Accounting the recording classifying summarizing and interpreting of financial events and transactions to provide management and other interested parties The Role of Accounting Information 1 What is Accounting the information they need to make good decision financial transactions buying selling goods acquiring insurance paying employees using supplies accounting system the method we use to record and summarize accounting data into reports help managers make well informed decisions report financial info about firm to interested stakeholders gov t Managerial accounting accounting used to provide information analyses to managers inside the organization to assist them in decision making measuring reporting cost of production marketing etc preparing budgets planning checking whether units are staying w in budget controlling trying to Certified management accountant CMA has met certain educational experience requirements passed qualifying exam been certified by Institute of Accounting Disciplines 1 Managerial Accounting minimize taxes Certified Management Accountants 2 Financial Accounting Financial accounting accounting information and analyses prepared for people outside the organization Info goes to owners managers but also suppliers general public annual report yearly statement of the financial condition progress and expectations of an organization private accountant works for a single firm gov t agency or nonprofit organization thousands of accounting firms provide services through public accountants public account provides accounting services to individuals or businesses on a fee basis certified public accountant CPA passes a series of examinations established by the American Institute of Certified Public Accountant AICPA the in depended Financial Accounting Standards Board FASB defines the generally accepted accounting principles GAAP that accountant must follow Sarbanes Oxley Act called Sarbox created new gov t reporting standards for publicly traded companies also created the Public Company Accounting Oversight Board PCAOB which oversees the AICPA Dodd Frank Wall Street Reform and Consumer Protection Act increased financial regulation affecting accounting by increasing the power of the PCAOB to oversee auditors of brokers dealers in securities markets 3 Auditing auditing the job of reviewing and evaluating the info used to prepare a company s financial statements private accountants often perform internal ones to guarantee proper procedures and financial reporting independent audit evaluation and unbiased opinion about the accuracy of a company s financial statements certified internal auditor CIA accountant who has a bachelor s degree two years experience in internal auditing and who has passed an exam administered conducted by public accountants by the institute of Internal Auditors 4 Tax Accounting tax accountant accountant trained in tax law and responsible for preparing tax returns or developing tax strategies always challenging b c gov ts often change policies government and not for profit accounting accounting system for organizations whose purpose is not generating a profit but serving ratepayers taxpayers and 5 Gov t and Non for Profit Accounting others according to a duly approved budget Governmental Accounting Standards Board GASB set gov t accounting standers The Accounting Cycle accounting cycle six step procedure that results in the preparation and analysis of the major financial statements relies on bookkeeper and an accountant 1 Analyze source documents sales slips travel records 2 Record transactions in journals 3 Trnsfer journal entries to ledger 4 Take a trial balance 5 Prepare financial statements balance sheet income statement statement of cash flows 6 Analyze financial statements bookkeeping the recording of business transactions accounting data are first entered divide transactions into categories then record financial data from original transaction documents into a journal the record book or computer program where accountants classify summarize date provided by bookkeepers interpret data report info to management double entry bookkeeping practice of writing every business transaction in two places to make sure both add up and no mistakes were made two entries in the journals and ledgers ledger 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 summary of all the financial data in the account ledgers that ensures the figures are correct and balanced Accounting Technology Understanding Key Financial Statements financial statement summary of all the transactions that have occurred over a particular period indicate health and stability 1 balance sheet reports financial condition on specific date A L OEn 2 income statement summarizes revenues cost of goods expenses and highlights total profit or loss firm experienced during that period 3 statement of cash flows summary of money coming in and going out 1 The Fundamental Accounting Equation Assets cash and so forth liabilities debt equity what you own Assets Liabilities Owner s equity 2 The Balance Sheet owners equity 3 Classifying Assets fundamental accounting equation Assets Liabilities Owner s equity is the basis for the balance sheet balance sheet financial statement that reports a firm s financial condition at a specific time and is composed of three major accounts assets liabilities and assets economic resources things of value owned by a firm Not all companies list intangible assets on their balance sheets like brand name liquidity the ease with which an asset can be converted into cash speedier conversion means higher liquidity account receivable amount of money owed to the firm that is expects to receive within one year 1 current assets items that can or will be converted into cash within one year 2 fixed assets relatively permanent such as land buildings and equipment 3 intangible assets long term assets that have no real physical form but do have value patents trademarks 4 Liabilities and Owner s Equity Accounts liabilities what the business owes to others debts current liabilities debts due in one year or less long term liabilities debts not due for one year or more 1 accounts payable current liabilities or bills the company owes others for merchandise or services it purchased on credit but has not yet paid for 2 Notes