College Accounting by John J. Wild, Vernon J. Richardson, and Ken W College Accounting by John J. Wild, Vernon J. Richardson, and Ken W. Shaw

Introduction to Accounting Chapter 1 Introduction to Accounting Chapter 1: Introduction to Accounting

Learning Objective 1 Explain the purpose and importance of accounting in the information age. Learning objective number 1 is to explain the purpose and importance of accounting in the information age.

Importance of Accounting is a system that Accounting Identifies Records information that is Relevant Communicates Accounting is the process of identifying, recording and communicating information that is relevant, reliable, and comparable. The goal of the accounting process is to provide helpful information to users of financial information. Quality information may help users reach more informed decisions. Reliable to help users make better decisions. Comparable

Accounting Activities Identifying Business Activities Recording Business Activities Communicating Business Activities Not all transactions entered into by a business entity are capable of being recorded. Our first task as accountants is to identify those transactions that may be recorded in the accounting system. In recording business transactions, we must follow the rules of double-entry bookkeeping. We will spend a significant amount of time early in the course discussing in detail the rules of the accounting process. Next, we should follow standard formatting when reporting information to users outside the organization. External users include stockholders of the company, lenders, various governmental agencies, and others.

Identify users and uses of accounting. Learning Objective 2 Identify users and uses of accounting. Learning objective number 2 is to identify users and uses of accounting.

Accounting Information Users External Users Lenders Shareholders Governments Consumer Groups External Auditors Customers Internal Users Managers Officers Internal Auditors Sales Staff Budget Officers Controllers Accountants prepare reports for both external and internal users. External users of accounting information are not directly involved in running the organization. They include shareholders, lenders, directors, customers, suppliers, regulators, lawyers, brokers, and the press. Internal users of accounting information are those directly involved in managing and operating an organization. Managers of the business need information to help direct and control operations of a business. The sales/marketing department needs information about customers and products. Officers of the company need information to develop strategic plans.

Accounting Information Users External Users Internal Users In this book we will spend most of our time developing financial accounting information for external users. Some of the material we cover will prove useful to managers and other internal decision makers. Financial accounting provides external users with financial statements. Managerial accounting provides information needs for internal decision makers.

Identify career opportunities in accounting and related fields. Learning Objective 3 Identify career opportunities in accounting and related fields. Learning objective number 3 is to identify career opportunities in accounting and related fields.

Opportunities in Accounting Financial Preparation Analysis Auditing Regulatory Consulting Planning Criminal investigation Managerial General accounting Cost accounting Budgeting Internal auditing Consulting Controller Treasurer Strategy Taxation Preparation Planning Regulatory Investigations Consulting Enforcement Legal services Estate plans Accounting-related Lenders Consultants Analysts Traders Directors Underwriters Planners Appraisers FBI investigators Market researchers Systems designers Merger services Business valuation Fraud investigation Litigation support Entrepreneurs Careers in accounting can follow many paths. There is great demand for financial accountants in the preparation of financial statements, dealing with regulatory agencies like the Internal Revenue Service, and consulting. Management accountants help track product costs, prepare budgets and serve as a consultant to managers. The field of taxation includes everything from the preparation of tax returns to consulting with clients about estate and gift planning. Individuals with accounting backgrounds may move into other areas of importance within an organization. Individuals with accounting training often become business owners and managers. They are in high demand in all financial and investigative fields.

Certifications Certified Public Accountants (CPA) Certificate in Management Accounting (CMA) Certified Bookkeeper (CB) Certified Internal Auditor (CIA) Accounting specialists are highly regarded. Their professional standing often is denoted by a certificate. Certified public accountants must meet education and experience requirements, pass an examination, and exhibit ethical character. Many accounting specialists hold certificates in addition to or instead of the CPA. Some of the other certifications are certificate in management accounting, certified internal auditor, certified fraud examiner, certified bookkeeper, certified payroll specialist, and personal financial specialist. Certified Fraud Examiner (CFE) Certified Payroll Specialist (CPS) Personal Financial Specialist (PFS)

Accounting Jobs by Area About twenty-five percent of accountants work in public accounting. Public accounting firms offer accounting, tax, and consulting services to a wide variety of clients. About sixty percent of accountants work for businesses/corporations, and fifteen percent work for governmental, not-for-profit, and educational organizations.

Explain why ethics are crucial to accounting. Learning Objective 4 Explain why ethics are crucial to accounting. Learning objective number 4 is to explain why ethics are crucial to accounting.

Ethics Ethics—A Key Concept Beliefs that distinguish right from wrong Accepted standards of good and bad behavior Ethical behavior is the cornerstone of the accounting profession. Recently, we have seen many corporate scandals involving individuals who acted in an unethical, and often times illegal, way. Ethics is the belief system that permits us to distinguish right from wrong. It is something that we develop over our lifetimes and serves to help us identify good and bad behavior.

Guidelines for Ethical Decision Making Identify ethical concerns Analyze options Make ethical decision You have faced ethical situations in school and will face similar situations at work. We should be capable of identifying ethical concerns and analyzing our options, that is, what is the right and wrong thing to do. Making an ethical decision means we choose the best option available under the circumstances. Use personal ethics to recognize ethical concern. Consider all good and bad consequences. Choose best option after weighing all consequences.

Explain the meaning of generally accepted accounting principles. Learning Objective 5 Explain the meaning of generally accepted accounting principles. Learning objective number 5 is to explain the meaning of generally accepted accounting principles.

Generally Accepted Accounting Principles Financial accounting practice is governed by concepts and rules known as generally accepted accounting principles (GAAP). Relevant Information Affects the decision of its users. Financial accounting is governed by a set of rules we call Generally Accepted Accounting Principles, or GAAP for short. Generally accepted accounting principles identify three major characteristics of information. First, the information must be relevant. Relevant information impacts the decision of the informed user for financial information. Second, the information must be reliable. Finally, the information must be comparable. Comparability helps us compare financial information from one period with that of the next period. Reliable Information Is trusted by users. Comparable Information Is helpful in contrasting organizations.

Learning Objective 6 Identify the groups that establish generally accepted accounting principles. Learning objective number 6 is to identify the groups that establish generally accepted accounting principles.

Setting Accounting Principles Financial Accounting Standards Board is the private group that sets both broad and specific principles. The Securities and Exchange Commission is the government group that establishes reporting requirements for companies that issue stock to the public. The Financial Accounting Standards Board is recognized as the group in the private sector that makes specific accounting principles. If an accountant departs from the principles established by the F A S B, proper disclosure of the departure must be made. In the public sector, the Securities and Exchange Commission has the authority to establish accounting principles for companies reporting to the agency. Currently, the Securities and Exchange Commission has accepted all pronouncements of the F A S B for use by reporting companies. The International Accounting Standards Board (IASB) issues International Financial Reporting Standards that identify preferred accounting practices to create harmony among accounting practices of different companies. The International Accounting Standards Board (IASB) issues International Financial Reporting Standards that identify preferred accounting practices.

End of Chapter 1 End of Chapter 1.