Accounting Information : Small Business Plan Template : Business Management Club, Inc.

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FINANCIAL MANAGEMENT
CHECK POINT 42: ACCOUNTING INFORMATION

Please Select Any Topic In Check Point 42 Below And Click.

1.	what is an economic entity?
2.	what is accounting information?
3.	types of accounting information
4.	financial accounting reports
5.	management accounting reports
6.	differences between financial and management accounting reports
7.	generally accepted accounting principles
8.	what do accountants do?
9.	for serious business owners only
10.	the latest information online

DO I NEED TO KNOW THIS CHECK POINT?

Management Level	Yes	Optional
Level 1: I Am An MBA Student.	V
Level 2: I Am A Professional Manager In A Company.		V
Level 3: I Plan To Start A One-Person Business.	V
Level 4: We Plan To Start A Small Business Without Employees.	V
Level 5: I/We Plan To Start A Small Business With Employees.	V
Level 6: I Am A One-Person Business Owner.	V
Level 7: I Am A Small Business Owner With Employees.	V
Level 8: We Are Small Business Owners Without Employees.	V
Level 9: We Are Small Business Owners With Employees.	V
Level 10: I Am A Management Consultant Or A CPA.	V

1. WHAT IS AN ECONOMIC ENTITY?

THE PRIME PURPOSE OF THE FINANCIAL MANAGEMENT PROCESS

Business owners and financial managers must be able to interpret various types of accounting information, which is an essential element in the management decision-making process in every organization.

The prime purpose of the Financial Management Process is to develop, implement, and maintain an effective accounting system within the organization.

The Accounting System is designed to provide quantitative information, primarily financial in nature, about economic entities that is intended to be useful in making economic decisions. (2).

ECONOMIC ENTITY

An Economic Entity, or a Business Entity, is an independent business enterprise that may be organized in one of the following forms illustrated below.

FOUR BASIC FORMS OF BUSINESS ORGANIZATION


Sole Proprietorship	Partnership	Corporation	Limited Liability Company

Different Forms Of Business Organization are discussed in detail in Tutorial 3.

Note:

Non-profit organizations are not discussed in this Tutorial.

2. WHAT IS ACCOUNTING INFORMATION?

IMPORTANCE OF ACCOUNTING INFORMATION

Business owners and managers are constantly faced with the necessity of making decisions pertaining to various activities of their organization. Business owners, for example, may want to know about the company's profitability during a certain operating period, while the sales manager may seek to determine an adequate selling price for a new product or service.

In other instances, business owners and managers are requested to provide financial information to institutions when applying for additional funds or when preparing special reports for governmental organizations. It is apparent that such information, known as Accounting Information, plays an integral part in the business process.

3. TYPES OF ACCOUNTING INFORMATION

ACCOUNTING INFORMATION

Accurate Accounting Information is a highly valuable management tool which is instrumental in coordinating important management decisions and in undertaking appropriate action in accordance with the overall objectives of the organization.

An effective financial management system usually provides two different types of accounting information as illustrated below.

TWO TYPES OF ACCOUNTING INFORMATION


External Reports Or Financial Accounting Reports		Internal Reports Or Management Accounting Reports
These reports are prepared and presented to existing and potential shareholders, creditors, and tax authorities.		These reports are prepared and presented to management for internal operational use within the organization.

4. FINANCIAL ACCOUNTING REPORTS

FINANCIAL ACCOUNTING REPORTS

External reports, or Financial Accounting Reports, include three basic financial statements: the balance sheet, the income statement, and the statement of cash flows.

Financial accounting reports are usually submitted to company shareholders, present and potential creditors, e.g. banks and investors, and tax authorities. These reports provide important information pertaining to three basic elements of the company's well-being as illustrated below.

