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Chapter 17

MGMT 1 Chapter Notes - Chapter 17: Asset, Accounting Software, Trial Balance


Department
Management
Course Code
MGMT 1
Professor
Thomas Eppel
Chapter
17

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CHAPTER 17: UNDERSTANDING ACCOUNTING AND FINANCIAL INFORMATION
THE ROLE OF ACCOUNTING INFORMATION
- Financial management: heartbeat of competitive business
- Accounting: keep heartbeat stable
WHAT IS ACCOUNTING?
-Accounting: recording, classifying, summarizing, and interpreting of financial events and
transactions in an organization to provide management & other parties financial info
needed to make decisions about its operation
- Transactions: buying/ selling goods and services, acquiring insurance, paying
employees, using supplies
-Accounting system: method used to record and summarize accounting data into
reports
- Purpose: help managers make well-informed decisions, report financial info
ACCOUNTING DISCIPLINES
- Divided into 5 key working areas
- 1. Managerial accounting
- 2. Financial accounting
- 3. Auditing
- 4. Tax accounting
- 5. Governmental and not-for-profit accounting
MANAGERIAL ACCOUNTING
-Managerial accounting: provides info & analysis to managers inside organization to
assist them in decision making
- Report costs of production, marketing, etc
- Planning, controlling, deciding
-Certified management accountant (CMA): professional accountant who has met certain
educational & experience requirements, passed exam, certified by Institute of Certified
Management Accountants
FINANCIAL ACCOUNTING
-Financial accounting: differs from managerial accounting
-Financial info & analyses generated are for people outside organization
- Company owners, managers, employees, creditors, lenders, employee
unions, customers, suppliers, etc
-Annual report: yearly statement of financial condition, progress, expectations of
organization
-Private accountant: works for single firm, government agency, non profit organization
- For accurate info
-Public accountant: accounting services to individuals or businesses for a fee
-Recognized as certified public accountant (CPA)
-FASB defines generally accepted accounting principles (GAAP): accountants must
follow
- Users expect info to meet standards

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- Scandals: Enron, Tyco, WorldCom (early 2000s)
-Result: Sarbanes-Oxley Act new government reporting standards for
publicly traded companies
- PCAOB: overseas
AUDITING
-Auditing: reviewing & evaluating info used to prepare company’s financial statements
- Private and public accountants
-Independent audit: evaluation and unbiased opinion about accuracy of company’s
financial statements (annual reports)
- Examine financial health, operational efficiencies and effectiveness
-Certified internal auditor (CIA): bachelor’s degree, 2 years of experience internal
auditing, pass exam administered by Institute of Internal Auditors
TAX ACCOUNTING
-Tax accountant: trained in tax law at specific law and is responsible for preparing tax
returns/ developing tax strategies
GOVERNMENT AND NOT-FOR-PROFIT ACCOUNTING
-Government and not-for-profit accounting: supports organizations whose purpose is
not generating a profit
- Serves ratepayers, taxpayers, etc
- Standards set by Governmental Accounting Standards Board (GASB)
THE ACCOUNTING CYCLE
-Accounting cycle: 6 step procedure that results in preparation & analysis of major
financial statements
-Bookkeeping: recording of business transactions
- Divide firm’s transactions into categories
-Record financial data into record book/ computer program: journal
-Double-entry bookkeeping: practice or writing every transaction in 2
places
- Journal and ledger
-Ledger: specialized accounting book/ computer program in which
info from journals is accumulated into specific categories &
posted so that managers can find all info about 1 account in one
place
- Accountants: classify and summarize financial data provided by bookkeepers,
interpret data and report info to management
-Trial balance: summary of all financial data into account ledgers that ensures the figures
are correct and balanced
- If inaccurate: accountants must correct it before financial statements
USING TECHNOLOGY IN ACCOUNTING
- Particularly helpful to small-business owners
- Accounting software
- Need to understand which programs are best suited to their needs
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