Accounting/Chapter 1

Bookkeepers

generally supervise the work of accounting clerks, help with daily accounting work, and summarize accounting information. In small-to-medium-sized businesses, the bookkeeper may also help managers and owners interpret the accounting information. Bookkeepers usually have one to two years of accounting education and experience as an accounting clerk.

Auditing

involves the application of standard review and testing procedures to be certain that proper accounting policies and practices have been followed. The purpose of the audit is to provide an independent opinion that the financial information about a business is fairly presented in a manner consistent with generally accepted accounting principles.

Financial Accounting.

Based on the accounting data prepared by the bookkeepers and accounting clerks, accountants prepare various reports and financial statements and help in analyzing operating, investing, and financing decisions.

accounting clerks

Businesses with large quantities of accounting tasks to perform daily often employ accounting clerks to record, sort, and file accounting information. Often, accounting clerks will specialize in cash, payroll, accounts receivable, accounts payable, inventory, or purchases. As a result, they are involved with only a small portion of the total accounting responsibilities for the firm. Accounting clerks usually have at least one year of accounting education.

Certified Fraud Examiner (CFE)

By meeting certain requirements, and passing the Certified Fraud Examiner exam, a forensic accountant may earn a Certified Fraud Examiner (CFE) designation.

Forensic Accounting

Forensic accounting is a rapidly growing segment of accounting practice. It includes fraud detection, fraud prevention, litigation support, business valuations, expert witness services, and other investigative activities. Public accounting firms offer forensic accounting services, but forensic accountants also work for insurance companies, banks, law enforcement agencies, and other organizations.

Management Advisory Services

Given the financial training and business experience of public accountants, many businesses seek their advice on a wide variety of managerial issues. Often, accounting firms are involved in designing computerized accounting systems.

Sarbanes-Oxley Act (SOX)

In 2002, the Sarbanes-Oxley Act (SOX) was passed by Congress to help improve reporting practices of public companies. The act was in response to accounting scandals at firms like Enron, WorldCom, Cendant, Xerox, and others.

Budgeting.

In the budgeting process, accountants help managers develop a financial plan.

Tax Accounting.

Instead of hiring a public accountant, a company may have its own accountants. They focus on tax planning, preparation of tax returns, and dealing with the Internal Revenue Service and other governmental agencies.

Internal Auditing.

Internal auditors review the operating and accounting control procedures adopted by management to make sure the controls are adequate and are being followed. They also monitor the accuracy and timeliness of the reports provided to management and to external parties.

Taxation

Tax specialists advise on tax planning, prepare tax returns, and represent clients before governmental agencies such as the Internal Revenue Service.

merchandising business

A business that buys a product from another business to sell to customers

manufacturing business

A business that makes a product to sell

service business

A business that provides a service

Certified Management Accountant (CMA)

A managerial accountant can achieve professional status as a Certified Management Accountant (CMA). This is done by passing a uniform examination offered by the Institute of Management Accountants.

Accountants

Accountants design the accounting information system and focus on analyzing and interpreting information. They also look for important trends in the data and study the impact of alternative decisions. Most accountants enter the field with a college degree in accounting. In fact, since many states require 150 credit hours to sit for the CPA exam, many students are also earning a master's degree in accounting before entering the profession. Accountants are employed in public accounting, private (managerial) accounting, and governmental and not-for-profit accounting

Accounting Information Systems.

Accountants in this area design and implement manual and computerized accounting systems.

Certified Internal Auditor (CIA)

An internal auditor can achieve professional recognition as a Certified Internal Auditor (CIA) by passing the uniform examination offered by the Institute of Internal Auditors.

Para-accountants

Para-accountants provide many accounting, auditing, or tax services under the direct supervision of an accountant. A typical para-accountant has a two-year degree or significant accounting and bookkeeping experience.

Key provisions of SOX

The Public Company Accounting Oversight Board (PCAOB) was created to enforce SOX rules and regulations. The PCAOB also has authority to set auditing standards for public company audits and to perform inspections of auditing firms. For the largest companies, external auditors are required to report on the effectiveness of a public company's accounting procedures. Auditing firms are prohibited from offering many nonaudit services to their public audit clients. Auditing firms must rotate lead audit partners off audit engagements every five years. The CEO and CFO must personally certify that the financial statements are accurate.

Cost Accounting.

The cost of producing specific products or providing services must be measured. Further analysis is also done to determine whether the products are produced and services are provided in the most cost-effective manner.

Certified Public Accountant (CPA)

The public accountant can achieve professional recognition as a Certified Public Accountant (CPA). This is done by meeting certain educational and experience requirements as determined by each state and passing a uniform examination prepared by the American Institute of Certified Public Accountants. Many CPAs work alone, while others work for local, regional, national, or international accounting firms that vary in scope and size. The largest public accounting firms in the United States are known as the "Big Four." They are Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers.

controller

oversees the entire accounting process and is the principal accounting officer of the company.

partnership

owned by more than one person. One or more partners may manage the business. Like proprietors, partners assume the risks for the business, and their assets may be taken to pay creditors. An advantage of a partnership is that owners share risks and decision making. A disadvantage is that partners may disagree about the best way to run the business.

sole proprietorship

owned by one person. The owner is usually called a proprietor. The proprietor often manages the business. The owner assumes all risks for the business, and personal assets can be taken to pay creditors. The advantage of a sole proprietorship is that the owner can make all decisions.

corporation

owned by stockholders (or shareholders). Corporations may have many owners, and they usually employ professional managers. The owners' risk is usually limited to their initial investment, and they often have very little influence on the business decisions.