| Accounting is one of the most important internal | | | | top management, and shareholders use these |
| aspects to any business that is to be financially | | | | documents to make major business decisions. |
| successful in today’s market. It is the process | | | | Financial accountants assemble an annual report |
| of documenting all relevant economic information | | | | including balance sheets, income statement, |
| about a firm and communicating that information | | | | statement of cash flows, and statement of |
| to key players. Managers and Executives need | | | | change in owners’ equity (or retained |
| accounting information to make decisions and run | | | | earnings). These documents are usually targeted |
| their business to achieve maximum profitability. | | | | to an external audience. |
| Shareholders need accounting information to | | | | Financial statements are vital to the success of |
| make informed investments. | | | | any profitable business. Their purpose is to |
| There are many types of accounting that all have | | | | formally record all financial activities of the |
| different roles in the business world. Probably the | | | | company or individual. These statements |
| best-known and most ‘classic’ type of | | | | summarize in a standard format the financial |
| accountant is a CPA, or Certified Public | | | | status of the company in both the short term |
| Accountant. A CPA has a very diverse client list. | | | | and the long term. There are four main types of |
| They can serve anyone including individuals, | | | | financial statements. |
| private firms, large publicly traded corporations, | | | | First, the balance sheet summarizes the |
| the government, or non-profit organizations. They | | | | company’s total assets, liabilities and |
| can perform the role of an independent auditor, | | | | owners’ equity at a given point in time. This |
| tax advisor, or financial consultant. | | | | report is also known as the statement of financial |
| When performing an audit, a CPA will produce an | | | | position. The balance sheet is used at the |
| independent auditor’s report that will tell the | | | | beginning of year as a starting point. At the end |
| client four key pieces of information. First it | | | | of the year a new balance sheet will conclude the |
| identifies the documents that were audited and | | | | fiscal cycle. The other financial statements that will |
| describes that the purpose of this report is to | | | | be discussed are used to fill in the gap, because a |
| express an opinion about the documents in | | | | lot can happen in a year. |
| questions. Next it explains the standards used to | | | | The income statement summarizes the revenue |
| analyze the data. Third is the actual opinion of the | | | | and expenses for the year and highlights if the |
| auditor in regards to the financial documents | | | | company operated at a profit or at a loss. It is in |
| reviewed. Finally, the auditor elaborates on his | | | | this report that the total gross income is defined |
| opinion regarding the effectiveness of the financial | | | | as well as all of the expenses that were incurred |
| reporting of the firm. | | | | along the way. The top line of the statement is |
| Another type of accountant is a CMA, or Certified | | | | net sales and the bottom line is net income. |
| Management Accountant. A CMA serves a smaller | | | | The statement of change in owners’ equity, |
| customer base, because they typically work for a | | | | or statement of change in retained earnings also |
| single firm. The major role is to advise the | | | | analyzes data over a time period. Typically this is |
| company on their financial management, | | | | over a fiscal year. The two major components of |
| accounting processes, and budgetary issues. A | | | | owners’ equity are paid-in capital, or cash |
| CMA may work with individual employees of that | | | | investments, and retained earnings, or the net |
| company, but their main function is to advise the | | | | income less dividends. If retained earnings are |
| executives on the company’s complete | | | | negative because dividends have exceeded net |
| financial structure. They are often involved in | | | | income, this is considered a deficit. |
| major decisions for the company. | | | | The final major financial statement commonly |
| A subset of managerial accounting is cost | | | | used by shareholders is the statement of cash |
| accounting. A cost accountant works closely with | | | | flows. The purpose of this report is to follow the |
| the budget structure of a company. They are | | | | company’s cash activities during the year. |
| typically involved with determining the internal | | | | This is mainly concerned with cash transactions |
| costs of many functions and the profitability of | | | | pertaining to operating, investing, and other |
| the routine company operations. Cost | | | | financial activities. |
| accountants have a very future-oriented job in | | | | Shareholders use the four major financial |
| that they are primarily concerned with using | | | | statements to make investment decisions and to |
| historical data to forecast what the prospective | | | | see what the company is doing with their money. |
| financial strength of the company will be. | | | | Executives and top management use statements |
| A third major type of accounting is a financial | | | | to make internal budgetary decisions and forecast |
| accounting. Financial accountants are primarily | | | | out for the future success of the business. There |
| responsible for the preparations of the financial | | | | are many components that go into the financial |
| documents for review by the corporate decision | | | | reporting for a company, and all information is |
| makers. Managerial accountants, cost accountants, | | | | vital to its continued financial health. |