I. Reading What is Accounting? *Teacher’s Copy*
Accounting is generally considered to be the process of keeping track of a business' finances by logging its accounts payable, accounts receivable and other financial transactions – often with accounting software.
The American Accounting Association defines accounting as "the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information."
While bookkeepers tend to focus on the details, recording transactions in an efficient and organized manner, they may or may not see the overall picture like accountants do, according to Certified Public Accountant Stan Snyder.
"Accountants use the work done by bookkeepers to produce and analyze financial reports," Snyder said. "Although accounting follows the same principles and rules as bookkeeping, an accountant can design a system that will capture all of the details necessary to satisfy the needs of the business -- managerial, financial reporting, projection, analysis, and tax reporting."
One part of accounting focuses on presenting the company's financial information in the required ways to those outside of the company. In order to present the information in a format everyone can understand, accountants follow a set of guidelines. In the United States, most abide by the Generally Accepted Accounting Principles (GAAP). There are different sets of accounting standards for companies that operate overseas, as well as for local and state government entities.
CPA Harold Averkamp said accounting also entails providing a company’s management with the information it needs to keep the business financially healthy.
"Some of the information will originate from the recorded transactions, but some of the information will be estimates and projections based on various assumptions," Averkamp said.
To come up with a company's status and projections, accountants rely on various formulas. Accounting ratios help uncover conditions and trends that are difficult to find by inspecting individual components that make up the ratio. Accounting ratios are divided into five main categories: liquidity ratios, profitability ratios, leverage ratios, turnover ratios and market value ratios.
While accounting dates back thousands of years to some of the earliest forms of civilization, Italy's Luca Pacioli became known as the field's founding father in 1949 after writing his book Summa de arithmetica, geometria, proportioni et proportionalita (The Collected Knowledge of Arithmetic, Geometry, Proportion and Proportionality), in which he describes double-entry bookkeeping for the first time.
Many in the accounting industry choose to become CPAs, which is achieved by passing an exam and getting work experience. According to the Pennsylvania Institute of Certified Public Accountants, CPAs audit financial statements of public and private companies; serve as consultants in many areas, including tax, accounting, and financial planning; and are well-respected strategic business advisors and decision-makers. Their roles range from accountants to controllers and from chief financial officers of Fortune 500 companies to advisors to small neighbourhood businesses.
According to the University of North Carolina at Wilmington's Career Center, there are countless other jobs that require accounting proficiency, including auditors, financial investment analysts, claims adjusters, loan administrators, tax lawyers, underwriters and stockbrokers.
II. Vocabulary & Definitions
1. accounting
a system that provides quantitative information about finances
EXAMPLE SENTENCE:
The American Accounting Association defines accounting as "the process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information."
2. transaction
the act of transacting within or between groups (as carrying on commercial activities)
EXAMPLE SENTENCE:
While bookkeepers tend to focus on the details, recording transactions in an efficient and organized manner, they may or may not see the overall picture like accountants do, according to Certified Public Accountant Stan Snyder.
3. financial
involving financial matters
EXAMPLE SENTENCE:
"Accountants use the work done by bookkeepers to produce and analyze financial reports," Snyder said.
4. guideline
a rule or principle that provides guidance to appropriate behavior
EXAMPLE SENTENCE:
In order to present the information in a format everyone can understand, accountants follow a set of guidelines.
5. standard
a basis for comparison; a reference point against which other things can be evaluated
EXAMPLE SENTENCE:
There are different sets of accounting standards for companies that operate overseas.
6. assumption
the act of assuming or taking for granted
EXAMPLE SENTENCE:
"Some of the information will originate from the recorded transactions, but some of the information will be estimates and projections based on various assumptions," Averkamp said.
7. formula
a group of symbols that make a mathematical statement
EXAMPLE SENTENCE:
To come up with a company's status and projections, accountants rely on various formulas.
8. ratio
the relation between things (or parts of things) with respect to their comparative quantity, magnitude, or degree
EXAMPLE SENTENCE:
Accounting ratios help uncover conditions and trends that are difficult to find by inspecting individual components that make up the ratio.
