Introduction to Accounting

Introduction to Accounting

• Accounting is the language of business, used by various stakeholders to describe business events.
• It involves analyzing, classifying, recording, summarizing, and interpreting business transactions in monetary terms.
• A business transaction is an event that affects the business, expressed in money, and recorded.
• Accounting aims to provide financial information for efficient economic unit operation.

What is Accounting?

• Economic activities form the basis of accounting.
• Accountants analyze these activities, using critical thinking and judgments, to identify needed information for sound decisions.
• Accounting serves not only businesses but also non-profits like governments, churches, clubs, and charities.

Accounting Standards

• Generally Accepted Accounting Principles (GAAP) provide rules for the accounting process, developed by the Financial Accounting Standards Board (FASB).
• The Securities and Exchange Commission (SEC) regulates publicly traded companies and relies on the FASB for accounting standards.
• International Financial Reporting Standards (IFRS), developed by the International Accounting Standards Board (IASB), are gaining prominence globally and are converging with GAAP.

Bookkeeping and Accounting

• Bookkeeping involves the systematic recording of business transactions.
• Accounting is broader, encompassing system design, supervision, and financial statement/tax report preparation.

Importance of Accounting Information

• Accounting knowledge is essential for leadership roles in business and government.
• Understanding accounting's scope, functions, and organizational policies is gained through study.

Users of Accounting Information

• Owners: Seek information on earnings, future prospects, and debt repayment ability.
• Managers: Need accounting data for reports, budgets, and performance evaluation.
• Creditors: Demand information on the company's ability to repay debts. This includes suppliers, banks, and loan companies
• Government Agencies: Review company information for various taxes (income, sales, employment). Public utilities provide data to regulatory agencies.

Accounting and Technology

• Computers are essential for all businesses, large and small.
• Accounting roles require computer proficiency (word processing, spreadsheets, accounting software like QuickBooks).

Career Opportunities in Accounting

• Accounting employment is projected to grow faster than average.
• Growth of 11% is anticipated between 2014 and 2024.

Accounting Clerk/Technician

• Routine recording of financial data is their primary task.
• Duties vary by company size (small businesses handle more tasks, larger companies employ clerks for specific portions of the accounting system).
• Usually requires a term or semester in accounting.

Auditing Clerk

• Primary role: verifying transactions and records.
• Responsibilities also include updating records, ensuring mathematical accuracy, noting/correcting errors for accountants.
• High school diploma is usually the minimum requirement; an associate degree in business or accounting is often preferred.

General Bookkeeper

• Oversees bookkeeping operations in smaller and medium-sized businesses.
• Supervises accounting clerks.
• Requirements vary by company, typically including one or two years of accounting education and clerk experience.

Paraprofessional Accountant

• Bridges the gap between general bookkeepers and professional accountants.
• Manages general bookkeeper responsibilities and some professional accountant duties.
• Typically requires a two-year degree, accounting software knowledge, and experience.

Certifications Available

• Several organizations offer certifications:
  • Certified Bookkeeper (CB) from the American Institute of Professional Bookkeepers.
  • Accredited Business Accountant® (ABA) from the Accreditation Council for Accountancy and Taxation.

Accountant

• Designs and manages accounting systems.
• Prepares financial statements, tax returns, and conducts audits.
• Many start at entry-level positions and advance.
• Four categories: public, managerial/private, government/non-profit, and internal auditing.

Public Accounting

• Often CPAs (certified public accountants).
• Requirements include a bachelor's degree, 150+ credit hours (most states), passing an exam, and work experience.
• Services include: system design, tax returns, financial advice, audits, and financial positions (CFO, controller, financial analyst).
• Forensic accounting involves investigations of business crimes (fraud, embezzlement, money laundering).

Managerial or Private Accounting

• Works for private companies.
• Manages systems, prepares budgets, determines costs, provides financial information for management.
• Opportunities for advancement to top management.
• Certified Management Accountant (CMA): has skills in financial and decision-making analysis & ethics.
• Requires a bachelor's degree, passing the CMA exam, and two years' relevant experience.

Government and Not-for-Profit Accounting

• Applies to government bodies, hospitals, churches, schools.
• Activities include budgeting, revenue/expense recording.

Internal Auditing

• Verifies system effectiveness and controls.
• Ensures accurate financial information, protects it, ensures compliance with government regulations and corporate policies.
• Certified Internal Auditor (CIA) certification from the Institute of Internal Auditors.
• Requires a bachelor's degree, two years' experience, and passing the CIA exam.

Ethics

• Accounting ethics involves conduct according to laws and personal moral code.
• Organizations provide codes of ethics.
• Sarbanes-Oxley Act (SOX) was enacted to address corporate accounting scandals like Enron and WorldCom and set new rules.