Chapter 17 Accounting 09 30 2013 Siggi Hilmarsson Founder of Siggi s Yogurt Left Iceland at 25 to pursue degree at Columbia University Murray s Cheese in NYC becomes 1st client due to sample at tasting Keys to growth and survival o Controlling costs managing cash flows understanding profit margins and taxes and financial reporting Role of Accounting Information Financial management is the heartbeat of competitive businesses and accounting info helps keep the heartbeat stable o Reveal the businesses health What is Accounting Accounting o Recording classifying summarizing and interpreting of financial events and transactions in an organization to provide management and other interested parties the financial information they need to make good decisions about its operations o Include Buying and selling goods and services Acquiring insurance Paying employees Using supplies o Usually all purchases grouped together all sales grouped together Accounting Profession o 5 key working areas Managerial Accounting Financial Accounting provides info and analysis to managers inside the organization to assist them in decision making concerned with measuring and reporting costs of production marketing and other functions planning controlling Certified Management Accountant CMA Professional accountant who has met certain educational and experience requirements passed a qualifying exam and been certified by the Institute of Certified Management Accountants Accounting info and analyses prepared for people outside the organization Goes to company owners managers and employees while also going to creditors lenders employee unions customers suppliers gov agencies and the general public Annual Report Yearly statement of the financial condition progress and expectations of an organization Very important to stakeholders in the company Private Accountant Accountant who works for a single firm gov agency or non profit organization Public Accountant Accountant who provides accounting services to individuals or businesses on a fee basis Can include o Designing an accounting system o Helping select the correct software to o Analyzing an organization s financial run the system performance Certified Public Accountant An accountant who passes a series of examinations established by the American Institute of Certified Public Accountants AICPA 650 000 in US today 370 000 of whom are members of AICPA Follow the FASB s Independent Financial Accounting Standards Board rules for accounting principles generally accepted accounting principles GAAP Due to accounting scandals of early 2000s the fed gov stepped in Passed Sarbanes Oxley Act Sarbox o Created new gov reporting standards for publicly traded companies o Created Public Company Accounting Oversight Board PCAOB Oversees AICPA Reviewing and evaluating the info used to prepare a company s financial statements Private accountants within an organization often perform internal audits to guarantee that it s carrying out proper accounting procedures and financial reporting Public accountants also conduct independent audits of accounting info and related records Independent Audit Evaluation and unbiased opinion about the accuracy of a company s financial statements Auditing Often included in annual reports Certified Internal Auditor CIA Accountant who has a bachelor s degree and two yrs of experience in internal auditing and who has passed an exam administered by the Institute of Internal Auditors Tax Accounting Enables gov to fund roads parks schools police protection military and other functions Tax Accountant Trained in tax law and responsible for preparing tax returns or developing tax strategies Governmental and Not for Profit Accounting Accounting system for organizations whose purpose is not generating a profit but serving ratepayers taxpayers and others according to a duly approved budget Governmental Accounting Standards Board GASB Set gov accounting standards Gov agencies that offer accounting careers FBI IRS Missouri Department of Natural Resources Cook Country Department of Revenue Charities offer as well Red Cross Museums Hospitals The Accounting Cycle Accounting Cycle o 6 step procedure that results in the preparation and analysis of the major financial statements o relies on work of both a bookkeeper and an accountant Bookkeeping o Recording of business transactions o Basic part of financial reporting o divide all firm transactions into meaningful categories sales documents purchasing receipts and shipping documents o Enter into Journal o Record in Ledger 1st task 2nd Task 3rd Task 4th Task 5th Task 6th Task o Trial Balance Check to see if Journal Ledger match o Prepare Financial Statements o Analyze o Then record financial data from the original transaction documents into a record book or computer program Journal o Write all transactions in two places to check one list of transactions against the other to make sure both add up check for mistakes Double entry Bookkeeping o Record book or computer program where accounting data are Journal first entered Double Entry Bookkeeping o Practice of writing every business transaction in two places o Requires two entries in the journal and in the ledgers for each transaction Ledger o Specialized accounting book or computer program in which info from accounting journals is accumulated into specific categories and posted so that managers can find all the info about one account in the same place Trial Balance o Summary of all the financial data in the account ledgers that ensures the figures are correct and balanced Accountants classify and summarize financial data provided by bookkeepers and then interpret the data and report the info to management Accounting Technology Has simplified process Computerized programs post info from journals instantaneously even from remote locations so that financial info is readily available Frees time for financial analysis Accounting Software o Intuit s QuickBooks o Sage s Peachtree Understanding Key Financial Statements Financial Statement o Summary of all the financial transactions that have occurred over a particular period o Indicate firms financial health and stability o Keys Balance Sheet Reports firm s financial condition on a specific Composed of 3 major accounts date Assets Liabilities Owner s Equity Income Statement Total Revenue Costs of Goods Sold COGS Gross Profit Operating Costs Net Income before Taxes Income Tax Total Net Gain or Loss Statement of Cash Flows Provides a
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