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Principles of Accounting, Volume 1: Financial Accounting

7.5 Describe Career Paths Open to Individuals with a Joint Education in Accounting and Information Systems

Principles of Accounting, Volume 1: Financial Accounting7.5 Describe Career Paths Open to Individuals with a Joint Education in Accounting and Information Systems
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  1. Preface
  2. 1 Role of Accounting in Society
    1. Why It Matters
    2. 1.1 Explain the Importance of Accounting and Distinguish between Financial and Managerial Accounting
    3. 1.2 Identify Users of Accounting Information and How They Apply Information
    4. 1.3 Describe Typical Accounting Activities and the Role Accountants Play in Identifying, Recording, and Reporting Financial Activities
    5. 1.4 Explain Why Accounting Is Important to Business Stakeholders
    6. 1.5 Describe the Varied Career Paths Open to Individuals with an Accounting Education
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
  3. 2 Introduction to Financial Statements
    1. Why It Matters
    2. 2.1 Describe the Income Statement, Statement of Owner’s Equity, Balance Sheet, and Statement of Cash Flows, and How They Interrelate
    3. 2.2 Define, Explain, and Provide Examples of Current and Noncurrent Assets, Current and Noncurrent Liabilities, Equity, Revenues, and Expenses
    4. 2.3 Prepare an Income Statement, Statement of Owner’s Equity, and Balance Sheet
    5. Key Terms
    6. Summary
    7. Multiple Choice
    8. Questions
    9. Exercise Set A
    10. Exercise Set B
    11. Problem Set A
    12. Problem Set B
    13. Thought Provokers
  4. 3 Analyzing and Recording Transactions
    1. Why It Matters
    2. 3.1 Describe Principles, Assumptions, and Concepts of Accounting and Their Relationship to Financial Statements
    3. 3.2 Define and Describe the Expanded Accounting Equation and Its Relationship to Analyzing Transactions
    4. 3.3 Define and Describe the Initial Steps in the Accounting Cycle
    5. 3.4 Analyze Business Transactions Using the Accounting Equation and Show the Impact of Business Transactions on Financial Statements
    6. 3.5 Use Journal Entries to Record Transactions and Post to T-Accounts
    7. 3.6 Prepare a Trial Balance
    8. Key Terms
    9. Summary
    10. Multiple Choice
    11. Questions
    12. Exercise Set A
    13. Exercise Set B
    14. Problem Set A
    15. Problem Set B
    16. Thought Provokers
  5. 4 The Adjustment Process
    1. Why It Matters
    2. 4.1 Explain the Concepts and Guidelines Affecting Adjusting Entries
    3. 4.2 Discuss the Adjustment Process and Illustrate Common Types of Adjusting Entries
    4. 4.3 Record and Post the Common Types of Adjusting Entries
    5. 4.4 Use the Ledger Balances to Prepare an Adjusted Trial Balance
    6. 4.5 Prepare Financial Statements Using the Adjusted Trial Balance
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  6. 5 Completing the Accounting Cycle
    1. Why It Matters
    2. 5.1 Describe and Prepare Closing Entries for a Business
    3. 5.2 Prepare a Post-Closing Trial Balance
    4. 5.3 Apply the Results from the Adjusted Trial Balance to Compute Current Ratio and Working Capital Balance, and Explain How These Measures Represent Liquidity
    5. 5.4 Appendix: Complete a Comprehensive Accounting Cycle for a Business
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  7. 6 Merchandising Transactions
    1. Why It Matters
    2. 6.1 Compare and Contrast Merchandising versus Service Activities and Transactions
    3. 6.2 Compare and Contrast Perpetual versus Periodic Inventory Systems
    4. 6.3 Analyze and Record Transactions for Merchandise Purchases Using the Perpetual Inventory System
    5. 6.4 Analyze and Record Transactions for the Sale of Merchandise Using the Perpetual Inventory System
    6. 6.5 Discuss and Record Transactions Applying the Two Commonly Used Freight-In Methods
    7. 6.6 Describe and Prepare Multi-Step and Simple Income Statements for Merchandising Companies
    8. 6.7 Appendix: Analyze and Record Transactions for Merchandise Purchases and Sales Using the Periodic Inventory System
    9. Key Terms
    10. Summary
    11. Multiple Choice
    12. Questions
    13. Exercise Set A
    14. Exercise Set B
    15. Problem Set A
    16. Problem Set B
    17. Thought Provokers
  8. 7 Accounting Information Systems
    1. Why It Matters
    2. 7.1 Define and Describe the Components of an Accounting Information System
    3. 7.2 Describe and Explain the Purpose of Special Journals and Their Importance to Stakeholders
    4. 7.3 Analyze and Journalize Transactions Using Special Journals
    5. 7.4 Prepare a Subsidiary Ledger
    6. 7.5 Describe Career Paths Open to Individuals with a Joint Education in Accounting and Information Systems
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  9. 8 Fraud, Internal Controls, and Cash
    1. Why It Matters
    2. 8.1 Analyze Fraud in the Accounting Workplace
    3. 8.2 Define and Explain Internal Controls and Their Purpose within an Organization