THREE BASIC FINANCIAL STATEMENTS


Balance Sheet	Income Statement	Statement Of Cash Flows
This statement illustrates how solvent the company is, i.e. by how much its assets exceed its liabilities, or net worth.	This statement illustrates how profitable the company is, i.e. by how much its revenues exceed its expenditures, or net income.	This statement illustrates how liquid the company is, i.e. whether more cash is flowing into the company than out of it.

5. MANAGEMENT ACCOUNTING REPORTS

MANAGEMENT ACCOUNTING REPORTS

Internal reports, or Management Accounting Reports, are designed for use in strategic planning, operational planning, and routine controlling activities.

Management accounting reports include a broad range of statements developed by the company's financial executive in accordance with the specific needs of the organization. Some of the most popular management accounting reports are illustrated below.

FOUR BASIC MANAGEMENT ACCOUNTING REPORTS


Monthly Revenue And Expenditure Statement	Monthly Income Statement	Monthly Debtors Age Analysis	Monthly Creditors Age Analysis
This statement summarizes monthly and year-to-date *revenues and expenses,* compares same with corresponding budget projections, and determines variances	This statement summarizes monthly and year-to-date *income or loss,* compares same with corresponding budget projections, and determines variances	This statement summarizes the names of clients (debtors) who owe money to a company and the actual accounts receivable on a 1-30, 31-60, 61-90 day basis, or longer	This statement summarizes the names of suppliers (creditors) to whom a company owes money and the actual accounts payable on a 1-30, 31-60, 61-90 day basis, or longer

6. DIFFERENCES BETWEEN FINANCIAL AND MANAGEMENT ACCOUNTING REPORTS

The basic differences between Financial Accounting Reports and Management Accounting Reports are summarized below.

BASIC DIFFERENCES BETWEEN FINANCIAL
AND MANAGEMENT ACCOUNTING REPORTS

Financial Accounting Reports

Management Accounting Reports

•

•
•

•

•

Are verified by the company's auditors (CPAs) in accordance with the generally accepted accounting principles (GAAP).
Provide formal professional opinion.
Include information about the company's solvency, profitability, and liquidity.
Cover the performance of the organization as a whole.
Are used mainly by shareholders and external users, e.g. banks, suppliers, or tax authorities for evaluation purposes.

•

•
•

•

•

Are prepared by the staff within the company's financial department in accordance with the specific needs of the organization.
Provide informal management opinion. Include information about the company's current performance and provide comparison between actual and budgeted results.
Cover the detailed performance of the organization.
Are used mainly by internal users, e.g. top and middle level management for planning and controlling purposes.

7. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

Financial information is recorded in accordance with a particular set of rules known as the Generally Accepted Accounting Principles. (GAAP).

American Institute Of Certified Public Accountants (AICPA) has defined these principles as follows:

"The Generally Accepted Accounting Principles encompass the conventions, rules, and procedures necessary to define accepted accounting practice at a particular time. "(3)

The Generally Accepted Accounting Principles have been developed by accountants over a period of many years and are subject to change in accordance with prevailing conditions and governmental requirements.

Several important organizations, that constantly influence the generally accepted accounting principles, are presented below.

ORGANIZATIONS THAT INFLUENCE
THE GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

No.	Details
1.	American Institute Of Certified Public Accountants (AICPA).
2.	International Accounting Standards Committee (IASC) ®.
3.	Financial Accounting Standards Board (FASB).
4.	U.S. Securities And Exchange Commission (SEC).
5.	Internal Revenue Service (IRS) .

8. WHAT DO ACCOUNTANTS DO?

WHO ARE ACCOUNTANTS?

Financial accounting reports, or financial statements, are verified by the company's auditors, who are Certified Public Accountants (CPA).

Independent CPAs are licensed by each state in a manner similar to the legal or medical professions. These CPAs are independent in the sense that they operate their own accounting practices and are not directly employed by the company whose statements they examine. As a part of their services, CPAs perform an unbiased audit of their clients' books and other related services outlined below.

