Prepared by: Jan Hájek

Accounting

Lecture no 1

WHAT IS ACCOUNTINGWHAT IS ACCOUNTING

System based on collecting and analyzing financial information

System providing information about assets, liabilities and equity in accounting entity

Gerald Trenholm

7 MacCauly Drive

Fredericton NB

Identification

Select economic events (transactions)

Recording

Record, classify, and summarize

Accounting

Reports

SOFTBYTEAnnual Report

Prepareaccounting reports

Analyse and interpretfor users

Communication

THE ACCOUNTING PROCESSTHE ACCOUNTING PROCESS

2000

USERS OF ACCOUNTING DATASUSERS OF ACCOUNTING DATAS

Business

Competitors

Lenders

Managers

Suppliers Investment analysts

Community representatives

Government

Employeesand their

representatives

CustomersOwners

QUESTIONS ASKED BY INTERNAL USERSQUESTIONS ASKED BY INTERNAL USERS

Can we afford to give employees pay raises this year?

Is cash sufficient to pay bills?What is the cost of manufacturing

each unit of product?

Which product line is the most profitable?

Internal Users of Accounting Information

• Board of Directors• Chief Executive Officer • Chief Financial Officer• Vice Presidents• Business Unit Managers• Plant Managers• Store Managers• Line Supervisors

Typical S im ple O rganization C hart

PlantAccountant

PlantManager

PlantAccountant

PlantManager

Business UnitManager

V.P. HumanResources

V.P. InformationServices

Chief FinancialOfficer (CFO)

Chief ExecutiveOfficer(CEO)

Board ofDirectors(Owners)

Characteristics of Management Accounting Information

TimelinessTimeliness

Identify Decision-Making

Authority

Identify Decision-Making

Authority

Oriented Toward Future

Oriented Toward Future

Measures of Efficiency and Effectiveness

Measures of Efficiency and Effectiveness

A Means to an End

A Means to an End

External Users of Accounting Information

• Suppliers• Investors• Clients• Tax authorities

QUESTIONS ASKED BY EXTERNAL USERSQUESTIONS 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?

Financial• recording casual transaction on credit or

debit side of the accounts

Managerial• budgeting, calculations, BEP analysis

Tax • for calculation of tax liability• deductible vs. undeductible costs

TYPES OF ACCOUNTINGTYPES OF ACCOUNTING

Information about economic resources, claims to resources, and changes in

resources and claims.

Information useful in assessing amount, timing and uncertainty of

future cash flows.

Information useful in making investment and credit decisions.

(Specific)

(General)

Objectives of

Financial Reporting

Information about decision-making authority, for decision-making support, and

for evaluating and rewarding decision-making performance.

Information useful in assessing both the past performance and future

directions of the enterprise and information from external and internal sources.

Information useful to help the enterprise achieve its goal, objectives and mission.

Objectives of

Managerial Reporting

Nature of the reports produced

Level of detail

The existence of regulations

Reporting interval

Time orientation

Range and quality of information

The major differences concern:

Accounting• Includes bookkeeping• Also includes much more

Bookkeeping• Involves only the recording of

economic events• Is just one part of accounting

BOOKKEEPING BOOKKEEPING vs. vs. ACCOUNTINGACCOUNTING

THE ACCOUNTING PROFESSIONTHE ACCOUNTING PROFESSION

Public accountants offer their expertise to the general public through the services they perform. (CPA)

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.

ETHICSETHICS

To Solve Ethical Dilemma1. Recognize situation

and ethical issues involved

2. Identify and analyse elements

3. Identify alternatives and weigh effects on stakeholders

Ethics

Standards of conduct

US MAJOR ACCOUNTING BODIESUS MAJOR ACCOUNTING BODIES

American Institute of Certified Public Accountants Financial Accounting Standards Board Government Accounting Standards Board Securities and Exchange Commission

CZ MAJOR ACCOUNTING BODIESCZ MAJOR ACCOUNTING BODIES

Komora auditorů Národní účetní rada

REGULATION OF ACCOUNTINGREGULATION OF ACCOUNTING

US • US GAAP

CZ• CZ GAAP /CAS (Czech accounting stadards)• Act no. 563/1991 on accounting• Decree no. 500/2002

EU• IFRS• 78/660/EHS – reporting and consitency of information in accounting

statemes of international corporation• 83/349/EHS – consolidation • 79/1072/EHS – obligation on audit

BUSINESS ENTERPRISESBUSINESS ENTERPRISES

Partnership

Corporation

Sole proprietorship

BUSINESS ENTERPRISESBUSINESS ENTERPRISES

A business owned by one person is generally a proprietorship (owner’s equity).

A business owned by two or more persons associated as partners is a partnership (partners’ equity).

A business organized as a separate legal entity under corporation law and having ownership divided into transferable shares is called a corporation (shareholders’ equity).

Mixed form