* * Chapter Seventeen Understanding Accounting and Financial Information Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

* * Accounting -- Recording, classifying, summarizing and interpretation of financial events and transactions in an organization to provide interested parties with needed financial information. Outside parties - like employees, owners, creditors, unions, investors and the government - make use of a firm’s accounting information. WHAT’S ACCOUNTING? What is Accounting? LG1 17-2

Accounting Disciplines The accounting profession is divided into five key working areas : Managerial accounting Financial accounting Auditing Tax accounting Governmental and not-for-profit accounting

Managerial accounting Provides information to managers inside the organization to assist them in decision making. Measuring and reporting costs of production, marketing, and other functions; preparing budgets (planning); checking whether or not units are staying within their budgets (controlling) and designing strategies to minimize taxes. A certified management accountant (CMA) is a professional accountant who has met certain requirements, passed a qualifying exam, and has been certified by the Institute of Certified Management Accountants.

Financial Accounting Provides financial information and analyses for people primarily outside the organization. The information goes not only to company owners, managers, and employees but also to creditors and lenders, customers, suppliers, government agencies and the general public. Annual report, a yearly statement of the financial condition, progress, and expectations of an organization. A professional accountant who has met certain requirements, passed qualifying examinations established by the American Institute of Certified Public Accountants (AICPA) is recognized as a certified public accountant (CPA).

The Institute of Chartered Accountants of Bangladesh (ICAB) is the national professional accountancy body in Bangladesh. It is the sole organisation in Bangladesh with the right to award the Chartered Accountant designation.professional accountancy bodyBangladeshChartered Accountant Institute of Cost and Management Accountants of Bangladesh.

* * The ACCOUNTING SYSTEM What is Accounting? LG1 17-7

* * Accounting Cycle -- A six-step procedure that results in the preparation and analysis of the major financial statements. The ACCOUNTING CYCLE The Accounting Cycle LG3 17-8

* * Bookkeeping -- The recording of business transactions. Bookkeepers divide a firm’s transactions into meaningful categories and post them into a record book or computer program called a journal. Double-Entry Bookkeeping -- Bookkeepers record all transactions in two places so they can check one list of transactions against the other for accuracy. BOOKKEEPING’S ROLE The Accounting Cycle LG3 17-9

* * Financial Statement -- A summary of all the financial transactions that have occurred over a particular period. FINANCIAL STATEMENTS Understanding Key Financial Statements LG3 Key financial statements of business are:  Balance sheet  Income statement  Statement of cash flows 17-10

* * Fundamental Accounting Equation -- The basis for the balance sheet. The equation must always be balanced and includes the formula: o Assets = Liabilities + Owners Equity The FUNDAMENTAL ACCOUNTING EQUATION The Fundamental Accounting Equation LG