CHAPTER 2 Introduction to Construction Accounting
Accounting: The Basis of Decision Making • Financial information is vital for decision making. – Any financial planning, be it personal or otherwise is dependant on accounting information. – Individuals use accounting information to manage their personal accounts. – Business leaders and managers use it to plan & set goals for their organizations. – In construction it is used to make a decision on the purchase of an equipment, land, etc. – Financial investors & creditors need it to decide to go to new investment.
Accounting Process of measuring, interpreting, and communicating financial information to support internal and external business decision making. USERS OF ACCOUNTING INFORMATION
Accounting: The Basis of Decision Making
Public Accountants Public accountant : Accountant who works for an independent accounting firm. • Provide three basic services to clients: • Auditing, or examining, financial records. • Tax preparation, planning, and related services. • Management consulting for an independent accounting firm. • Four largest firms dominate the industry: Deloitte & Touche, Ernst & Young, KPMG, and PricewaterhouseCoopers. • Legislation limits the types of consulting services auditors can provide. Certified public accountant (CPA) Accountant who meets specified educational and experiential requirements and has passed a comprehensive examination on accounting theory and practice. ACCOUNTING PROFESSIONALS
Management Accountants • Management accountant Accountant employed by a business other than a public accounting firm. • Collects and records financial transactions and prepares financial statements used by the firm’s managers in decision making. • Answers questions such as: • Where is the company going? • What opportunities await it? • Do certain situations expose the company to excessive risk? • Does the firm’s information system provide detailed and timely information to all levels of management? • Often specialize (e.g., internal auditor, tax accountant). Government and Not-for-Profit Accountants • Perform professional services similar to those of management accountants. ACCOUNTING PROFESSIONALS
Some Basics of Accounting • The orderly reporting of the financial activities of a business • Most commonly visible forms • Balance Sheets • Income Statements • Used by management, investors, creditors, government to monitor business activity
Some Basics of Accounting Modern cost accounting may satisfy any or all of the following objectives: 1.To determine the cost of products or services 2.To provide a rational basis for pricing goods or services 3.To provide a means for controlling expenditures 4.To provide information on which operating decisions may be based and the results evaluated
Business Activities Involving Accounting • Financing activities provide necessary funds to start a business and expand it after it begins operating.