Saturday, March 31, 2007

To Be An Accountant

To Be An Accountant.

What is the work of accountants? Accountants help entities be successful, ethical, responsible participants in society. Their major activities include observation, measurement, and communication. These activities are analytical in nature and draw on several other disciplines (e.g., economics, mathematics, statistics, behavioral science, law, history, and language/communication). Accountants identify, analyze, record, and accumulate facts, estimates, forecasts, and other data about the unit’s activities; then they translate these data into information that can be useful for a specific purpose.
The data accumulation and recording phase traditionally has been largely clerical; typically and appropriately, this has been called bookkeeping, which is still a common and largely manual activity, especially in smaller firms that have not adopted state-of-the-art technology. But with advances in information technology and userfriendly software, the clerical aspect has become largely electronically performed, with internal checks and controls to assure that the input and output are factual and valid.

Accountants design and maintain accounting systems, an entity’s central information system, to help control and provide a record of the entity’s activities, resources, and obligations. Such systems also facilitate reporting on all or part of the entity’s accomplishments for a period of time and on its status at a given point in time. An organization’s accounting system provides information that

(1) helps managers make decisions about assembling resources, controlling, and organizing financing and operating activities; and

(2) aids other users (employees, investors, creditors, and others—usually called stakeholders) in making investment, credit, and other decisions.



The accounting system must also provide internal controls to ensure that
(1) laws and enterprise policies are properly implemented;
(2) accounting records are accurate;
(3) enterprise assets are used effectively (e.g., that idle cash balances are being invested to earn returns); and
(4) steps be taken to reduce chances of losing assets or incurring liabilities from fraudulent or similar activities, such as the carelessness or dishonesty of employees, customers, or suppliers. Many of these controls are simple (e.g., the prenumbering of documents and accounting for all numbers); others require division of duties among employees to separate record keeping and custodial tasks in order to reduce opportunities for falsification of records and thefts or misappropriation of assets.
An enterprise’s system of internal controls usually includes an internal auditing function and personnel to ensure that prescribed data handling and asset/liability protection procedures are being followed. The internal auditor uses a variety of approaches, including observation of current activities, examination of past transactions, and simulation—often using sample or fictitious transactions—to test the accuracy and reliability of the system. Accountants may also be responsible for preparing several types of documents. Many of these (e.g., employees’ salary and wage records) also serve as inputs for the accounting system, but many are needed to satisfy other reporting requirements (e.g., employee salary records may be needed to support employee claims for pensions). Accountants also provide data for completing income tax returns.

Generally Accepted Accounting Principles


The Financial Accounting Standards Board (FASB) is a research organization, made up primarily of accountants. The FASB, along with the entire accounting profession, has, over time, developed a series of rules called generally accepted accounting principles (GAAP). In addition, the FASB publishes what are called FASB Bulletins. These are a series of more than one hundred publications that describe what corporate reporting methodologies should be. Most of these methodologies have been adopted and are now incorporated into accounting practice. A broad analogy is that the GAAP rules are the basic constitution and the bulletins are proposed amendments. Here are some of the GAAP rules.


