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Nature of Business and Accounting Cheat Sheet by

Textbook Summary of Corporate Financial Accounting 10e, Ch 1, by Warren/Reeve/Duchac.

Business and Accounting

Types of Businesses
3 types of businesses operate for profit
Ex: Delta Airlines - transp­ort­ation services, Walt Disney - entert­ainment services.
Ex: Wal-Mart - general mercha­ndise, - internet books, music and videos
Ex: General Motors Corpor­ation - cars, trucks, vans, Dell Inc. - personal computers
What is Accoun­ting?
Defined as an inform­ation system that provides reports to users about the economic activities and conditions of a business.
The Role of Accounting
To provide inform­ation for managers to use in operating a business.
In the Language of Business
Accounting serves as the means through which business financial inform­ation is commun­icated to users.
Process of Providing Inform­ation
- Identify user
- Assess user's inform­ation needs
- Define the accounting system to use
- Record economic data
- Prepare accounting reports
Users of Accounting
Internal: Managers employees
External: Customers, creditors, investors, government

Uses of Accounting

Internal Uses of Accounting
Branch: Management Accounting
Objective: To provide timely inform­ation for managers to make decisions within the business.
Inform­ation is sensitive and includes the customer, prices and plans to expand the business.
External Uses of Accounting
Branch: Financial Accounting
Objective: To provide timely inform­ation for users to make decisions outside of the business.
Inform­ation here is useful for creditors and lenders who look at financial reports on operations and conditions of a business.
Genera­l-p­urpose financial statements are one type of financial reports.

Opport­unities in Accounting

Employed by companies, government and not-fo­r-p­rofits.
Careers: Bookke­eper, Payroll Clerk, General Accoun­tant, Budget Analyst, Cost Accoun­tant, Internal Auditor, Inform­ation Technology Auditor
Certif­ica­tions: Certified Payroll Profes­sional (CPP), Certified Management Accountant (CMA), Auditor (CIA), Certified Inform­ation System Auditor (CISA)
Employed indivi­dually or as a member of a public accounting firm in tax or audit services.
Careers: Local firms, Public firms
Certif­ica­tions: Certified Public Accountant (CPA)

Ethics in Accounting

Unethical Practices in Accounting
Failure of Individual Character
Pressure from superv­isors to meet company's expect­ations leads to small violations that adds up.
Culture of Greed and Ethical Indiff­erence
Senior managers set the culture and can create indiff­erence and greed to the truth.
Guideline For Ethical Conduct
1. Identify an ethical decision by using honesty and fairness
2. Identify the conseq­uences and it's effects on others
3. Consider your obliga­tions and respon­sib­ilities to the affected
4. Make a decision that is ethical and fair
Sarban­es-­Oxeley Act passed in 2002 (SOX) to oversee the accounting profession through the Public Accounting Oversight Board (PCAOB).
Accounting and Business Frauds
- Aldelphia Commun­ica­tions
- American Intern­ational Group (AIG)
- American Online Inc. and Purcha­sePro
- Computer Associates Intern­ational Inc.
- Enron
- Fannie Mae
- Health­South
- Qwest Commun­ica­tions Intern­ational Inc.
- Tyco Intern­ational Ltd.
- WorldCom
- Xerox Corpor­ation


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