Considering Financial Accounting

Accounting is an information and measurement system that identifies, records, and communicates an organization's business activities.

Accounting is called the language of business because it communicates data that helps people make better decisions.

People using accounting are divided into two groups: external user and intenal users

Financial accounting focuses on the external users, and managerial accounting focuses on the internal users.

External users are lenders, investors, nonmanagerial and nonexec employees, labor unions, voters, contributors, suppliers, customers

Internal users are purchasing managers, poduction managers, HR, Service Managers mainly internal management.

Data Analytics and Data Visualization are among the top skills sought by employers which include:

Descriptive - Summarizes and describes events from the past

Diagnostic - Reveals causes of events from the past

Predictive - Preditcs likely events from the future

Prescriptive - Creates action plans to achieve a desire future

A rising type is cognitive analytics which involces AI to analyze and understand data in a way that mimics human cognition.

Remember, for information to be useful, it must be trusted. This demands ethics in accounting.

Ethics are beliefs that separate right from wrong.

Misleading information can lead to a bad decision that can harm workers and or the business.

There is an old saying: GOOD ETHICS IS GOOD BUSINESS.

Fraud Triangle: Ethics under Attach.

The Fraud triangle shows three factors that push a person to commit. fraud.

1. Opportunity. A person must be able to commit fraud with a low risk of getting caught

2. Pressure, or incentive. A person must feel pressure or have incentive to commit fraud

3. Rationalization, or attitude. A person justifies fraud or does not see its criminal nature

THE KEY TO STOPPING FRAUD IS TO FOCUS ON PREVENTION.

It is less expensive and more effective to prevent fraud than it is to detect it. To help prevent, companies set up internal controls.

Financial accounting is governed by concepts and rules known as GAAP or generally accepted accounting principles.

GAAP wants information to have relevance and faithful representation. Relevant affect decisions, faithful means information accurately reflects the business results.

The Financial accounting standards board ( FASB) is given the task of setting GAAP from the SEC or security and exchange commission.

The SEC is a US agency that overseas proper use of GAAP by companies that sell stock and debt to the public.

Our global economy demands comparability in accounting reports. The International Accounting Standards Board ( IASB ) issues International Financial Reporting Standards ( IFRS ) that identify preferred accounting practices.

The FASB and IASB are working to recuce differences between US GAAP and IFRS.

The FASB conceptual framework consist of:

Objectives - To Provide information useful to investors, creditors and others

Qualitative - To require information that has relevance and faithful representation

Elements - To define items in financial statements

Recognition and measurement - To set criteria for an item to be recognized as an element and how to measure it.

There are two types of accounting principles and assumptions. General principles are the

assumptions, concepts, and guidelines for preparing financial statements. Shown in purple and Specific principles are detailed rules used in reporting business transactions and events. Shown in red.

There are four general principles:

1. Measurement Principle (Cost Principle) Accounting information is based on actual cost. Actual cost is considered objective. This means cash is given for a service, its cost is measured by the cash paid.

2. Revenue Recognition principle - Revenue is recognized when goods or services are provided to customers and at the amount expected to be received. To recognize means to record it even if the customer promised to pay at a future date called a credit sale.

3. Expense recognition principle or matching principle. Expense is recognized in the same period as the revenue recognized as a result of that expense. The word incurred is used in accounting to mean that an expense occurred and needs recording.

4. Full disclosure principle meaning a company reports the details behind financial statements that would impact users decisions. Those disclosures are often in footnotes to the statements.