Why Financial Accounting is Neither Simple Nor Precise
If you have even a passing knowledge of business and economics, answering these questions might not seem that difficult. In fact, determining a firm's economic performance and condition often is very difficult. Unfortunately, financial statements rarely are able to give completely definitive and precise answers to what seem to be simple economic questions. Why would this be so?
Accounting's measurement problems derive primarily from three factors. First, it is difficult to pin down exact criteria for measuring economic performance and economic condition. Second, accounting uses money as its fundamental measurement unit, and money's unit value is not stable over time. Third, accounting rule makers have to allow for the fact that business managers often are motivated to distort economic reality rather than reflect it accurately.
What is Economic Performance and Economic Condition?
In terms of economic performance, our simplest criterion for doing well surely involves looking at cash flows. A business does well if it brings in more cash than it spends and vice versa. But for all but the very simplest of businesses such a measurement approach can be very problematic. Negative cash flow is not necessarily equivalent to poor economic performance and vice versa. Because of these problems, accountants have had to develop a more abstract concept of economic profitability, which creates its own problems.
Accounting encounters even more difficulty in trying to pin down a firm's economic condition. To determine economic condition we want to find out about a firm's assets and their values. But there is more than one standard of value. Should accountants use current market values for assets owned or the original cost incurred to acquire them? Rarely are these values the same and there are advantages and disadvantages to both standards.
There also is legitimate controversy about what should be counted as assets on the balance sheet. For example, should the value of personnel or intangible assets, such as patents, trademarks and goodwill, be measured and included? If so, how do we measure their value?
Money: Accounting's Unstable Measurement Unit
In accounting the unit of measurement is money. Money is a medium of exchange that has value only to the extent that it can be traded for goods and services. But, money is not a stable unit of measurement, because its exchange value varies with time. What one dollar buys today in goods and services is almost never the same as what that same dollar purchased last year or will purchase two years from now.
The practical ramifications of this instability of money as a measuring unit are pervasive. If a company had net income last year of $100,000, was its economic performance the same as it was five years ago when its income statement also showed a $100,000 net income? Decidedly not, if the purchasing power of the dollar changed significantly in the intervening five years.
Questions about economic condition are also affected by the instability of money as a measurement unit. For example, consider two companies each with $800,000 of assets and $500,000 of liabilities. In the case of one company, all its debt must be repaid within one year, while the other company's debt does not have to be repaid for ten years. Are the economic conditions of the companies the same? Again, decidedly not, because the purchasing power of the dollar will change over the next ten years.
Accounting rule makers have struggled greatly with the questions of how and when these changes in the value of money should be reflected.
Measurement Error: Management's Motivation for Mendacity
Measurement error is unavoidable. But it would be nice if we could assume that almost everybody involved in the accounting measurement process was highly motivated to avoid errors. Sadly, this is not the case, because business managers often wish to avoid accurate measurements if such accuracy would lead to significant damage to their career and finances. Facing such ruin, managers will be strongly tempted to avoid fair and accurate measurements. Managers will seek to "cook the books".
There are two important ramifications for accounting stemming from this motivational bias. First, in order for financial reports to have any credibility at all, they have to be verified by independent auditors. This is an expensive and often imperfect process. Second, in formulating accounting rules, the rule makers have to carefully consider how any proposed measurement procedures might be subverted by managers intent on providing a skewed view of economic performance or condition. The practical consequence is that the accounting rules that might be most logical and simple are often not adopted because these rules also tend to be the easiest ones for managers to distort.
Article Source: http://www.ArticleStreet.com/
About the Author
Michael Sack Elmaleh is a Certified Public Accountant and Certified Valuation Analyst. His book, "Financial Accounting: A Mercifully Brief Introduction", has received wide critical acclaim. He has nearly 30 years of accounting and 10 years of teaching experience.His web site is understand-accounting.net![Reblog this post [with Zemanta]](http://img.zemanta.com/reblog_e.png?x-id=ec891d0e-661c-410d-97ef-cffcc7d583a1)
Choosing Your Dream Career
But rest assured that these people are by far in the minority. So if you're a part of the majority and are trying to figure out how to do what you absolutely love - or even figure out what you love - there are ways you can get this done. Let's look at ways you can move toward settling into your dream career ...
Look at What Sparks Your Interests
Okay, this is going to take a lot of nerve on your part, but if you want to find your dream career, you're going to have to go after what you like. Scary, right? You've spent so much of your life doing what others have wanted you to do that it's hard to believe that you are actually allowed to do what is interesting to you. But you are.
