Deliverable 1 - Managerial Decision Making

If you were transported to a foreign country where you did not know the language, what would be the first thing you would need to do in order to survive? Perhaps get a translation book?

Your first accounting course may have you feeling like you are in a foreign land and you cannot understand a word that is being spoken. To survive we must learn the language of accounting by focusing first on the terminology.

Accounting is the language of business. More specifically it is the process of identifying, measuring and COMMUNICATING economic information.

Our first step is to learn the terminology in order to be able to communicate. Sometimes students fall into the trap of thinking they know the accounting meaning of a term because they have seen or used the term before. However, in accounting, terms have specific meanings, and we need to understand what they mean in an accounting sense.

Here are few examples of the basic accounting terms:

ACCOUNTING EQUATION

· Accounting Equation: Assets = Liabilities + Equity

· Assets are things that are owned or belong to a company.

· Liabilities are debts that a company owes.

· The portion of the assets that are financed with debt.

· Equity is the portion of the assets that the owners financed.

ACCOUNTING METHODS

· Accrual Accounting - the method of accounting that recognizes revenue when earned and expenses when incurred

· Cash Accounting - the method of accounting that recognizes revenue and expenses when cash is exchanged

FINANCIAL STATEMENTS

· Balance Sheet - The financial Statement that lists a company's Assets, Liabilities and Equity at a given point in time

· Income Statement - The financial statement that lists a company's revenue and expenses for a period of time

GENERAL LEDGER

· Debit and Credit: how accounts are increased and decreased. This has nothing to do with debit cards and credit cards, those are banking terms. Also, Debit does NOT mean decrease and Credit does NOT mean increase

· General Ledger: a complete set of accounting transactions

· Journal Entry: how economic transactions are recorded in the General Ledger

The accounting framework is the set of criteria that accountants use to measure and disclose financial information on a company’s financial statements. The concepts represent the rules that need to be followed.

Accounting is governed by a set of rules and guidelines called Generally Accepted Accounting Principles, or GAAP, that are based on accounting framework and concepts. GAAP was developed by the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB). All publicly traded companies must follow GAAP order for the independent auditor to express an opinion on the financial statements.

The accounting concepts that are central to GAAP include:

Business Entity Concept, which is where the business transactions are kept separate from the owners.

Money measurement concept is where the business transactions are stated in terms of money (dollars in most cases in the US)

Going concern concept is where we assume that the business is expected to continue and not forced to liquidate the assets as distress level pricing.

Cost concept. Transactions are recorded at cost. In other words, what we actually paid.

Matching concept is where we must match revenues with their related expenses in the same accounting period.

Certifications in the Accounting Field

The most common accounting certifications & licenses include:

Certified Public Accountant (CPA) – This is the oldest and best-known certification. You can think of it as the “gold standard” of certifications. No other certifications can write audit reports or give opinions on financial statements of publicly traded companies.

Certified Management Accountant (CMA) is a designation that applies to internal management of a company and is strictly focused on management.

Enrolled Agent (EA) is a designation that was created by the IRS. It demonstrates one’s expertise and knowledge of the US Tax Code.

Certified Internal Auditor (CIA) is a designation designed or a company’s compliance officer and internal auditors. They are typically employed by larger companies to perform audit procedures and assist the external independent auditor.

Certified Fraud Examiner (CFE) is a designation that denotes expertise in the areas of fraud detection, deterrence and prevention. CFEs are highly trained in identifying fraud risk and implementing controls to help prevent fraud.

Taking the time and making the effort to obtain one or more of these certifications will help you get a job, by increasing your marketability, or a promotion in your current job. Employers and human resource professionals view a certification as evidence of your commitment to succeed in your chosen field. In addition, certifications are often used as a determining factor between job candidates.

Resource(s)

Wiley GAAP 2019 : Interpretation and Application of Generally Accepted Accounting Principles