Principles of Accounting - VYC1

Users of Financial Information SUPPLIERS

A number of other people are interested in the financial information about your business. For example, businesses that supply you with sportswear need to assess the ability of your firm to pay its bills. They also need to set a credit limit for your firm.

Tax accounting

A service that involves tax compliance and tax planning

The Need for Financial Information

As your business grows, you will need even more financial information to evaluate the firm's performance and make decisions about the future. An efficient accounting system allows owners and managers to quickly obtain a wide range of useful information. The need for timely information is one reason that businesses have an accounting system directed by a professional staff.

Public accounting firms usually provide three services

Auditing Tax Accounting Management advisory services

Users of Financial Information CUSTOMERS

Customers pay special attention to financial information about the firms with which they do business. For example, before a business spends a lot of money on a new computer system, the business wants to know that the computer manufacturer will be around for the next several years in order to service the computer, replace parts, and provide additional components

Users of Financial Information REGULATORY AGENCIES AND INVESTORS

If an industry is regulated by a governmental agency, businesses in that industry have to supply financial information to the regulating agency. For example, the Federal Communications Commission receives financial information from radio and television stations. The Securities and Exchange Commission (SEC) oversees the financial information provided by publicly owned corporations to their investors and potential investors. Publicly owned corporations trade their shares on stock exchanges and in over-the-counter markets. Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934 in order to protect those who invest in publicly owned corporations. The SEC is responsible for reviewing the accounting methods used by publicly owned corporations. The Sarbanes-Oxley Act was passed in response to the wave of corporate accounting scandals starting with the demise of Enron Corporation in 2001, The Act significantly tightens regulation of financial reporting by publicly held companies and their accountants and auditors. The Sarbanes-Oxley Act creates a five-member Public Company Accounting Oversight Board.

Users of Financial Information EMPLOYEES AND UNIONS

Often employees are interested in the financial information of the business that employs them. Employees who are members of a profit-sharing plan pay close attention to the financial results because they affect employee income.

Users of Financial Information OWNERS AND MANAGERS

One user of financial information about the business is you, the owner. You need information that will help you evaluate the results of your operations and plan and make decisions for the future.

Financial statements

Periodic reports of a firm's financial position or operating results.

PUBLIC ACCOUNTING

Public accountants- Members of firms that perform accounting services for other companies work for public accounting firms.

Users of Financial Information TAX AUTHORITIES

The Internal Revenue Service (IRS) and other state and local tax authorities are interested in financial information about your firm.

Users of Financial Information BANKS

The bank needs to be sure that your firm will repay the loan on time.

Accounting

The process by which financial information about a business is recorded, classified, summarized, interpreted, and communicated to owners, managers, and other interested parties

CPAs

To become a CPA, an individual must have a certain number of college credits in accounting courses, demonstrate good personal character, pass the Uniform CPA Examination, and fulfill the experience requirements of the state of practice. CPAs must follow the professional code of ethics.

The accountant:

Today accountants provide a wide range of services, including financial planning, investment advice, accounting and tax software advice, and profitability consulting.

MANAGERIAL ACCOUNTING

also referred to as private accounting, involves working for a single business in industry.

Tax compliance

deals with the preparation of tax returns and the audit of those returns.

The accountant:

establishes the records and procedures that make up the accounting system, supervises the operations of the system, interprets the resulting financial information.

Managerial accountants perform a wide range of activities, including:

establishing accounting policies, managing the accounting system, preparing financial statements, interpreting financial information, providing financial advice to management, preparing tax forms, performing tax planning services, preparing internal reports for management.

Tax planning involves

giving advice to clients on how to structure their financial affairs in order to reduce their tax liability.

GOVERNMENTAL ACCOUNTING

involves keeping financial records and preparing financial reports as part of the staff of federal, state, or local governmental units

Accounting system

is designed to accumulate data about a firm's financial affairs, classify the data in a meaningful way, and summarize it in periodic reports called financial statements

The accountant:

provide clients with information and advice on electronic business, health care performance measurement, risk assessment, business performance measurement, and information system reliability.

Accountants usually choose to practice in one of three areas:

public accounting managerial accounting governmental accounting