1. Chapter8 The role of accounting
Jiangxi University of Finance and Economics

2. Some theories of accounting
Accounting is a way of recording, analyzing and summarizing transactions of a business.
Luca Pacioli is the founder of modern accounting, who invented double-entry bookkeeping in 1494.
Different organizations may have different accounting system, based on their size, type and structure.

3. Main functions of accounting
Accounting is used to supply financial information
Recording financial information
Codifying and processing financial information
Preparing financial statements
The users of accounting information include: managers, shareholders, suppliers, customers, providers of finance, employees, financial analysts, government, etc.

4. Good accounting information
Relevance
Comprehensibility
Reliability
Completeness
Objectivity
Timeliness
Comparability

5. Internal and external information
External reports
The income statement
The statement of financial position
The statement of cash flows
Internal reports
Cost schedules
Budgets
Variance reports

6. Financial accounting
Financial accounting report the results and financial position of a business
It satisfies persons not involved in the day-to-day running of the business.
It is under the requirement of accounting standards.
The financial accounting information may affect the company’s cost of capital.

7. Management accounting
Management accounting is a MIS analyzing data to provide information for managerial action.
The users are the managers inside the business.
The form of information is not fixed.
It is critical to the planning, controlling, and decision-making of the business.

8. Other scope of accounting
Financial management involves raising finance and controlling financial resources. The financial managers have to make decisions about financing, investing and dividend providing.
The goal of auditing is to investigate whether the financial statement of a business is true and fair.

9. Regulatory system
Businesses’ accounting are under the regulation of many sectors
Company law
Accounting concepts and individual judgment
Accounting standard in the country
International Accounting Standards Board(IASB)
Generally Accepted Accounting Practice(GAAP)
True and fair view

10. Some key transactions Sales Purchases Overheads Payroll
Capital expenditure

11. Controlling transactions
Controlling the payroll system
Documentation and authorization of staff changes
Calculation of wages and salaries
Payment of wages and salaries
Authorization of deductions( 如所得税、保险等)
The purpose of this system is to compute the gross wages and salaries of employees, and produce payslips, checks and listings.

12. Controlling transactions(cont’d)
Controlling the purchase system
Buying(authorization)
Goods inwards(custody)
Accounting(recording)
Controlling the sales system
Goods outwards(custody)
These two systems are the most important.

13. Computerized accounting
The computerized systems are superior to manual system in many aspects, like productivity, quickness, risk, accessibility, quality of output, etc.
But it has many disadvantages, too.
Database and spreadsheets are used widely in many businesses.