MGTA02H3 Chapter Notes - Chapter 4: Financial Accounting, Financial Statement, Bookkeeping

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Published on 8 Mar 2011
School
UTSC
Department
Management (MGT)
Course
MGTA02H3
Professor
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:
oBusiness managers use accounting information to set goals, develop plans,
set budgets, and evaluate future prospects.
oEmployees 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.
oInvestors 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.
oTaxing 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.
oGovernment regulatory agencies rely on accounting information to fulfill
their duties; the provincial securities commissions, for example, require firms
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to file financial disclosures so that potentials investors have valid information
about a company’s 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.
oThese 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.
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Reports to these users serve the company’s individual units, whether departments,
projects, plants, or divisions.
Internal reports may be designed in any form that will assist internal uses in
planning, decision making, and controlling.
As projections and forecasts of both financial data and business activities, internal
reports are an extremely important part of the management accounting: they are
forward-looking rather than historical in nature.
Professional Accountants
Three professional accounting organizations have developed in Canada too certify
accounting expertise:
Chartered Accountants
CAs works in CA firms that offer accounting services to the public and government
or industry.
CAs focus on external financial reporting certifying for various interested parties
that the financial records of a company accurately reflect the true financial condition
of the firm.
Certified General Accountants
To become a CGA, a person must complete an education program and pass a
national exam.
To be eligible, a person must have an accounting job with a company.
CGAs can audit corporate financial statements in most provinces. Most CGAs work
in private companies but there are a few CGA firms. Some CGAs also work in CA
firms.
CGAs also focus on external financial reporting, and emphasize the use of the
computer as a management accounting tool.
Certified Management Accountants
To achieve the designation, a person must have a university degree, pass a two-part
national entrance examination, and complete a strategic leadership program while
gaining practical experience in a management accounting environment.
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Document Summary

 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 accounting the 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. The controller is the one who manages all the firm"s 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.