I. ABSTRACT
Accounting is a comprehensive system for collecting, analyzing, and communicating financial information. It measures business performance and translates the findings into information for management decisions. Accountans also prepare performance reports for owners, the public, and regulatory agencies. In chapter “Understanding Principles of Accounting” we learn about explain the role of accountans and distinguish between the kinds of work done by public and private accountans, discuss the CPA Vision Project and explain how the CPA profession is changing, explain how the following concepts are used in accounting : the accounting equation and double-entry accounting, describe the three basic financial statements and show how they reflect the activity and financial condition of a business, explain the key standards and principles for reporting financial statements, show how computing key financial ratios can help in analyzing the financial strengths of a business, explain some of the special issues facing accountants at firms that do international business.
II. INTRODUCTION
At the head of the AIS is the controller, who manages a firm’s accounting activities. As chief accounting officer, the controller ensures that the AIS provides the reports and statements needed for planning, controlling, decision making, and other management activities. This range of activities requires different types of accounting specialists. In this section, we begin by distinguishing between the two main fields of accounting : financial and managerial. Then we discuss the different functions and activities of certified public accountants and private accountants.
III. EXPLANATION
- Explain the role of accountans, and distinguish between the kinds of work done by public and private accountants.
Accounting is a comperehensive system for collecting, analyzing, and communicating financial information. Bookkeeping is the recording of transactions. Ensuring consistent, dependable financial information is the job of the accounting information system (AIS) – an organizaed procedure for identifying, measuring, recording, and retaining financial informationso that it can be used in accounting statements and management reports. Users of such information include:
- Business Managers
- Employees and Unions
- Investors and Creditors
- Tax Authorities
- Government Regulatory Agencies
There are two main fields in accounting:
- Financial Accounting System
- Managerial Accounting
Certified Public Accountants (CPAs) offer accounting services to the public. Virtually all CPA firms, large or small, provide all or most of the following services :
1) Auditing : an audit examines a company’s AIS to determine whether financial reports reliably represent operations. It also ensures that the AIS follows generally accepted accounting principles (GAAP).
2) Tax Services : because tax laws are quite complex, tax services include tax planning as well as tax return preparation.
3) Management Advisory Services : as consultants, CPAs provide management advisory services ranging from personal financial planning to planning corporate mergers.
- 2. Discuss the CPA Vision Project, and explain how the CPA profession is changing
It has identified the following as the most important issues in the profession’s future :
- Success will depend on public perceptions of CPA abilities and roles
- CPAs must respond to market needs rather than rely on regulation to stay in business
- The market demands more high-value consulting and fewer auditing and accounting services.
- Specialization will be vital
- CPAs must be conversant in global strategies and business practices
- 3. Explain how the following concepts are used in accounting
Accountant use the following equation to balance the data pertaining to financial transactions : Assets = Liabilities + Owner’s equity
An Asset is any economic resource that is expected to benefit its owner (such as buildings, equipment, inventory, and payments due the company). A Liability is a debt that the firm owes to an outside party. Owner’s equity is the amount of money that owners would receive if they sold all of a company’s assets and paid all of its liabilities.
- 4. Describe the three basic financial statements
Accounting summarizes the results of a firm’s transactions and issues reports to help managers make informed decisions. The class of reports known as financial statements, are divided into three categories – balance sheets, income statements, and statements of cash flow.
- 5. Explain the key standards and principles for reporting financial statements
The following are three of the most important standard reporting practices and principles :
- Revenue recognition is the formal recording and reporting of revenues in the financial statements.
- The matching principle states that expenses will be matched with revenues to determine net income. It permits users to see how much net gain resulted from the assets that had to be given up in order to generate revenues.
- Because they have inside knowledge, management prepares additional information that explains certain events or transactions or discloses the circumstances behind certain results.
- Show how computing key financial ratios can help in analyzing the financial strengths of a business
Financial statements provide data that can be applied to ratios. Ratio are grouped into three major classifications :
- Solvency ratios estimate risk
- Profitability ratios measure potential earnings.
- Activity ratios reflect management’s use of assets by measuring the efficiency with which a firm uses its resources.
- 7. Explain some of the special issues facing accountants at firms that do international business
Accounting for foreign transactions involves special procesdures, such as translating the values of different countries currencies and accounting for the effects of exchange rates. As they are traded each day around the world, their values are determined by market forces – what buyers will to pay for them. The resulting values are foreign currency exchange rates, which can be fairly volatile.
IV. REFERENCES
- Business International Edition
- Microsoft Power Point
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