9. inspect
look over carefully
EXAMPLE SENTENCE:
The new rules have been enforced for inspecting restaurants.
10. divide
to separate into parts, sections, groups, or branches
EXAMPLE SENTENCE:
Voters are deeply divided by race and age.
11. liquidity
being in cash or easily convertible to cash; debt paying ability
EXAMPLE SENTENCE:
Europe outside Germany is wallowing in a liquidity trap, starved of cash in circulation.
12. arithmetic
the branch of pure mathematics dealing with the theory of numerical calculations
EXAMPLE SENTENCE:
William earned 94% in arithmetic.
13. entry
the act of entering
EXAMPLE SENTENCE:
In his 1949 book, Luca Pacioli describes double-entry bookkeeping for the first time.
14. institute
a society or organization having a particular object or common factor, esp. a scientific, educational, or social one
EXAMPLE SENTENCE:
She works for the Pennsylvania Institute of Certified Public Accountants.
15. audit
examine carefully for accuracy with the intent of verification
EXAMPLE SENTENCE:
CPAs audit financial statements of public and private companies; serve as consultants in many areas, including tax, accounting, and financial planning; and are well-respected strategic business advisors and decision-makers.
16. planning
an act of formulating a program for a definite course of action
EXAMPLE SENTENCE:
Good financial planning begins with thorough research.
17. advisor
an expert who gives advice
EXAMPLE SENTENCE:
His financial advisors warned him against investing all of his savings in one company, but he did not listen to this advice.
18. career
the particular occupation for which you are trained
EXAMPLE SENTENCE:
She began her career as a stock broker in 2008.
19. investment
the act of investing; laying out money or capital in an enterprise with the expectation of profit
EXAMPLE SENTENCE:
There are countless jobs that require accounting proficiency, including auditors, financial investment analysts, claims adjusters, loan administrators, tax lawyers, underwriters and stockbrokers.
20. claim
a demand for something due or believed to be due or existing
EXAMPLE SENTENCE:
The corporation made an insurance claim for ten million dollars.
III. Exercise: Match the Definitions
Use: accounting, formula, liquidity, ratio & standard
1. ________________: a group of symbols that make a mathematical
statement
(formula)
2. ________________: the relation between things (or parts of things)
with respect to their comparative quantity, magnitude, or degree
(ratio)
3. ________________: a basis for comparison; a reference point against
which other things can be evaluated
(standard)
4. __________________: a system that provides quantitative information
about finance
(accounting)
5. ________________: being in cash or easily convertible to cash;
debt paying ability
(liquidity)
IV. Exercise: Fill in the Gaps/Blanks
Use the following words: advisor, assumptions, audit,
career, claim, financial, guideline & transactions
1. She began her as a stock broker in 2008.
(career)
2. In order to present the information in a format everyone can understand,
accountants follow a set of __________________________.
(guideline)
3. While bookkeepers tend to focus on the details, recording
_________________________ in an efficient and organized manner,
they may or may not see the overall picture like accountants do.
(transactions)
4. His financial ______________________ warned him against investing all
of his savings in one company, but he did not listen to this advice.
(advisor)
5. CPAs _______________ financial statements of public and private
companies; serve as consultants in many areas, including tax,
accounting, and financial planning; and are well-respected strategic
business advisors and decision-makers
(audit)
6. The corporation made an insurance ____________________ for ten
million dollars
(claim)
7. Some of the information will originate from the recorded transactions, but
some of the information will be estimates and projections based on
various __________________________.
(assumptions)
8. Accountants use the work done by bookkeepers to produce and
analyze ______________________ reports.
(financial)
V. Exercise: Match the Picture
Use: arithmetic, CPA, formula, institute & ratios
__________________
(ratios)
______________________
(formula)
__________________________________
(institute)
______________________________________
(arithmetic)
_________________________
(CPA)
VI. Listening: What is Accounting?
What is Accounting?
http://www.youtube.com/watch?v=aBNFePg0Sz4
(1:12)
What is the Accounting Cycle? (Conceptual)
http://www.youtube.com/watch?v=ckVVKkUXR7E&feature=related
(1:04)
VII. Just for Fun