1. The Fiscal Period
All reporting is done for predetermined periods of time. Reports may be issued for months or quarters and certain reports are issued annually. Accounting fiscal periods usually coincide with calendar periods, although not necessarily with the calendar year. For example, a company’s fiscal year may be July 1 to June 30 or February 1 to January 31.
2. The Going Concern Concept
When accountants are keeping the books and preparing the financial statements, they presume that the company will continue to be in existence for the foreseeable future. If there is serious doubt about this, or if the company’s ceasing operations is a certainty, the financial statements (essentially the balance sheet) will be presented at estimated liquidation value.
3. Historical Monetary Unit
Accounting is the recording of past business events in dollars. Financial statements, and in fact all financial accounting, report only in dollars. While units of inventory, market share, and employee efficiency are critical business issues, reporting on them is not within the realm of financial accounting responsibility. Financial statements depicting past years are presented as they occurred. The selling prices of the products and the value of assets may very well be different today, but reports of past periods are not adjusted.
The principle of conservatism requires that ‘‘bad news’’ be recognized when the condition becomes possible and the amount can be estimated, whereas ‘‘good news’’ is recognized only when the event (transaction) has actually occurred. One example of this is the allowance for bad debts on the balance sheet, which is recorded before the losses are actually incurred. Another example is reserves for inventory writedowns, which are recorded before the dated or out of style products are actually put up for sale at distress prices. Revenue, however, is not recorded, no matter how certain it is from a business point Generally Accepted Accounting Principles: A Review 53 of view, until the product is actually delivered or the service is actually provided. Payment in advance, while assuring the certainty of the sale in a business sense, does not change the accounting rule. Revenue is recorded only when it is earned.
4. Quantifiable Items or Transactions
The value of the company’s workforce and the knowledge the workers possess may in a business sense be the company’s critical competitive advantage. However, because that value cannot be quantified and expressed in dollars, accounting does not recognize it as an asset. The value of trademarks and franchise names is also generally not included. Coke, Windows, and Disney are certainly franchise brand names with worldwide recognition. While the business value of a franchise name can be almost infinite if it is maintained, franchise names are not assets on the balance sheet because that value cannot be quantified.
5. Consistency
Accountants make many decisions when they are preparing the company’s financial statements. These include but are not limited to the choice of depreciation method for fixed assets and the choice of LIFO or FIFO accounting for inventory. Once these decisions have been made, however, later successive financial statements must employ the same methodology. When a major change is made in accounting methodology, the accountants must highlight that change and redo past financial statements (the reference points) to reflect that change. Only then can comparative analysis and trends be valid.
6. Full Disclosure
When a major change in methodology occurs, accountants must take steps to be certain that readers of the financial statement 54 Understanding Financial Information are fully aware of that change and how it affected the financial results.
7. Materiality
An event that is material, or significant, is one that may affect the judgment, analysis, or perception of the reader of the information. Events that are perceived as material must be disclosed separately and highlighted accordingly. This is a relative concept. Something that is significant in a company with annual revenues of $20 million might be largely irrelevant in a multibillion-dollar enterprise.

How to study accounting?

How to Study Accounting...
by Ken Harper,
Instructor Sharon Miller, Assistant
1. Cumulative Study -- Accounting is certainly not a mystery, and is easy to learn. The major secret to learning accounting is remembering that it is a cumulative study subject based on the first five chapters. Each learning objective builds on the previously learned concepts and procedures. The accounting course is organized so that you learn the most fundamental concepts and procedures first, then you will be required to build on these concepts and procedures. To learn accounting, you must master the first five chapters. These fiver chapters are the basis for the next sixteen chapters. When students run into difficulty, it is generally because they have either forgotten the earlier material or have not learned it well enough to move forward.
2. Maintain a good attendance record -- You need to hear from me what topics are important, why they are important, and how to use them. Copying notes from other classmates may not always show you the what, why and how. Participate actively in class -- Arrive at your classroom a few minutes early. Choose a seat where you can hear and be heard. Don't be afraid to ask or respond to questions. Try to overcome your shyness. Commit yourself to ask or answer questions in class. Remember someone else in the class is probably wondering about the same thing.
3. Do not use memorization as a substitute for understanding -- You need to understand both the reasons and the mechanic of accounting. Memorizing information will hurt you later on in the course.
4. Take notes -- A recent study indicated that you will remember 10% to 15% of what was said in class. However, if you write it down, your retention rate increases to 85%. Note taking is essential to learning accounting. You must learn to take notes efficiently, accurately, and quickly so you will not jeopardize your ability to listen effectively.
5. Make friends by studying in a group -- Exchange telephone numbers with at least two classmates. Make arrangements to study with these friends on a regular basis. Working in groups has benefits. These benefits include increasing your knowledge of accounting and improving your critical thinking and communication skills. If you are able to explain and demonstrate (verbalize) the learning objective to other group members, then you really understand the concepts. Don't be afraid to change study groups if you are unhappy with your original group. Finally, don't allow you study group turn into a gossip group, stick to your accounting.
6. Be prepared -- Before going to class review the textbook, study guide, homework assignment, and class notes. Make a list of questions you have to ask me. Writing out your questions makes it easier for you to ask me in class.
7. Keep up with the work -- Waiting until the last minute does not give you the opportunity to completely understand the learning objectives. If you have completed your homework and are able to verbalize the learning objectives to other members in your study group, then you will do well on the test. If however, you are trying to complete the reading and homework assignments the night before the examination, you will be unprepared. There is a saying, "He who does the homework ahead of time gets the A or B. He who doesn't do the homework ahead of time gets the C or D."
8. Tape record the class lectures -- This procedure has two benefits. First, you will not be overly concerned about taking notes. Secondly, recording gives you another opportunity to hear the lesson. It especially lets you review words that you are not familiar.
9. Find out what resources are available to you -- Resources available to you are:
Study guide Tutorial - Sharon Miller Your fellow classmates Your instructor: F41 Phone 408.864.8589 Electronic Mail School harperken@fhda.edu Electronic Mail Home: drkenharper@yahoo.com