Hermanson - Introduction

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ACCOUNTING

A BUSINESS PERSPECTIVE

Seventh Edition

ROGER H. HERMANSON

JAMES DON EDWARDS

MICHAEL W. MAHER

I-1

Introduction Chapter

The Accounting

Environment

Pages 1-11

Very Broad Overview

I-2

Administration

Bring book to class.

How to take notes.

Write in your book!!

I-3

Major Challenge

What do you think is the biggest problem/challenge for most students taking introductory accounting?

The Vocabulary!

Accounting is often called “the language of business”.

This is why all business students must take this course.

I-4

Text’s Definition of Accounting

“The process of identifying, measuring, and communicating economic information to permit informed judgments and decisions by the users of the information.”

I-5

2

Rice’s Definition of Accounting

The process of:

Identifying,

Measuring,

Recording,

Classifying,

Summarizing,

Reporting, and Interpreting ...

I-6

I-7

Rice’s Definition of Accounting

… What?

Financial transactions

… For whom?

For interested users.

Who are these interested users?

Interested Users (pg. 6-7)

Customers

(Why?)

Creditors and lenders

Owners and prospective owners

Employees and their unions

(Why?)

Government units

General

Public

I-8

Accounting vs. Bookkeeping

Bookkeeping

Mechanical process

May not know why ...

Accounting

Must know theory behind why...

Should be able to apply theory to ...

I-9

Classification of Accounting Jobs

I-10

Public Accounting

Private industry

Government

Education

Public Accounting

Public Accounting Firms offer professional accounting services to clients.

Generally, the public accountant’s goal is to become a Certified Public

Accountant, or CPA.

The CPA certificate is generally considered to be required to be a

“member of the profession”

I-11

CPA Exam

National, two-day exam

Given twice a year

May and November

Given at same time in all states

Has four parts

CPA is licensed by the state

I-12

Public Accounting Services

Audit Services

Auditor’s Opinion or Report

Auditor “attests”

Only unique service

Tax Services

Competition?

Today’s emphasis?

Management Advisory/

Consulting Services

Competition?

Largest in world?

I-13

Big Six Five International

CPA Firms (pg. 4)

Arthur Andersen & Co.

Deloitte & Touche

Ernst & Young

KPMG Peat Marwick

PricewaterhouseCoopers

As of 7-1-98

I-14

Other Professional Accounting

Certifications

I-15

Management Accounting (CMA)

Internal Auditing (CIA)

See Department of Accounting Web site for important links.

Two Types of Accounting

I-16

Financial Accounting

Managerial Accounting

Financial Accounting

Generating financial statements for external users of information about the company’s:

Results of Operations

Financial Position

Inflows and Outflows of Cash

I-17

Financial Accounting

Income

Statement

Balance

Sheet

Statement of Cash

Flows

Financial

Statements must be prepared in accordance with Generally

Accepted

Accounting

Principles

(GAAP)

I-18

Generally Accepted Accounting

Principles (GAAP)

I-19

Common set of accounting rules followed by all public businesses.

Required by the Securities and Exchange

Commission (SEC)

Often required by other external stakeholders, such as

Creditors, Lenders, Vendors, Investors

Auditors make sure they have been followed

More on GAAP

Defined by the

Financial

Accounting

Standards

Board (FASB)

The FASB is the seven short fat guys (the

Gurus) who hang out in

Norwalk, CT

I-20

Managerial Accounting

Generates information for internal use which is crucial for decision making

I-21

Financial decisions

Marketing decisions

Production decisions

Resource allocation decisions

Important Organizations

(pp. 8 & 9)

Financial Accounting Standards Board (FASB)

American Institute of Certified Public Accountants (AICPA)

Governmental Accounting Standards Board (GASB)

Securities and Exchange Commission (SEC)

American Accounting Association (AAA)

Financial Executives Institute (FEI)

Institute of Management Accountants (IMA)

I-22

Ethical Behavior of Accountants

Ethical conduct includes:

Obeying the profession’s

Code of

Ethics.

Doing the

“right” thing.

Obeying the laws.

Maintaining honesty and integrity.

I-23

Miscellaneous

How to Study the

Chapters in this Text

See pp. 10 & 11

I-24

END

OF

INTRO

I-25

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