Accounting-Introduction to Business-Lecture Handout, Exercises of Business Fundamentals

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Lecture 43

ACCOUNTING

Accounting Period: Time span in which accounts are terminated. Summarizing: Summary of all revenues and expenses Income Statement: A statement which shows the position of revenues and expenses or profit and loss Profit: Excess of revenues over expenditures. Loss: Excess of expenditures over revenues. Bookkeeping: Recording of accounting transactions. It is just one phase of accounting.

Accounting Vs. Book Keeping

„ Recording the information in the books is called book keeping. „ To draw a picture from the information is called accounting.

ACCOUNTING INFORMATION SYSTEM (AIS)

Organized means by which financial information is identified, measured, recorded, and retained for use in accounting statements and management reports

Types of Accounting

„ Financial Accounting: Financial accounting is used by external users. „ Managerial Accounting: Managerial accounting is used by internal users.

AUDITING

Auditing is an examination of the records and reports of an enterprise by accounting specialists other than those responsible for their preparation. Public auditing by independent accountants is common in large firms. The auditor performs tests to determine whether the firm's statements were prepared in accordance with acceptable accounting principles and that they fairly present its financial position and operating results.

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Accounting versus Auditing

• Accounting is concerned with recording of accounting information.
• Auditing is concerned with examination of accounting information. TYPES OF AUDITORS There are two types of auditors: a. Internal Auditors Internal auditors are employees of a company hired to assess and evaluate its system of internal control. To maintain independence, they present their reports directly to the Board of Directors or to Top Management. They provide functional operation to the concern. Internal Auditors are employees of the company so that they can easily find out the frauds and any mis‐happening. b. External Auditors External auditors are independent staff assigned by an auditing firm to assess and evaluate financial statements of their clients or to perform other agreed upon evaluations. Most external auditors are employed by accounting firms for annual engagements. They are called upon from the out side of the company.

USERS OF ACCOUNTING INFORMATION

• Business Managers & Management Set goals, develop plans, set budgets, and evaluate future prospects
• Employees and Unions Get paid, plan for and receive benefits
• Investors and Creditors (Owners) Estimate returns to stockholders, determine company’s growth prospects, and determine creditworthiness before investing or lending
• Banks They would be interested in company’s financial conditions as they would like to know when their loans will be paid
• Tax Authorities (Banks) Plan for tax inflows, determine tax liabilities, and ensure proper payment
• Government Regulatory Agencies Fulfill their duties to citizens

Generally Accepted Accounting Principles (GAAP)

These are accepted rules and procedures governing the content and form of financial reports around the world. Need for these system were raised when shuffling of financial

staff was happening in the teams & new people were joining the existing teams so it was docsity.com

becoming difficult to make new people aware with every aspect of previous working so these systems were evolved.

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