The Nature and Purpose of Accoun3ng
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• Accoun3ng is a system that provides informa3on on:
– Amounts of resources. – How resources were ﬁnanced. – Results achieved by using resources.
– Par3es inside or outside of organiza3on. – Proﬁt and nonproﬁt organiza3ons.
• Opera3ng • Financial accoun3ng. • Management accoun3ng. • Tax accoun3ng.
• Needed to conduct day‐to‐day ac3vi3es. • Largest quan3ty of accoun3ng data. • Examples:
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• Must change plans as condi3ons require.
• Process to ensure employees perform properly. • Accoun3ng informa3on is used to:
– Communicate plans and expected ac3ons. – Mo0vate employees to act consistently with organiza3on’s goals. – Focus a>en0on on problem areas (via feedback). – Appraise performance of managers and other employees.
• Prepare returns for taxing authori3es:
– Federal – State – Local – Interna3onal
• Process of:
– Iden3fying – Measuring – Communica3ng
• Bookkeepers and other data entry personnel. • Staﬀ accountants.
– Maintain detailed opera3ng records. – Prepare and interpret reports. – Design and operate informa3on systems. – Ensure accuracy of informa3on.
• Independent public accountants. • Audit publicly owned companies and provide other services. • Licensed by state. • Work in large ﬁrms, small ﬁrms, independent prac3ces. • American Ins3tute of CPAs (AICPA).
• Monitors auditors of public companies. • Has power to:
– Set audi3ng standards. – Discipline auditors who do not follow standards.
• Ins3tute of Management Accountants (IMA). – Cer3ﬁed Management Accountants (CMAs). • Ins3tute of Internal Auditors (IIA). – Cer3ﬁed Internal Auditors (CIAs). • American Accoun3ng Associa3on (AAA). – Academic accountants.
• Top accoun3ng manager. • Oversees:
– Accoun3ng professionals in areas of management accoun3ng, ﬁnancial accoun3ng, and tax accoun3ng. – Requests for informa3on and reports. – Compliance with applicable rules and regula3ons. – Design, installa3on, and opera3on of informa3on systems.
• Viewpoint of accountant (preparer). • Viewpoint of user. • Our authors:
– Collec3ng, summarizing and repor3ng accoun3ng informa3on. – Understanding, analyzing, and interpre3ng accoun3ng reports to make decisions. – Emphasize perspec3ve of current and poten3al future users. – However, recognize need for some knowledge of how accoun3ng reports are prepared.
• Actual value or “worth” of a business may not be included in usual ﬁnancial reports. • Not all resources (assets) of organiza3ons are (or can be) measured and reported.
– e.g., knowledge and skills of employees.
• Part One: Financial Accoun3ng
– Chapters 1‐4: Overview of basic structure underlying all accoun3ng. – Chapters 5‐14: Reviews same material in more detail.