USERS OF ACCOUNTING INFORMATION
Most of the material in this book describes business situations, but the principles of accounting apply to the financial considerations of individuals as well. The following sections discuss the range of people and groups who use accounting information.
Individuals. People use accounting information in day-to-day affairs to manage their bank accounts, to evaluate job prospects, to make investments, and to decide whether to rent or to buy a house.
Businesses. Managers of businesses use accounting information to set goals for their organisations, to evaluate their progress toward those goals, and to take corrective action if necessary. Decisions based on accounting information may include which building and equipment to purchase, how much merchandise inventory to keep on hand, and how much cash to borrow.
Investors and Creditors. Investors provide the money that businesses need to begin operations. To decide whether to help start a new venture, potential investors evaluate what income they can reasonably expect on their investment. This means analysing the financial statements of the new business. Those people who do invest monitor the progress of the business by analysing the company's financial statements and by keeping up with its developments in the business press. Before making a loan, potential lenders determine the borrower's ability to meet scheduled payments. This evaluation includes a projection of future operations, which is based on accounting information.
Government Regulatory Agencies. Most organisations face government regulation. Government regulation agencies base their regulatory activity in part on the accounting information they receive from firms.
Taxing Authorities. Local, state, and federal governments levy taxes on individuals and businesses. The amount of the tax is figured using accounting information. Businesses determine their sales tax based on their accounting records that show how much they have sold. Individuals and businesses compute their income tax based on how much money their records show they have earned.
Non-profit Organisations. Non-profit organisations — such as churches, most hospitals, government agencies, and colleges, which operate for purposes other than to earn a profit—use accounting information in much the same way that profit-oriented businesses do. Both profit and non-profit organisations deal with budgets, payrolls, rent payments, and the like—all from the accounting system.
Other users. Employees and labour unions may make wage demands based on the accounting information that shows their employer's reported income. Consumer groups and the general public are also interested in the amount of income that businesses earn.
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T E X T 10
THE ACCOUNTING PROFESSION
Accounting is an old profession. Records of business transactions have been prepared for centuries. However, only during the last half-century accounting has been accepted as a profession with the same importance as the medical or legal profession. Positions in the field of accounting may be divided into several areas. Two general classifications are public accounting and private accounting. Public accountants are those who serve the general public and collect professional fees for their work, much as doctors and lawyers do. Their work includes auditing, income tax planning and preparation, and management consulting. Public accountants are a small fraction (about 10 percent) of all accountants. Those public accountants who have met certain professional requirements are designated as Certified Public Accountants (CPAs).
Private accountants work for a single business, such as a local department store, the McDonald's restaurant chain, or the Eastman Kodak Company. Charitable organizations, educational institutions, and government agencies also employ private accountants. The chief accounting officer usually has the title of controller, treasurer, or chief financial officer. Whatever the title, this person usually carries the status of vice-president.
Some public accountants pool their talents and work together within a single firm. Most public accounting firms are also called CPA firms because most of their professional employees are CPAs. CPA firms vary greatly in size. Some are small businesses, and others are medium-sized partnerships. The largest CPA firms are worldwide partnerships with over 2,000 partners. Such huge firms are necessary because some of their clients are so large and their operations are so complex.
In contrast to public accountants who provide accounting services for many clients, management accountants provide accounting services for a single business. In a company with many management accountants, the executive officer in charge of the accounting activity is often called a controller.
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1. What are public accountants?
2. What are private accountants?
3. What is CPA?
T E X T 11
Read the text and be ready to comment on the points of the code. What other professions can use the same principles ?
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