Unit 1 ACCOUNTING IN ACTION

Introduction Why Learn? Why would you want to learn bookkeeping and keep up to date financial records anyway ? Can't you hire an accountant to come after the end of the year and get your check book and shoe box and do your taxes ? Sure you can ! And yes you will have adequately fulfilled your taxpayer obligations.

But in order to run a business and know what, where, and when to take corrective actions requires business information. How do you get and where do you find this information ? You don't if you don't keep accurate and current records about your business financial activities.

BOOKKEEPING DISTINGUISHED FROM ACCOUNTING Includes bookkeeping 2. Also includes much more Accounting: Is the art of analyzing, recording, summarizing, reporting, reviewing, and interpreting financial information.

Bookkeeping Bookkeeping: 1. Involves only the recording of economic events. 2. Is just one part of accounting Bookkeeping: Is the process of recording and classifying business financial transactions (activities). Bookkeeping's objective is simply to record and summarize financial transactions into a usable form that provides financial information about a business or an individual.

THE ACCOUNTING PROCESS Gerald Trenholm 7 MacCauly Drive Fredericton NB Identification Select economic events (transactions) Recording Record, classify, and summarize Accounting Reports SOFTBYTE Annual Report Prepare accounting reports Analyse and interpret for users Communication 2000

STEPS IN THE ACCOUNTING CYCLE 1. Source Documents: Analyse Transactions 9. Prepare post-closing trial balance 2. Journalize the transactions 3. Post to ledger accounts 8. Journalize and post closing entries 4. Prepare a trial balance 7. Prepare financial statements 5. Journalize and post adjusting entries 6. Prepare adjusted trial balance

Users of Financial Information Who needs financial information about a business besides the owner(s) ? Users can be grouped into two broad categories namely internal users and external users. Internal users are the managers and the owners and employees who actually work for the business. External users include lenders and other creditors (suppliers), investors, customers, and governmental regulatory and taxing agencies.

Why do they need financial information ? Users need this information to make knowledgeable decisions. Lenders and other creditors want to make sure that they will be paid back for the credit that they have extended to a business. By analyzing financial information, they at least have something to base their lending or credit decision on. The days of the "friendly" banker are gone. You need to provide them with financial information as a basis for their loan decisions. A "good ole boy" handshake won't cut it now. Customers also want to make sure that the business they're buying products or services from is going to be around and not be in such a poor financial position as to have to close its doors.

QUESTIONS ASKED BY INTERNAL USERS Is cash sufficient to pay bills? What is the cost of manufacturing each unit of product? Which product line is the most profitable? Can we afford to give employees pay raises this year?

QUESTIONS ASKED BY EXTERNAL USERS Is the company earning satisfactory income? How does the company compare in size and profitability with its competitors? Will the company be able to pay its debts as they come due? What do we do if they catch us?

THE ACCOUNTING PROFESSION Public accountants offer their expertise to the general public through the services they perform. Private accountants are employees of individual companies and are involved in a number of activities, including cost and tax accounting, systems, and internal auditing. Not-for-profit accounting includes reporting and control for government units, foundations, hospitals, labour unions, colleges/universities, and charities.

ETHICS To Solve Ethical Dilemma 1. Recognize situation and ethical issues involved 2. Identify and analyse elements 3. Identify alternatives and weigh effects on stakeholders Ethics Standards of conduct