Think about it, there are people making a living playing their favorite instrument, dressing up in makeup and "clowning around" or going the traditional route of joining the ranks of Corporate America - and you can do it too. The main way for you to accomplish this goal is to take note of the projects you absolutely love then explore ways to turn that love into a tangible career.
Take Personality Tests
This may sound like an unorthodox route to take, but if you really want to tap into a career that suites you specifically, there are tests you can take to help you determine, based on your interests, what careers would be best suited for you. Two tests you can take online are the Keirsey Temperament Sorter and Ansir Self-Perception tests.
The Keirsey Temperament Sorter is the most widely-used personality test in the world. By looking at your temperament, communication and action characteristics, it helps you determine your organization, career, and personal development attributes. The Ansir Self-Perception test is another personality test that is widely used. It was created to help you identify your dominant strengths and innate potential so that you can quickly move toward what best suits your personality. Both of these tests work well to give you insight into aspects of your personality that you may not have been aware of. But most importantly, they help you correlate those personality traits with various career options, helping to make finding your dream career a little easier.
Try Temporary Work
A third way that you can make strides toward your dream career is by taking on temporary work. Whether you're linking up with the traditional temporary agency for clerical work, or one that focuses on specific professions, this is a great way to test the waters of different careers without having to commit permanently to any.
The more you're willing to get out there and search, the more likely you are to find what it is you really love. So don't be afraid to go after your dream job. You may find it to be the best decision you've ever made.
About the Author:
Heather Eagar is a former professional resume writer who is passionate about providing working professionals with current, reliable and effective job search tools and information. Need a resume service? Check out reviews of the top resume services in the industry at http://www.resumelines.com
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Explanation of T-account, Debit and Credit, and Double-entry Accounting System
All accountants know several terms that create basis for any accounting system. Such terms are T-account, debit and credit, and double-entry accounting system. Of course, these terms are studied by accounting students all over the world. However, any business person, whether an investment banker or a small business owner, will benefit from knowing them as well. They are easy to grasp and will be helpful in most business situations. Let us take a closer look at these accounting terms.
T-Account
Accounting records about events and transactions are recorded in accounts. An account is an individual record of increases and decreases in a specific asset, liability, or owner’s equity item. Look at accounts as a place for recording numbers related to a certain item or class of transactions. Examples of accounts may be Cash, Accounts Receivable, Fixed Assets, Accounts Payable, Accrued Payroll, Sales, Rent Expenses and so on.
An account consists of three parts:
- title of the account
- left side (known as debit)
- right side (known as credit)
Because the alignment of these parts of an account resembles the letter T, it is referred to as a T account. You could draw T accounts on a piece of paper and use it to maintain your accounting records. However, nowadays, instead of having to draw T accounts, accountants use accounting software (i.e., QuickBooks, Microsoft Accounting, Peachtree, JD Edwards, Oracle, and SAP, among others).
Debit, Credit and Account Balance
In account, the term debit means left side, and credit means right side. These are abbreviated as Dr for debit and Cr for credit. Debit and credit indicate on which side of a T account numbers will be recorded.
An account balance is the difference between the debit and credit amounts. For some types of accounts debit means an increase in the account balance, while for others debit means a decrease in the account balance. See below for a list of accounts and what a debit to such account means:
Asset – Increase
Contra Assets – Decrease
Liability – Decrease
Equity – Decrease
Contribution Capital – Decrease
Revenue – Decrease
Expenses – Increase
Distributions – Increase
Credits to the above account types will mean an opposite result.
Double-entry Accounting System
A double-entry accounting system requires that any amount entered into the accounting records is shown at least on two different accounts. For example, when a customer pays cash for your product, an account would show the cash received in the Cash account (as a debit) and in the Sales account (as a credit). All debit amounts equal all credit amounts provided the double-entry accounting was properly followed.
Having a double-entry accounting system has benefits over regular, one-sided systems. One of such benefits is that the double-entry system helps identify recording errors. As I mentioned, if one amount is entered only once in error, then debits and credits won’t balance and the accountant will know that one or more entries were not posted fully. Note, however, that this check will help spot errors, but will not identify all cases of errors. For example, equal debits and credits will not identify an error when an amount was posted twice, but was posted to wrong accounts. Keep this in mind when analyzing causes of errors in accounting records.
