Textbook Summary of Corporate Financial Accounting 10e, Ch 1, by Warren/Reeve/Duchac.
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Types of Businesses
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3 types of businesses operate for profit
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SERVICE
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Ex: Delta Airlines - transportation services, Walt Disney - entertainment services.
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MERCHANDISING
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Ex: Wal-Mart - general merchandise, Amazon.com - internet books, music and videos
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MANUFACTURING
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Ex: General Motors Corporation - cars, trucks, vans, Dell Inc. - personal computers
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What is Accounting?
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Defined as an information system that provides reports to users about the economic activities and conditions of a business.
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The Role of Accounting
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To provide information for managers to use in operating a business.
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In the Language of Business
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Accounting serves as the means through which business financial information is communicated to users.
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Process of Providing Information
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- Identify user
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- Assess user's information needs
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- Define the accounting system to use
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- Record economic data
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- Prepare accounting reports
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Users of Accounting
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Internal: Managers employees
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External: Customers, creditors, investors, government
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Internal Uses of Accounting
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Branch: Management Accounting
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Objective: To provide timely information for managers to make decisions within the business.
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Information is sensitive and includes the customer, prices and plans to expand the business.
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External Uses of Accounting
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Branch: Financial Accounting
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Objective: To provide timely information for users to make decisions outside of the business.
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Information here is useful for creditors and lenders who look at financial reports on operations and conditions of a business.
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General-purpose financial statements are one type of financial reports.
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PRIVATE ACCOUNTING
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Employed by companies, government and not-for-profits.
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Careers: Bookkeeper, Payroll Clerk, General Accountant, Budget Analyst, Cost Accountant, Internal Auditor, Information Technology Auditor
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Certifications: Certified Payroll Professional (CPP), Certified Management Accountant (CMA), Auditor (CIA), Certified Information System Auditor (CISA)
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PUBLIC ACCOUNTING
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Employed individually or as a member of a public accounting firm in tax or audit services.
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Careers: Local firms, Public firms
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Certifications: Certified Public Accountant (CPA)
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Unethical Practices in Accounting
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Failure of Individual Character
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Pressure from supervisors to meet company's expectations leads to small violations that adds up.
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Culture of Greed and Ethical Indifference
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Senior managers set the culture and can create indifference and greed to the truth.
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Guideline For Ethical Conduct
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1. Identify an ethical decision by using honesty and fairness
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2. Identify the consequences and it's effects on others
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3. Consider your obligations and responsibilities to the affected
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4. Make a decision that is ethical and fair
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Sarbanes-Oxeley Act passed in 2002 (SOX) to oversee the accounting profession through the Public Accounting Oversight Board (PCAOB).
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Accounting and Business Frauds
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- Aldelphia Communications
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- American International Group (AIG)
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- American Online Inc. and PurchasePro
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- Computer Associates International Inc.
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- Enron
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- Fannie Mae
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- HealthSouth
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- Qwest Communications International Inc.
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- Tyco International Ltd.
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- WorldCom
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- Xerox Corporation
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