Unit 5 - Unit 4 How to succeed in Accounting Understanding...

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Unit 4: How to succeed in Accounting: Understanding that accounting in MGT 111 is more about understanding key numbers and formulas. Know basic formulas second, fundamental accounting equation, determining profit etc. Be careful with you arithmetic, accounting is not of much use if the figures are wrong. What is accounting: the systematic way by which we show where the money is and how it’s being used. To insiders (Managerial Accounting), or how much we are spending on X, Y, or Z To outsiders (Financial Accounting), what is our/their financial health. To evaluate the financial information used (auditing) or can we prove what we report? To determine tax liability (tax accounting), are we keeping up with changing tax laws? Accountants are like referees: they enforce agreed-upon rules. Accounting vs. bookkeeping The bookkeeper: begins accounting cycle, accurately records financial transactions, prepares the books for accountants. The Accountant: analyzes information prepared by bookkeeper, applies appropriate accounting rules, esp. w/ respect to tax laws. Ends with the preparation of financial statements (three of them), can make recommendations to decision-makers. 1. Analyze/Categorize (BK) 2. Records in Journal (BK) 3. Post in Proper Account Ledger (BK) 4. Perform Trial Balance (BK) or do both sides have balance? 5. Prepare Financial Statements (ACC), income statements, balance sheet, statement of cash flows. 6. Analyze/Recommend (ACC) Q. How do BK’s and ACC’s account for the money? A. By putting everything in its place-twice. -Each and every financial transaction has its place in the FUNDAMENTAL BALANCE EQUATION, where Assets = Liabilities + Owners Equity. Every entry on the left (asset) side MUST be reflected on the right side (liability and/or owner equity side) of the equation. This is called the double-entry method of bookkeeping. See handout. Financial Statements: Balance sheet, Income Statement, Cash Flow -Think each of these are a medical checkup:

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-Each statement tells us something about the firm’s “financial health”, together they work to paint the full financial picture. 1. Balance Sheet
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Unit 5 - Unit 4 How to succeed in Accounting Understanding...

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