Accounting for Managers: Generally Accepted Accounting Principles - Research Paper Example

? Accounting for Managers al Affiliation Accounting for Managers A. Required Questions Differentiate among each of the following types of accounting—financial, managerial, cost, public, internal auditing, governmental or not-for-profit accounting (fund accounting), tax and international. There are different types of accounting depending on the type of information produced and for a particular or specialized user. For instance, financial accounting is deemed to be an accounting process that focuses on the production of financial statements for external uses. These financial statements are to be prepared using a predefined set of standards and guidelines, widely known as the Generally Accepted Accounting Principles (GAAP) (Types of Accounting, 2013). Managerial accounting is an accounting process that reportedly produces information for the sole us of management of the organization. The form and the details to be included in the reportorial information would depend on the intricate and extensive requirements and purpose of management. It was actually disclosed that the information could be more detailed, as compared to financial accounting statements which were identified to be prepared exclusively for external uses. Thus, management could require budgets, forecasts, and financial highlights that would be used to make decisions regarding strategies and plans that would achieve identified goals. Cost accounting was noted to be a branch of managerial that focuses on monitoring and controlling costs. Tax accounting, on the other hand, as the term implies, focuses on accounting facets which are tax-related and are reportedly governed by tax rules and regulations, as well as observance to the GAAP. Governmental accounting, or also known as public accounting (or even fund accounting) was noted to be a type of accounting process and information system that is used by government agencies or public organizations. The main disparity of this type of accounting with private organizations’ accounting system is that their funds are governed by budgets set by the federal government. Likewise, the disbursement of funds are to be allocated subject to the aims or goals of the government agency. Internal auditing accounting focuses on an ongoing appraisal of the financial condition of the organization subject to conformity to accounting standards and accounting laws. Finally, international accounting is the type of accounting process or information system governed by international accounting standards, as contrasted with GAAP. 2. Describe the purposes of financial statements and corporate annual reports. The purposes of financial statements and corporate annual reports include the provision of accurate financial information to various users to serve various needs (Purpose of Financial Statements, 2013). For instance, financials statements are mandated to be published to the public to give them a general overview of the organization and provide information regarding the potential effects of the organization to the local community or to the economy, as a whole. Likewise, financial statements and annual reports are needed by management for decision-making purposes. The companies’ shareholders, on the other hand, use these financial information to determine returns on their investments and any potential risks from currently disclosed external or internal factors that impinge on the organizations’ operations. Concurrently, the investors of the organization need to be given accurate information on the financial condition and status through financial statements and corporate annual reports that contain profits, returns on investment, risks, and market value, as needed. In addition to these various users, financial statements are needed by other financial institutions, such as banks or lending institutions when organizations apply for loans or financial assistance in various endeavors. Suppliers also need the information disclosed in financial statements to discern the credit worthiness of the organization which should ensure their capacity to pay goods or services to be supplied. The organizations’ customers could be interested to check on the financial condition of the organization and determine their overall profitability and level of performance. Likewise, competitors check on each other’s’ financial statements to evaluate strengths and competencies; as well as competitive advantages as revealed from market share information. Also, financial statements are used by employees to discern the level of profitability and be apprised of their security of tenure and capability of the organization to provide benefits and remuneration, as expected. Finally, government agencies need financial statements as a basis for tax computations and to determine consistency in performance from a historical standpoint. 3. How do ethics come into consideration in accounting methods and standards? Ethics provide standards that govern conduct and behavior. In an organizational setting, or in a field of endeavor, like accounting, ethics provide directional guidelines through clearly stipulated standards that are expected to be adhered to and followed by the practitioners of the profession. In observing conformity to accounting methods and standards, for instance, ethics come into consideration in terms of providing details on the right and correct thing to do; especially when faced with challenging situations within a decision-making process. For instance, the GAAP has ensured that ethics is incorporated in accounting methods and standards through ensuring that values of honesty, integrity, transparency, objectivity, and concern for the wellbeing of the public are well taken into account (John Wiley & Sons, Inc., 2006). Likewise, these standards incorporate ethics and moral laws through the performance of responsibilities within the accounting profession that do not pose any conflicts of interests with the interests of other parties; and which might jeopardize the financial condition of the organizations and stakeholders being served. As such, knowledge of ethical standards that govern the accounting profession is paramount in ensuring that all actions, conduct, behavior, and decisions are consistent with those explicitly expected of professionals in this field of discipline. A knowledge of ethics would prevent problems in