Financial accountancy is the field of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders,suppliers, banks, employees, government agencies, owners, and other
stakeholders. Financial capital maintenance can be measured in either nominal monetary units or units of constant purchasing
power. The fundamental need for financial
accounting is to reduceprincipal–agent problem by measuring and monitoring agents' performance and
reporting the results to interested users.
Cost accounting information is designed for managers. Since managers
are taking decisions only for their own organization, there is no need for the information to be comparable to similar information from other organizations. Instead, the important
criterion is that the information must be relevant for decisions that managers
operating in a particular environment of business including strategy make. Cost accounting information is commonly used in financial accounting information, but first we are concentrating in its use
by managers to take decisions. The accountants who handle the cost accounting
information generate add value by providing good information to managers who
are taking decisions. Among the better decisions, the better performance of
one's organization, regardless if it is a manufacturing company, a bank, a non-profit organization, agovernment agency, a school club or even a business school. The cost-accounting system is the result of
decisions made by managers of an organization and the environment in which they
make them.
Management accounting or managerial accounting is
concerned with the provisions and use of accounting information to managers within organizations,
to provide them with the basis to make informed business decisions that will
allow them to be better equipped in their management and control functions.
In contrast to financial accountancy information,
management accounting information is:
§ primarily
forward-looking, instead of historical;
§ model
based with a degree of abstraction to support decision making generically,
instead of case based;
§ designed
and intended for use by managers within the organization, instead of being
intended for use by shareholders, creditors, and public regulators;
§ usually
confidential and used by management, instead of publicly reported;
§ computed
by reference to the needs of managers, often using management information systems,
instead of by reference to general financial accounting standards.
Government accounting refers to the field of
accounting that specifically finds application in the public sector or
government. A special field of accounting exists because: - The objectives to
which accounting reports to differ significantly from that for which generally
accepted accounting practice has been developed for in the private (business)
sector; and - The usage of the results of accounting processes of government
differs significantly from the use thereof in the private sector.
An accounting information system (AIS) is a system of collection, storage and processing of
financial and accounting data that is used by decision makers. An accounting information system is generally a
computer-based method for tracking accounting activity in conjunction with
information technology resources. The resulting statistical reports can be used internally by management or externally by
other interested parties including investors, creditors and tax authorities.
Accounting information
systems are composed of six main components:
1.
People: users who operate on the systems
2.
Procedures and instructions: processes
involved in collecting, managing and storing the data
3.
Data: data that is related to the
organization and its business processes
4.
Software: application that processes the data
5.
Information technology infrastructure: the actual
physical devices and systems that allows the AIS to operate and perform its
functions
6.
Internal controls and security measures: what
is implemented to safeguard the data
Budgeting. A
budget is a financial plan and a list of all planned expenses and revenues. It
is a plan for saving, borrowing and spending.
A budget is an important
concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or
more goods. In other terms, a
budget is an organizational plan stated in monetary terms.
In summary, the purpose of
budgeting is to:
1.
Provide a forecast of revenues and
expenditures, that is, construct a model of how our business might perform
financially if certain strategies, events and plans are carried out.
2.
Enable the actual financial operation of the
business to be measured against the forecast.
3.
Establish the cost constraint for a project, program, or operation.
Audits are performed to ascertain the validity and reliability of
information; also to provide an assessment of a system's internal control. The goal of an audit is
to express an opinion of the person / organization / system (etc.) in question,
under evaluation based on work done on a test basis.
Due to constraints, an audit seeks to provide only reasonable assurance that
the statements are free from material error. Hence, statistical sampling is
often adopted in audits. In the case of financial audits, a set of financial statements are said to be true and fair when they
are free of material misstatements – a concept influenced by both quantitative (numerical) and qualitative factors. But recently, the argument
that auditing should go beyond just True and fair is
gaining momentum. And PCAOB has come
out with a concept release on the same.
Auditing is a vital part of accounting. Traditionally,
audits were mainly associated with gaining information about financial systems
and the financial records of a company or a business (see financial audit). However, recent auditing
has begun to include non-financial subject areas, such as safety, security,
information systems performance, and environmental concerns. With nonprofit
organizations and government agencies,
there has been an increasing need for performance audits, examining their
success in satisfying mission objectives. As a result, there are now audit professionals
who specialize in security audits, information systems audits
Tax Accounting
Accounting methods that
focus on taxes rather than the appearance of public financial statements. Tax
accounting is governed by the Internal Revenue Code which dictates the specific
rules that companies and individuals must follow when preparing their tax
returns. Tax principles often differ from Generally Accepted Accounting
Principles.
Balance sheet items can be
accounted for differently when preparing financial statements and tax payables.
For example, companies can prepare their financial statements implementing the
first-in-first-out (FIFO) method to record their inventory for financial
purposes, yet they can implement the last-in-first-out (LIFO) approach for
tax purposes. The latter procedure reduces the current year's taxes payable.
Fund
accounting is an accounting system emphasizing accountability rather than profitability, used
by non-profit organizations and
governments. In this system, a fund is a self-balancing set of accounts, segregated
for specific purposes in accordance with laws and regulations or special
restrictions and limitations.
The label, fund accounting, has also been
applied to investment accounting, portfolio accounting or securities accounting
– all synonyms describing the process of accounting for a portfolio of
investments such as securities, commodities and/or real estate held in an investment fund such as a mutual fund or hedge fund. Investment accounting,
however, is a different system, unrelated to government and nonprofit fund
accounting.
International accounting is the international aspects of
accounting, including such matters as accounting principles and reporting
practices in different countries and their classification; patterns of
accounting development; international and regional harmonization, foreign
currency translation; foreign exchange risk; international comparisons of
consolidation accounting and inflation accounting; accounting in developing
countries; accounting in communist countries; performance evaluation of foreign
subsidiaries.
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