About the Author:
Igor Voytsekhivskyy is a CPA and CIA working in public accounting. He maintains a website SimpleStudies.com devoted to helping people learn accounting online for free.
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How To Applicants Master Degree In Accounting
Applicants with a master's degree in accounting or a master's degree in business administration with a concentration in accounting are increasingly valued. Strayer's online masters degrees are in education, business administration, public administration, health services administration, professional accounting, communications technology, and management information systems. Some employers prefer applicants with a master's degree in accounting, or with a master's degree in business administration with a concentration in accounting.
A master's degree in accounting or a master's degree in business administration with a concentration in accounting is most desirable among employers. A master's degree in business administration with a concentration in accounting is highly desirable among employers. Many employers prefer those with a masters degree in accounting or a master's degree in business administration with a concentration in accounting. Some employers prefer hiring individuals with a master's degree in accounting or a master's degree in business administration with a concentration in accounting. Stark received a bachelor's degree in accounting in 1959 and a master's degree in administration in 1966, both from K-State. Some employers prefer applicants with a master's degree in accounting, or with a master's degree in business administration with a concentration in accounting.
The Master of Accounting degree program is a general program of study that exposes students to accounting research and theory. The program assumes a reasonable institutional background in accounting, equivalent to an undergraduate or master's degree in accounting. The Professional Program in Accounting is designed to fulfill these requirements and allow the simultaneous granting of a bachelor's degree and a master's degree. With a master's degree from URI's accounting program, your professional opportunities are unlimited. The Master's degree program includes studies in corporate accounting, corporate taxation, and accounting information systems. program, must be completed prior to being awarded a Master of Accounting degree. The master of tax accounting (M.T.A.) degree program is a multidimensional approach to the education of the modern tax specialist. A Link Program, available in the summer prior to beginning the master's degree, provides the requisite accounting background.
You must inform the hiring agency of this experience or possession of master's degree in accounting at time of interview. Some employers prefer hiring individuals with a master's degree in accounting or a master's degree in business administration with a concentration in accounting. You must inform the hiring agency of this experience or possession of master's degree in Accounting at time of interview. Strayer's online masters degrees are in education, business administration, public administration, health services administration, professional accounting, communications technology, and management information systems.
This conversion master's programme aims to provide business degree holders with an intensive education in accounting and accounting-related knowledge and skills. The master of tax accounting (M.T.A.) degree program is a multidimensional approach to the education of the modern tax specialist. The master of tax accounting (M.T.A.) degree is designed for students who are interested in careers in taxation. Hall, Ph.D., the new master's degree will combine technical training in accounting with a focus on research, taxation, finance, communication and business ethics. The Master's degree program includes studies in corporate accounting, corporate taxation, and accounting information systems.
The program assumes a reasonable institutional background in accounting, equivalent to an undergraduate or master's degree in accounting. A Link Program, available in the summer prior to beginning the master's degree, provides the requisite accounting background. Cannot be taken for credit for the master of accounting degree. Cannot be taken for credit to apply to the master of accounting degree. Get an accredited high school diploma, accounting, master, or bachelor degree. Candidates with an honours degree in accounting or the Graduate Diploma in Accounting proceed directly into the second year of the master's degree. The Master of Accounting program admits students with undergraduate business degrees or the equivalent from accredited schools.
While you can work in accounting without a graduate degree, many find that it makes good sense to invest in a master's degree. The Master of Accounting degree program is a general program of study that exposes students to accounting research and theory. As a result, many schools have been forced to limit enrollment to their Masters of Accounting degree programs. A master's degree in Accounting or Chemistry, or closely related fields, and three years teaching experience and/or related work experience is preferred. Stark received a bachelor's degree in accounting in 1959 and a master's degree in administration in 1966, both from K-State. program, must be completed prior to being awarded a Master of Accounting degree. Open only to master's degree students in Accounting, MBA students, or approval of the department.
However, employers looking to fill entry level positions requiring an advanced degree often hire master in accounting graduates over MBA's. She is currently working on her master's degree in accounting. However, competition for jobs with prestigious accounting firms will remain keen; a master's degree in accounting should be an asset. in accounting and the Master of Professional Accountancy degree upon completion of the course of study. Annual awards are given to outstanding Accounting graduates at both the bachelor's and master's degree level. http://www.accounting-master-degree.com/
About the Author:
Suwat Muenpan is The Webmaster Of How To Applicants Master
Degree In Accounting - Guaranteed! http://www.accounting-master-degree.com/
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