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Accounting

Accounting



What is Accounting?

As stated in the overview for this lesson, accounting is     the process of identifying, measuring, and communicating economic information     about an entity for the purpose of making decisions and informed judgments.    Accounting information is used in all types of organizations (accountants     frequently use the word entities instead of organizations). It is vital     for the management process. Managers at all levels need to know how to     use accounting information to identify problems, solve problems, and evaluate     performance.

A Comparison of Financial Accounting and Managerial Accounting

Financial Accounting – refers to the process resulting in the preparation     and reporting of financial statements for an entity. Some characteristics     of financial accounting include:

     
  • Externally Focused
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  • Must follow externally imposed rules
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  • Historical Orientation
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  • External evaluation of an entity as a whole
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  • Information about the entity as a whole
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  • More Self-Contained
           
    • Bookkeeping procedures are a part of financial accounting and           are used to accumulate the results of many of an entity’s           activities. Please use Bullets when HTML developed
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    • A Certified Public Accountant (CPA) is a professional designation           for someone who has passed a four-part comprehensive examination           taken over a two-day period. They deal with financial statements           of entities especially audits.
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Managerial Accounting – concerned with the use of economic and     financial information to plan and control many of the activities of the     entity and to support the management decision-making process. Some characteristics     of managerial accounting include:

     
  • Internally Focused
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  • No Mandatory Rules
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  • Emphasis on the Future
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  • Internal evaluation of segments carrying strong       behavioral ramifications
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  • Detailed Information
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  • Broad, Multi-Disciplinary
           
    • Cost accounting relates to the determination and accumulation           of product, process, or service costs. It is a subset of managerial           accounting. Much of the same data used in financial accounting is           used in managerial cost accounting. However, in financial accounting           the data is used to look at the past whereas in managerial cost           accounting, the data is used in a future-oriented way.
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    • A Certified Management Accountant (CMA) and/or Certified in Financial           Management (CFM) are professional designations earned by a management/cost           accountant by passing a four-part examination.
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International Accounting Standards

     
  • IASB – International Accounting Standards       Board
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  • Accounting standards differ greatly among different       countries.
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  • Individual country standard reflect local market       needs and country regulation and taxation practices.
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Ethics and the Accounting Profession

     
  • Much of an accountant’s       work involves providing information to support the informed judgments       and decisions made by users of accounting information. Therefore, ethical       behavior is greatly expected of an accountant. The American Institute       of Certified Public Accountants (AICPA) and the Institute of Management       Accountants (IMA) both have ethical codes pertaining to professional       accountants.
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  • Integrity and objectivity       are the two key elements of ethical behavior. Both the AICPA and IMA       codes of conduct identify these two elements.
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