decision-making, especially with regards to the use and reporting of funds of the organization; as well as in the performance of duties and responsibilities on a professional level. B. Optional Questions 3. Describe the structure of the income statement and the calculation of cash flows. The income statement is structured in such a way that revenues are accurately computed; as well as expenses of the organization to determine the net profit (Marshall, McManus, & Viele, 2011). As emphasized, this financial statement answers whether the organization has reported a profit for a particular period under review. The revenues or sales provide financial information pertinent to the goods manufactured and sold within a specified time frame. Likewise, expenses are also computed in terms of specific items which were spent or incurred to manufacture the goods or services offered by the organization. As such, these expenses are subtracted from the revenues to provide the overall picture of profitability within the specified time frame. The calculation of cash flows entail a determination of the sources and uses of funds (Marshall, McManus, & Viele, 2011). The computation would be made possible through identifying changes in all balance sheet items at the defined time period. As explicitly noted, since equality is expected to exist in assets and the liabilities plus owner’s equity section, any changes in asset account; as well as in every liability and owner’s equity account is expected to results in a net cash change (Marshall, McManus, & Viele, 2011). Thus, the cash change captures how funds were sourced and how these were used within an identified time frame. 4. Describe the importance of footnotes and other disclosures. Footnotes and other financial disclosures are important in financial statements reporting as a means to provide detailed information pertinent to how elements in the financial statements were specifically arrived at; or what assumptions were used, in the process. The footnotes apparently include relevant information pertaining to any summary of accounting policies were applied; description of crucial events; or any related third-party transactions (The Balance Sheet and Financial Disclosures, n.d.). Likewise, it was also noted that other important matters that require proper financial disclosures include: (1) going concerns; (2) economic dependence; (3) commitments; and (4) any explanations that are required by investors or creditors to assist in a more in-depth understanding of the changes in financial position from one reporting period to another. For instance, it was noted that under summary of significant accounting policies, information such as GAAP, principles of consolidation, revenue recognition, temporary investments, or goodwill should be appropriately reported. Likewise, subsequent events could include disclosure of issuance of debt; sale of the business; venture or acquisitions; or any perceived cause of operating loss (The Balance Sheet and Financial Disclosures, n.d.). Some form of reporting, aside from footnotes would be in the structure of separate schedules that would clearly reveal specific financial accounts that were affected and reported, as needed. These details are emphasized to be included within the published financial statements or corporate annual reports to enable relevant stakeholders the opportunity to understand relevant aspects or factors which contributed to significant changes and which could not evidently be explained from the presentation of financial figures, alone. 6. Describe the importance of budgeting and performance reporting. Budgets are estimates of financial performance – either in income, expenses, or intended profits within a defined time frame. The importance of budgets is to provide a strategic plan or direction for various stakeholders in the form of financial details for the performance of their duties towards the accomplishment of clearly defined goals. Budgets define plans in financial figures as to the intended sales, expenses, profits, or even expected level of cash or resources that need to be adhered to within a defined time period. Specifically, budgets are used to plan for future expenditures (Vitez, 2013). Budgeting is needed for decision makers to ensure that strategies are designed that fit attainment of these estimated plans. As such, a review of a budget that was previously prepared would usually include actual figures that were incurred and compared with the figures that were estimated. Any significant variance in financial figures would be evaluated in terms of the factors that contributed to the gross inability to achieve the pre-defined estimates. On the other hand, performance reports indicate measurements of performance, also in financial forms or in narrative discourse to explain significant variances that ensued, vis-a-vis the previously prepared budgets. The performance reports contain the overall assessment of the ability of the organization to achieve the prepared budgets. Any significant deviation would be evaluated in the light of variables that led to the evident variance and could therefore be used to revise assumptions in the preparation of future budgets. Both are management’s analytical tools that aim to facilitate running the organization through the provision of clear direction and explicitly defined financial guidelines. These enable the organizations to operate within stipulated resources over a specified time frame. References John Wiley & Sons, Inc. (2006). Ethics in Accounting. Retrieved from higheredbcs.wiley.com: http://higheredbcs.wiley.com/legacy/college/kieso/0470374942/gate/Ethics_in_Accounting/ethics_in_accounting.html#Accounting Marshall, D., McManus, W., & Viele, D. (2011). Accounting: What the Numbers Mean, 9/e. McGraw-Hill Companies. Purpose of Financial Statements. (2013). Retrieved from Accounting-Simplified.com: http://accounting-simplified.com/purpose-of-financial-statements.html The Balance Sheet and Financial Disclosures. (n.d.). Retrieved from highered.mcgraw-hill.com: http://highered.mcgraw-hill.com/sites/dl/free/0070910987/118704/spiceland1e_chapter5.pdf Types of Accounting. (2013). Retrieved from Accounting-Simplified.com: http://accounting-simplified.com/financial/types-of-accounting.html Vitez, O. (2013). What Is the Role of Budgets & Performance Reports? Retrieved from Chron: http://smallbusiness.chron.com/role-budgets-performance-reports-861.html Read More