information to set goals, develop plans, set budgets, and
evaluate future prospects
-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
-investors and creditors: use accounting information to estimate returns to stockholders, to
determine a company's growth prospects, and to decide if the company is a good credit risk
before investing or lending
-taxing authorities: use accounting information to plan for tax inflows, to determine the tax
liabilities of individual and businesses, and to ensure that correct amounts are paid in a timely
fashion
-government regulatory agencies: rely on accounting information to fulfil their duties; the
provincial securities commissions, for example, require firms to file financial disclosures so that
potential investors have valid information about a company's financial status
o Two fields of accounting include financial and managerial accounting
Financial accounting system: the process whereby interested groups are kept informed about
the financial condition of a firm
--it is concerned with external users of informationconsumer groups, unions, shareholders,
and government agencies
--it prepares income statements and balance sheets which focus on the activities of the
company as a whole, rather than on individual departments or divisions
--the information in the reports is mostly historical: that is, it summarizes financial transactions
that have occurred during past accounting periods
Managerial (management) accounting: internal procedures that alert managers to problems and
aid them in planning and decision making
--serves internal users (managers at all levels, employees, etc)
--reports to these users serve the company's individual units, whether departments, projects,
plants, or divisions
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--the internal reports are forward-looking rather than historical in nature
o Three professional accounting organizations have developed in Canada to certify accounting
expertise:
1. 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 (focus on external financial reporting)
2. 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 (also focuses on external
financial reporting)
3. Certified management accountant (CMA): an individual who has completed a university
degree, passed a two-part national examination, and completed a strategic leadership program;
works in industry and focuses on internal management accounting
o CAs and CGAs usually perform several accounting services for their clients. The most common
of these are auditing, tax services, and management services
1. Audit: an accountant's examination of a company's financial records to determine if it used
proper procedures to prepare it financial reports
--the audit will determine if the firm has controls to prevent errors or fraud from going
undetected
o Therefore, when audits are being conducted, sometimes forensic accountants: are used to track
down hidden funds in business firms, usually as part of a criminal investigation
o One of the auditor's responsibilities is to ensure that the clients accounting system adheres to
generally accepted accounting principles (GAAP)standard rules and methods used by
accountants in preparing financial reports (the body of theory and procedure developed and
monitored by the CICA )
o 2. Tax services include helping clients not only with preparing their tax return but also in their
tax planning
3. Management consulting services: specialized accounting services to help mangers resolve a
variety of problems in finance, production scheduling, and other areas (plant layout and design
marketing studies, computer feasibility studies, and design and implementation of accounting
systems)
--range from personal financial planning to the planning of corporate mergers.
o To ensure the fairness of their reports, CAs and CGAs must be independent of the many firms
they audit.
o But businesses also hire their own private accountantsan accountant hired as a salaried
employee to deal with a company's day-to-day accounting needs
o The two key concepts of accounting are: the accounting equation and double-entry bookkeeping
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Document Summary

Accounting: a comprehensive system for collecting, analyzing, and communicating financial information. -as such, it is a system for measuring business performance and translating those measures into information for management decisions. Bookkeeping: recording accounting transactions (it is just one phase of accounting) 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. -its job is to ensure there is consistent dependable financial information. -the system includes all the people, reports, computers, procedures, and resources for compiling financial transactions: there are numerous users of accounting information: Business managers: use accounting information to set goals, develop plans, set budgets, and evaluate future prospects. 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.

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