college accounting

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Chapter
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Skyline College
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The Need for Financial Information
In running a business, you need answers to
questions.

• How much cash does the business have?

• How much money do customers owe?

• What is the cost of the merchandise sold?

• What is the change in sales volume?

• How much money is owed suppliers?

• What is the profit or loss?

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Accounting Defined
Objective 1
to owners, managers, and other interested parties.
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Accounting Careers
Many jobs are available in the accounting
profession. Some examples are
Accounting Clerk
Bookkeeper
Accountant
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Accounting Clerk

• Usually requires one to two accounting courses
• Generally requires little or no experience
• Requires computer skills
• Computerized accounting
• Word
• Excel

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Bookkeeper

• Usually requires one to two years of accounting
  education
• Generally requires experience as an accounting
  clerk

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Accountant

• Usually requires a bachelors degree
• Most entry-level positions do not require
  experience.
• Accountants work in one of these areas
• Public accounting
• Managerial accounting
• Governmental accounting

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Public Accounting
A certified public accountant, or CPA, is an
independent accountant who provides accounting
services to the public for a fee. They provide
services such as

• Auditing

• Tax accounting

• Management advisory services

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Managerial Accounting
accounting work carried on by an accountant
employed by a single business in industry. They
involve working on

• Establish accounting policies
• Manage the accounting system
• Prepare and interpret financial statements
• Prepare tax forms and do tax planning
• Prepare internal reports for management

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

• Securities and Exchange Commission (SEC)
• Internal Revenue Service (IRS)
• Federal Bureau of Investigation (FBI)
• Homeland Security

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Users of Financial Information
Inside The Business
Outside The Business
Financial Reports
Employees
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Customers
Use financial information to

• Determine the economic health of the business
• Determine the likelihood that the firm will
  remain in business to provide parts, service, and
  support

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Employees and Unions
Use financial information to

• Negotiate wages and benefits
• Monitor profit-sharing plans

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Sarbanes-Oxley Act

• Major change in the regulatory environment.

• Is designed to crackdown on corporate fraud and
  corruption.

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Three major legal forms of business entity

• Sole Proprietorship

Partnership

• Corporation

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• Sole Proprietorship

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Partnership
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Typical partnerships
Professional services such as
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Partners must agree upon

• Amount each partner will contribute
• Percentage of ownership of each partner
• Share of profits of each partner
• Duties each partner will perform
• Debts - the responsibility each partner has for
  the partnerships debts

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• Corporation

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Sole Proprietorship
Partnership
Corporation
Ownership
1 owner
2 or more
Can be thousands
Continues indefinitely

• Ends when owner
• is unable to
• carry on,
• dies, or
• closes the firm

Life

• Ends when partner(s)
• dies,
• close the firm
• withdraws

Responsibility for business debts if firm is
unable to pay
Stockholders can lose only the amount invested
Owner
Partners individually and jointly
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Corporate Ownership
Stock is issued in the form of stock certificates
and represents ownership of the corporation.
Corporate ownership is determined by the number
of shares held compared to the number of shares
issued by the corporation.
Corporations can have new owners daily if their
shares are actively traded on stock exchanges.
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Stockholders
Stockholders (owners of a corporation) have
voting rights for certain corporate decisions,
one per share. Stockholders can lose only up to
the amount of their investment (cost of stock) if
the business is unable to pay its debts.
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All three forms of business operate under the. .
. Separate Entity Assumption.
The separate entity assumption is the concept of
keeping a firms financial records separate from
the owners personal financial records.
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Generally Accepted Accounting Principles
(GAAP) are accounting standards developed and
applied by professional accountants.
Publicly owned companies must follow GAAP.
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Development of GAAP
SEC
Governmental Agency
Has final say
Delegates to
FASB
Accounting Profession
Develops GAAP
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