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Chapter 4

Chapter 4- Understanding Accounting Issues

Management (MGT)
Course Code
Bill Mc Conkey

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Chapter 4- Understanding Accounting Issues
Accounting- a complete system for collecting, analyzing, and communicating financial
A system for measuring performance and translating those measures into
information for management decisions
Bookkeeping- recording accounting transactions
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) an organized procedure for identifying,
measuring, recording, and retaining financial info so that it can be used in accounting
statements and management goods
Users of accounting information:
oBusiness managers- uses it tot set goals, develop plans, set budgets,
and evaluate future prospects
oEmployees and nations- uses it to get paid and to plan for and receive
such benefits (health care, insurance, vacation time and retirement pay)
oInvestors and creditors- uses it 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
oTaxing authorities- uses it 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
oGovernment regulatory agencies- uses it to fulfill their duties (Ex:
provincial securities commissions require firms to file financial disclosures
so that potential investors have valid info about a company’s financial
1- Explain the role of accountants and distinguish between the kinds of works
done by public and private accountants
Controller the individual who manages all the firms accounting activities
Ensures that the AIS provides the reports and statements needed for planning,
controlling, and decision-making activities
Financial and Managerial Accounting

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2 fields of accounting: financial and managerial
Financial Accounting
Financial accounting system- the process whereby interested groups are kept informed
about the financial conditions of a firm
Concerned with external users of info- consumer groups, unions, shareholders,
and government agencies
Prepares and publishes income statements and balance sheets at regular
Focus on the activities as a whole, rather the on individual departments/divisions
In reporting data, they must match to standard reporting formats and procedures
made by the accounting professions and government regulatory agencies, so
they can compare info
Info in reports is mostly historical
Managerial Accounting
Managerial/management accounting- internal procedures that alert managers to
problems and help them in planning and decision making
Concerned with internal users-managers, salespeople, engineers, purchasing
Used to make decisions, monitor current projects, plan future events, cost of
making products, and setting goals
Focus on the activities as individual units
Internal reports may be designed in any form that will assist internal users in
planning, decision-making, and controlling
Info in reports is used as projections and forecasts- forward- looking rather than
historical in nature
Professional Accountants
Chartered Accountants
Chartered Accountant (CA) an individual who has met certain experience and
education requirements and has passed a licensing exam, acts as an outside
accountant to other firms
Granted by the Canadian Institute of Chartered Accountants (CICA)
Must have earned a university degree, complete an educational program, and
pass a national exam
Work at CA firms, government or industry
Provide audit, tax, and management services
Focus on external financial reporting, certifying for various interested parties
Certified General Accountant
Certified General Accountant (CGA) an individual who has completed an educational
program and passed a national exam, works in private industry or a CGA firm

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Granted be the Certified General Accountants Association of Canada
Must have completed an education program and a national exam
To be eligible, a person must have an accounting job with a company
Work in private companies, CGA firms, and even CA firms
Focus on external financial reporting and highlight the use of the computer as a
management accounting tool
Certified Management Accountant
Certified Management Accountant (CMA) an individual who has completed a
university degree, passed a national exam, and completed a strategic leadership
program, works in industry and focuses on internal management accounting
Granted by the Society of Management Accountants of Canada
Must have a university degree, pass a 2-part national entrance exam, and
complete a strategic leadership program while gaining practical experience in a
management accounting environment
Work in organizations of all sizes, and focus on applying best management
practices in all the operations of a business
Bring a strong market-focus to strategic management and resource development,
synthesizing, and analyzing financial and non-financial info to help organizations
maintain a competitive advantage
Highlight the role of accountants in the planning and overall strategy of the firm in
which they work
Accounting Services
Audit- an accountants examination of a companys financial records to determine in it
used proper procedures to prepare its financial reports
Must provide audited financial reports when applying for loans or selling stocks
Determine if the firm has controls to prevent errors or fraud from going
undetected, and examine receipts (Ex: shipping documents and cancelled
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
Tax Services
Include helping clients with preparing their tax returns and tax planning
To serve their clients best, accountants must stay side by side of changes in tax
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