Hermanson - Introduction

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ACCOUNTING A BUSINESS PERSPECTIVE Seventh
Edition
ROGER H. HERMANSON JAMES DON EDWARDS MICHAEL W.
MAHER
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Introduction Chapter

• The Accounting Environment

Pages 1-11 Very Broad Overview
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Administration

• Bring book to class.
• How to take notes.
• Write in your book!!

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Major Challenge

• What do you think is the biggest
  problem/challenge for most students taking
  introductory accounting?

The Vocabulary! Accounting is often called the
language of business. This is why all business
students must take this course.
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Texts Definition of Accounting

• The process of identifying, measuring, and
  communicating economic information to permit
  informed judgments and decisions by the users of
  the information.

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Rices Definition of Accounting

• The process of
• Identifying,
• Measuring,
• Recording,
• Classifying,
• Summarizing,
• Reporting,
• and Interpreting ...

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Rices Definition of Accounting
What? Financial transactions For
whom? For interested users. Who are these
interested



users?
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Interested Users (pg. 6-7)
Creditors and lenders
Customers (Why?)
Owners and prospective owners
Employees and their unions (Why?)
Government units
General Public
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Accounting vs. Bookkeeping

• Bookkeeping
• Mechanical process
• May not know why ...
• Accounting
• Must know theory behind why...
• Should be able to apply theory to ...

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Classification of Accounting Jobs

• Public Accounting
• Private industry
• Government
• Education

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Public Accounting

• Public Accounting Firms offer professional
  accounting services to clients.
• Generally, the public accountants goal is to
  become a Certified Public Accountant, or CPA.
• The CPA certificate is generally considered to be
  required to be a member of the profession

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CPA Exam

• National, two-day exam
• Given twice a year
• May and November
• Given at same time in all states
• Has four parts
• CPA is licensed by the state

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Public Accounting Services

• Audit Services
• Auditors Opinion or Report
• Auditor attests
• Only unique service
• Tax Services
• Competition?
• Todays emphasis?
• Management Advisory/ Consulting
  Services
• Competition?
• Largest in world?

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Big Six Five International CPA Firms (pg. 4)

• Arthur Andersen Co.
• Deloitte Touche
• Ernst Young
• KPMG Peat Marwick
• PricewaterhouseCoopers
• As of 7-1-98

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Other Professional Accounting Certifications

• Management Accounting (CMA)
• Internal Auditing (CIA)
• See Department of Accounting Web site for
  important links.

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Two Types of Accounting

• Financial Accounting
• Managerial Accounting

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Financial Accounting

• Generating financial statements for external
  users of information about the companys
• Results of Operations
• Financial Position
• Inflows and Outflows of Cash

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Financial Accounting
Financial Statements must be prepared in
accordance with Generally Accepted Accounting
Principles (GAAP)
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Generally Accepted Accounting Principles (GAAP)

• Common set of accounting rules followed by all
  public businesses.
• Required by the Securities and Exchange
  Commission (SEC)
• Often required by other external stakeholders,
  such as
• Creditors, Lenders, Vendors, Investors
• Auditors make sure they have been followed

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More on GAAP

• Defined by the Financial Accounting Standards
  Board (FASB)
• The FASB is the seven short fat guys (the Gurus)
  who hang out in Norwalk, CT

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Managerial Accounting

• Generates information for internal use which is
  crucial for decision making

Resource allocation decisions
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Important Organizations(pp. 8 9)

• Financial Accounting Standards Board (FASB)
• American Institute of Certified Public
  Accountants (AICPA)
• Governmental Accounting Standards Board (GASB)
• Securities and Exchange Commission (SEC)
• American Accounting Association (AAA)
• Financial Executives Institute (FEI)
• Institute of Management Accountants (IMA)

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Ethical Behavior of Accountants
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Miscellaneous

• How to Study the Chapters in this Text
• See pp. 10 11

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END OF INTRO