Recording;

classifying,
summarizing and
interpreting of financial events and
transactions
To provide management and other
interested parties with the information they
need to make good decisions.

Executive Management
- Financial statements, budgets, and
performance reports
Finance - Cash flow information
Human Resources - Payroll information
Research & Development cost reports
Production production reports, internal
controls
Marketing sales reports, cost reports

 Accounting
Executive
Financial

>>>Financial statements >>

Management>

reports > External decision makers

What organizations does the organization

own?
What debts does it owe?
How much income is it earning?
Are the expenses appropriate for the
amount of sales?
Are customers accounts being collected
properly?

Other decision makers include people who loan

money to the organization. These lenders,
called creditors need information to decide
whether the company has enough financial
strength and profits to pay its debts.
Has the organization promptly paid its debts in
the past?
Dies it have the ability to pay its current debts?
Does it have good prospects for future
earnings?

5 key areas of accounting:

Managerial accounting
Financial accounting
Compliance (Auditing)
Tax accounting
Governmental and not-for profit accounting

The role of a managerial accountant is to

provide information to managers in an
organization to aid them in making
decisions;
Part of their role involves measuring and
repairing costs of production, marketing,
and other functions;
Prepare budgets, design cost-effective
strategies for the business

All of the information and analyses prepared

are for people OUTSIDE the organization;
This includes creditor and lenders, employee
unions, customers, suppliers, government
agencies and the general public
Much of this information is included in the
companys annual report a yearly report on
the financial health of the business, and also
the activities and projects of the business.

Reviewing and evaluating the records used to

prepare the companys financial statements
There are both PRIVATE accountants in the
organization that conduct internal audits to
ensure that the business is following proper
accounting procedures and financial reporting;
PUBLIC accountants will conduct an
INDEPENDENT AUDITS of the records and
statements of a business; this is required by law
for all public corporations in Canada

Part of the role of an accountant is to

ensure that the information prepared is
accurate.
Accountants following the GAAP principles
Generally Accepted Accounting Principles
(GAAP) were developed to ensure
consistency and compliance across all
accounting designations, such as the
CA, CGA, and CMA

Due to the many accounting scandals in recent

history, all accounting designations have
developed their own Code of Ethics
The GAAP are guidelines that help accountants
make ethical and consistent decisions in the
preparation of accounting statements.
The Sarbanes-Oxley Act (U.S.) many
provisions, including new government reporting
standards for publicly-traded companies.

1. Business Entity Concept

Every business is treated as a separate entity,
separate and distinct from its owner or owners
and from every other business.
This will avoid over the financial position and
profitability of the business
Example: the personally owned car of a business
owner

2. Cost Principle All goods and services

purchased are recorded at cost and appear
on the statements at cost
Example if a business owner purchases
land at $50,000 for his business, the
purchase should be recorded at $50,000
regardless of the appraised value or if land
prices increase or decrease over time.

3. Objectivity Principle this ensures that

the information is based on objective data.
In the previous example, it does not matter
what the perceived value is of the land, the
cost is determined by the buyers and
sellers.

A six-step process that results in the

preparation and analysis of the major
financial statements (balance sheet, income
statement, and cash flow statement.)
1. Analyze documents

Sales slips,
Travel records,
Bank statements, etc.

2. Determine your Assets, Liabilities & Owners Equity

Assets cash, equipment, land, office supplies,
merchandise, and amount owed to the business by
its customers (accounts receivable);

Current Assets: can easily be converted to cash, i.e. cash,

accounts receivables, inventory;
Fixed (Capital) Assets: not easily converted to cash, i.e.
property, plan and equipment
Intangible Assets: long-term assets which no real physical
value, i.e. goodwill, etc.

Liabilities are the company debts (accounts payable)

salaries & wages, taxes payable, interest payable, etc.
Owners equity or Shareholders Equity

Liabilities are the company debts

(accounts payable) salaries & wages,

taxes payable, interest payable, etc.
Shareholders equity if a business is
organized like a corporation, the owners of
the business are called shareholders or
stockholders
Owners equity if the business is owned by
one person, and not a corporation is called
Owners Equity.

Assets
Equity

When you are analyzing the documents (the

transactions) you record these into a
journal.
this involves creating t-accounts, and the
practice of DOUBLE-ENTRY bookkeeping is
applied.
This refers to writing every transaction in
two places, referred to a debit and a credit

Liabilities + Owners

It is easier to develop t-accounts to record

these transactions
Each transaction must have two entries or a
debit which means to enter an amount on
the left side of an account;
Credit which means to enter an amount on
the right side of an account;

Assets
Equity
Dr=increases
Cr=decreases

= Liab.s

+ Owners

Dr = for decreases
Cr = for increases

1. On April 1, 2009 Larry Owen decides to

invest $5,000 in a new law practice:

Cash
Dr $5,000

Larry Owen, Capital

Cr $5,000

2. On April 2, Larry Owen purchases office

equipment for cash, $3,700.

Cash
DR $5,000
CR $3,700

Office Equipment
DR $3,700

*after all transactions have been entered,

then the account balance

3. On April 3rd, paid the office rent for three

months in advance, $900.00.

Cash
Dr $5,000
Cr $3,700
Cr $ 900

Prepaid Rent
Dr $900