1 - Accounting: The Language of Business
Statements of financial accounting standards
- Accounting principles established by the Financial Accounting Standards Board
CPA
- Certified public accountant
Management advisory services
- Involve helping clients improve their information systems or their business performance
Government accounting
- Involves keeping financial records and preparing financial reports of part of the staff of federal, state or local government units (think SEC).
Managerial accounting (aka private accounting)
- Involves working for a single business in industry
Steps to become a CPA
- Obtain a certain number of college accounting credits - demonstrate good personal character - pass the uniform CPA exam - fulfill the experience requirements of the state of practice
Privately owned corporations (closely held corporations)
- Ownership is limited to specific individuals, usually family members - Stocks aren't traded on an exchange
Publicly owned corporations
- Stock is bought and sold on exchanges and over-the-counter markets
Accounting
- The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers and other interested parties.
Public accountants
- Work for public accounting firms (those that provide accounting services for other companies).
Sole proprietorship
- a business entity owned by one person - life of the business ends when owner is no longer able or willing to keep it running - think small businesses
Corporation
- a business entity that's separate from its owners - Very different from sole proprietorships and partnerships - has a legal right to own property and do business in its own name
Limited Liability Partnership (LLP)
- a general partnership that provides some limited liability for all partners - Partners are liable for their own actions or those under their supervision - Partners aren't liable for the actions of another partner
Accounting System
- a process designed to accumulate data about a firm's financial affairs, classify the date in a meaningful way, and summarize it in periodic reports called financial statements.
exposure draft
- a proposed solution to a problem being considered by the Financial Accountiong Standards Board
Discussion memorandum
- an explanation of a topic under consideration by the Financial Accounting Standards Board
Stockholders (shareholders)
- aren't responsible for the debts or taxes of the corporation
3 services public accountants offer
- auditing - tax accounting - management advisory services
Partnerships
- business entities owned by two or more people (law firms, dental practices, accounting firms, etc.)
auditor's report
- contains the auditor's opinion about the fair presentation of the operating results and financial position of the business
tax compliance
- deals with the preperation of tax returns and the audit of those returns
separate entity assumption
- describes the concept of keeping the firm's financial reports separate from the owner's personal financial records
Subchapter S Corporations (aka S corporations)
- entities formed as corporations which meet certain IRA requirements and can thus be treated as a partnership so the corporation pays no income tax - Instead, shareholders record their share of profits, and other tax-related items, on their individual tax returns
Creditors
- individuals, companies or government agencies to whom a business owes money
tax planning
- involves giving advice to clients on how to structure their financial affairs in order to reduce their tax liability
Tax accounting
- involves tax compliance and tax planning
Social entities
- nonprofit organizations (cities, public schools, hospitals, etc.)
Users of financial information
- owners and managers - suppliers - banks - tax authorities (IRS) - regulatory agencies and investors - customers - employees and unions
3 areas accountants usually choose to practice in:
- public accounting - managerial accounting - government accounting
Entity
- recognized as having its own seperate identity - my be an individual, town, university or business
Stock
- represents ownership of a corporation
the 3 major legal forms of business entity
- sole proprietorship - the partnership - the corporation
Generally accepted accounting principles (GAAP)
- standards detailed by the accounting community that the SEC requires all publicly owned companies to follow
Auditing
- the review of financial statements to assess their fairness and adherence to GAAP
international accounting
- the study of accounting principles used by different countries
economic entity
- usually refers to a business or organization whose major purpose is to produces a profit for its owners