FINANCIAL MANAGEMENT
CHECK POINT 42: ACCOUNTING INFORMATION
Please Select Any Topic In Check Point 42 Below And Click. |
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DO I NEED TO KNOW THIS CHECK POINT?
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WELCOME TO CHECK POINT 42 |
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HOW CAN YOU BENEFIT FROM CHECK POINT 42? |
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The main purpose of this check point is to provide you and your management team with details about Accounting Information and how to apply this information to maximize your company's performance. |
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In this check point you will learn: |
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• What is an economic entity?
• About four basic types of business organization.
• What is accounting information?
• About two basic types of accounting information.
• About financial accounting reports.
• What is a balance sheet?
• What is an income statement?
• What is a cash flow statement?
• About four basic management accounting reports.
• About differences between financial and management accounting reports. and much more. |
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LEAN MANAGEMENT GUIDELINES FOR CHECK POINT 42 |
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You and your management team should become familiar with the basic Lean Management principles, guidelines, and tools provided in this program and apply them appropriately to the content of this check point. |
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You and your team should adhere to basic lean management guidelines on a continuous basis: |
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Treat your customers as the most important part of your business. |
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Provide your customers with the best possible value of products and services. |
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Meet your customers' requirements with a positive energy on a timely basis. |
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Provide your customers with consistent and reliable after-sales service. |
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Treat your customers, employees, suppliers, and business associates with genuine respect. |
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Identify your company's operational weaknesses, non-value-added activities, and waste. |
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Implement the process of continuous improvements on organization-wide basis. |
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Eliminate or minimize your company's non-value-added activities and waste. |
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Streamline your company's operational processes and maximize overall flow efficiency. |
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Reduce your company's operational costs in all areas of business activities. |
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Maximize the quality at the source of all operational processes and activities. |
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Ensure regular evaluation of your employees' performance and required level of knowledge.
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Implement fair compensation of your employees based on their overall performance.
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Motivate your partners and employees to adhere to high ethical standards of behavior. |
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Maximize safety for your customers, employees, suppliers, and business associates. |
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Provide opportunities for a continuous professional growth of partners and employees. |
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Pay attention to "how" positive results are achieved and constantly try to improve them. |
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Cultivate long-term relationships with your customers, suppliers, employees, and business associates. |
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1. WHAT IS AN ECONOMIC ENTITY? |
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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 |
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Sole
Proprietorship |
Partnership |
Corporation |
Limited
Liability
Company |
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Different Forms Of Business Organization are discussed in detail in Tutorial 3.
Note:
Non-profit organizations are not discussed in this Tutorial. |
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ADDITIONAL INFORMATION ONLINE |
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2. WHAT IS ACCOUNTING INFORMATION? |
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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. |
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ADDITIONAL INFORMATION ONLINE |
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3. TYPES OF ACCOUNTING INFORMATION |
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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
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External Reports
Or
Financial Accounting Reports |
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Internal Reports
Or
Management Accounting Reports |
These reports are prepared and presented to existing and potential shareholders, creditors, and tax authorities. |
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These reports are prepared and presented to management for internal operational use within the organization. |
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ADDITIONAL INFORMATION ONLINE |
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4. FINANCIAL ACCOUNTING REPORTS |
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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
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Balance
Sheet |
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Income
Statement |
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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. |
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This statement illustrates how profitable the company is, i.e. by how much its revenues exceed its expenditures, or net income. |
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This statement illustrates how liquid the company is, i.e. whether more cash is flowing into the company than out of it. |
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ADDITIONAL INFORMATION ONLINE |
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5. MANAGEMENT ACCOUNTING REPORTS |
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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
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Monthly Revenue
And Expenditure
Statement |
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Monthly
Income
Statement |
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Monthly
Debtors
Age Analysis |
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Monthly
Creditors
Age Analysis |
This statement summarizes monthly and year-to-date revenues and expenses, compares same with corresponding budget projections, and determines variances
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This statement summarizes monthly and year-to-date income or loss, compares same with corresponding budget projections, and determines variances |
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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 |
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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 |
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ADDITIONAL INFORMATION ONLINE |
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6. DIFFERENCES BETWEEN FINANCIAL AND MANAGEMENT ACCOUNTING REPORTS |
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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
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Financial Accounting Reports |
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Management Accounting Reports |
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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. |
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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. |
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ADDITIONAL INFORMATION ONLINE |
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7. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES |
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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 |
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ADDITIONAL INFORMATION ONLINE |
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8. WHAT DO ACCOUNTANTS DO? |
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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 |
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Careful examination of the company's accounting and internal control systems. |
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Verification of accounting records. |
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Verification of existing inventory. |
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Identification of amounts owed to the company (accounts receivable). |
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Identification of amounts owed by the company (accounts payable). |
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Preparation of financial statements. |
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Preparations of tax returns. |
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Note:
Please consult with your accountant regarding any additional information |
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ADDITIONAL INFORMATION ONLINE |
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9. FOR SERIOUS BUSINESS OWNERS ONLY |
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ARE YOU SERIOUS ABOUT YOUR BUSINESS TODAY? |
Reprinted with permission. |
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10. THE LATEST INFORMATION ONLINE |
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LESSON FOR TODAY:
The Most Powerful Weapon For Achievement Is Information!
Joe Griffith |
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