Accounting 1110 Exam 1 (Chapter 1, 2, and 3)

Bookkeepers

generally supervise the work of accounting clerks, help with daily accounting work, and summarize accounting information. Bookkeepers usually have one to two years of accounting education and experience as an accounting clerk

Budgeting

in the budgeting process, accountants help managers develop financial plan

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

Partnership

is owned by more than one person.

Sole proprietorship

is owned by one person. The owner is usually called a proprietor

Corporation

is owned by stockholders (or shareholders). Corporations may have many owners, and they usually employ professional managers

Businesses are classified according to the type of

service or product provided

Classifying

sorting and grouping similar items together rather than merely keeping a simple, diary-like record of numerous events

Reporting

telling the results. In accounting, it is common to use tables of numbers to report results

These parties include

the American Institute of Certified Public Accountants (AICPA), the American Accounting Association (AAA), the Institute of Management Accountants (IMA), Financial Executives International (FEI), corporate executives and accountants, representatives from the investment community, analysts, bankers, industry associations, and SEC and other government agencies

Summarizing

the aggregation of many similar events to provide information that is easy to understand. For example, a firm may buy and sell baseballs bought and sold and the change in the number of baseballs held from the beginning to the end of the period

Private (Managerial) Accounting

the controller oversees the entire accounting process and is the principal accounting officer of the company can achieve professional status as a Certified Management Accountant (CMA)

Purpose of Accounting

to provide financial information about the current operations and financial condition of a business to individuals, agencies, and organizations

Accounting clerks

to record, sort, and file accounting information. Often, accounting clerks will specialize in cash, payroll, accounts receivable, accounts payable, inventory, or purchases

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, Xerox, and others

The difference between accountants and bookkeepers is not always clear, particularly in smaller companies

where bookkeepers also help interpret the accounting information

The difference between accountants and bookkeepers in larger companies, the distinction is clearer

Bookkeepers focus on the processing of accounting data. Accountants design the accounting information system and focus on analyzing and interpreting information.

Management Advisory Service

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

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 represents clients before governmental agencies such as the Internal Revenue Service

Key provisions of SOX are

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 perform inspections of auditing firms. For the largest companies, external auditors are required to report on the effectiveness of public company's accounting procedures 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.

Financial Accounting Standards Board Accounting Standards Codification

This codification is an electronic database that provides one authoritative source for the standards which must be followed by U.S. companies

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

Accounting

a system of gathering financial information about a business and reporting this information to users

accounting information system

accountants in this area design and implement manual and computerized accounting systems

Certified Internal Auditor (CIA)

an internal auditor who has achieved professional recognition by passing the uniform examination offered by the Institute of Internal Auditors

Interpreting

deciding the meaning and importance of the information in various reports. This may include ratio analysis to help explain how pieces of information relate to one another

accountant

designs the accounting information system and focuses on analyzing and interpreting information

Recording

entering financial information about events into the accounting system. Although this can be done with paper and pencil, most businesses use computers to perform routine record-keeping operations

In developing accounting standards, the Financial Accounting Standards Board (FASB) follows a specific process and relies on the advice of many organizations. When an accounting issue is identified, the following steps are followed

1. The issue is placed on FASB's agenda. This lets everyone know that the Board plans to develop a standard addressing this issue. 2. After researching an issue, FASB issues Preliminary Views document. This document identifies the pros and cons of various accounting treatments for an event and invites others to comment. 3. To gather additional views on the issue, the Board will often hold public hearings around the country. Interested parties are invited to express their opinions at these hearings. 4. Following these hearings, the Board issues an exposure draft. This document explains the rules that FASB believes firms should follow in accounting for this event. 5. After considering feedback on the exposure draft, the Board issues a final Accounting Standards Update which amends the Financial Accounting Standards Board Accounting Standards Codification. This Codification is an electronic database that provides one authoritative source for the standards that must be followed by U.S. companies

Three type of ownership structures are

1. sole proprietorship 2. partnership 3. corporation

Accounting Information System

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

Six major steps of the accounting process

Analyzing Recording Classifying Summarizing Reporting Interpreting

Services offered by public accountants

Auditing Taxation Management Advisory Services Forensic Accounting

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 financial decisions

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

Cost Accounting

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

Analyzing

looking at events that have taken place and thinking about how they affect the business

Public Accounting

offer services in much the same way as doctors and lawyers can achieve professional recognition as a Certified Public Accountant (CPA)

generally accepted accounting principles (GAAP)

procedures and guidelines developed by the Financial Accounting Standard Board to be followed in the accounting and reporting process

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