As a result of the company's audit, the CPA will be able to express an opinion about the conformance of the company's financial statements to the generally accepted accounting principles. The CPA does not express an opinion as to the "fairness" of what the statements represent.

SERVICES PROVIDED BY CPAs

No.	Details
1.	Careful examination of the company's accounting and internal control systems.
2.	Verification of accounting records.
3.	Verification of existing inventory.
4.	Identification of amounts owed to the company (accounts receivable).
5.	Identification of amounts owed by the company (accounts payable).
6.	Preparation of financial statements.
7.	Preparations of tax returns.

Note:

Please consult with your accountant regarding any additional information

9. FOR SERIOUS BUSINESS OWNERS ONLY

ARE YOU SERIOUS ABOUT YOUR BUSINESS TODAY?

Reprinted with permission.

10. THE LATEST INFORMATION ONLINE

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LESSON FOR TODAY:
The Most Powerful Weapon For Achievement Is Information!

Joe Griffith

1 The General Management Process (Overview)	5 Lean Management	9 Implementation Of Strategic Plans	13 The Organizing Process	17 The Leading Process
2 Entrepreneurship And Management Science	6 Business Environment And Organizational Culture	10 Management By Objectives	14 Organizational Departmentalization	18 Principles of Communication
3 Principles Of Decision Making	7 The Planning Process	11 Operational Planning	15 Management Structure	19 The Controlling Process
4 The Lean Business Engineering Method	8 Strategic Planning	12 Plan Of Management	16 Organizational Design And Development	20 Managerial Ethics

21 The Human Resources Management Process (Overview)	25 Employee Planning And Forecasting	29 Employee Orientation	33 Basic Job Compensation	37 Employee Career Management
22 Equal Employment Opportunity Laws	26 Employee Recruitment And Hiring	30 Employee Training	34 Financial Incentives	38 Labor-Management Relations
23 Job Analysis	27 Screening And Testing Of Applicants	31 Management Development	35 Employee Benefits	39 Employee Safety And Health
24 Job Descriptions And Job Specifications	28 Employment Interviews	32 Employee Motivation	36 Employee Performance Appraisal	40 Employee Conflict Management And Separation

41 The Financial Management Process (Overview)	45 Financial Performance Evaluation	49 Tax Strategies	53 Credit Control	57 Cost Accounting
42 Accounting Information	46 Operating Budget	50 Sources Of Capital	54 Inventory Management	58 Pricing Methods
43 Bookkeeping	47 Capital Expenditure Budget	51 Internal Control And Cash Management	55 Capital Assets Management	59 Management Accounting
44 Financial Statements	48 Cash Budget	52 Control of Purchases And Disbursements	56 Payroll Accounting	60 Integrated Financial Management

61 The Operations Management Process (Overview)	65 Product And Service Design And Standardization	69 Equipment Maintenance And Replacement	73 Material Requirements Planning	77 Kaizen
62 Classification Of Operational Activities	66 Process Design	70 Tool Control	74 Operations Control	78 Lean/Just-In-Time Methodology
63 Facility Design, Location, And Organization	67 Equipment Evaluation And Selection	71 Cost Estimating	75 Supply Chain And Material Management	79 Service Operations Management
64 The Design Office	68 Plant Layout	72 Operations Planning	76 Total Quality Management	80 Project And Contract Management

81 The Marketing Management Process (Overview)	85 Market Measurement And Forecasting	89 Promotional Strategies	93 The Sales Management Process (Overview)	97 Personal Selling
82 Buying Behavior	86 Marketing Strategies	90 Distribution Strategies	94 Sales Planning And Budgeting	98 Sales Force Compensation
83 Marketing Information And Research	87 Product Strategies	91 Direct Marketing	95 Sales Organization	99 Sales Force Management And Motivation
84 Target Marketing	88 Pricing Strategies	92 Marketing Planning	96 Sales Force Recruitment, Selection And Training	100 Sales Performance Evaluation And Control