    4. 8.3 Describe Internal Controls within an Organization
    5. 8.4 Define the Purpose and Use of a Petty Cash Fund, and Prepare Petty Cash Journal Entries
    6. 8.5 Discuss Management Responsibilities for Maintaining Internal Controls within an Organization
    7. 8.6 Define the Purpose of a Bank Reconciliation, and Prepare a Bank Reconciliation and Its Associated Journal Entries
    8. 8.7 Describe Fraud in Financial Statements and Sarbanes-Oxley Act Requirements
    9. Key Terms
    10. Summary
    11. Multiple Choice
    12. Questions
    13. Exercise Set A
    14. Exercise Set B
    15. Problem Set A
    16. Problem Set B
    17. Thought Provokers
  10. 9 Accounting for Receivables
    1. Why It Matters
    2. 9.1 Explain the Revenue Recognition Principle and How It Relates to Current and Future Sales and Purchase Transactions
    3. 9.2 Account for Uncollectible Accounts Using the Balance Sheet and Income Statement Approaches
    4. 9.3 Determine the Efficiency of Receivables Management Using Financial Ratios
    5. 9.4 Discuss the Role of Accounting for Receivables in Earnings Management
    6. 9.5 Apply Revenue Recognition Principles to Long-Term Projects
    7. 9.6 Explain How Notes Receivable and Accounts Receivable Differ
    8. 9.7 Appendix: Comprehensive Example of Bad Debt Estimation
    9. Key Terms
    10. Summary
    11. Multiple Choice
    12. Questions
    13. Exercise Set A
    14. Exercise Set B
    15. Problem Set A
    16. Problem Set B
    17. Thought Provokers
  11. 10 Inventory
    1. Why It Matters
    2. 10.1 Describe and Demonstrate the Basic Inventory Valuation Methods and Their Cost Flow Assumptions
    3. 10.2 Calculate the Cost of Goods Sold and Ending Inventory Using the Periodic Method
    4. 10.3 Calculate the Cost of Goods Sold and Ending Inventory Using the Perpetual Method
    5. 10.4 Explain and Demonstrate the Impact of Inventory Valuation Errors on the Income Statement and Balance Sheet
    6. 10.5 Examine the Efficiency of Inventory Management Using Financial Ratios
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  12. 11 Long-Term Assets
    1. Why It Matters
    2. 11.1 Distinguish between Tangible and Intangible Assets
    3. 11.2 Analyze and Classify Capitalized Costs versus Expenses
    4. 11.3 Explain and Apply Depreciation Methods to Allocate Capitalized Costs
    5. 11.4 Describe Accounting for Intangible Assets and Record Related Transactions
    6. 11.5 Describe Some Special Issues in Accounting for Long-Term Assets
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  13. 12 Current Liabilities
    1. Why It Matters
    2. 12.1 Identify and Describe Current Liabilities
    3. 12.2 Analyze, Journalize, and Report Current Liabilities
    4. 12.3 Define and Apply Accounting Treatment for Contingent Liabilities
    5. 12.4 Prepare Journal Entries to Record Short-Term Notes Payable
    6. 12.5 Record Transactions Incurred in Preparing Payroll
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  14. 13 Long-Term Liabilities
    1. Why It Matters
    2. 13.1 Explain the Pricing of Long-Term Liabilities
    3. 13.2 Compute Amortization of Long-Term Liabilities Using the Effective-Interest Method
    4. 13.3 Prepare Journal Entries to Reflect the Life Cycle of Bonds
    5. 13.4 Appendix: Special Topics Related to Long-Term Liabilities
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  15. 14 Corporation Accounting
    1. Why It Matters
    2. 14.1 Explain the Process of Securing Equity Financing through the Issuance of Stock
    3. 14.2 Analyze and Record Transactions for the Issuance and Repurchase of Stock
    4. 14.3 Record Transactions and the Effects on Financial Statements for Cash Dividends, Property Dividends, Stock Dividends, and Stock Splits
    5. 14.4 Compare and Contrast Owners’ Equity versus Retained Earnings
    6. 14.5 Discuss the Applicability of Earnings per Share as a Method to Measure Performance
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  16. 15 Partnership Accounting
    1. Why It Matters
    2. 15.1 Describe the Advantages and Disadvantages of Organizing as a Partnership
    3. 15.2 Describe How a Partnership Is Created, Including the Associated Journal Entries
    4. 15.3 Compute and Allocate Partners’ Share of Income and Loss
    5. 15.4 Prepare Journal Entries to Record the Admission and Withdrawal of a Partner
    6. 15.5 Discuss and Record Entries for the Dissolution of a Partnership
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  17. 16 Statement of Cash Flows
    1. Why It Matters
    2. 16.1 Explain the Purpose of the Statement of Cash Flows
    3. 16.2 Differentiate between Operating, Investing, and Financing Activities
    4. 16.3 Prepare the Statement of Cash Flows Using the Indirect Method
    5. 16.4 Prepare the Completed Statement of Cash Flows Using the Indirect Method
    6. 16.5 Use Information from the Statement of Cash Flows to Prepare Ratios to Assess Liquidity and Solvency
    7. 16.6 Appendix: Prepare a Completed Statement of Cash Flows Using the Direct Method
    8. Key Terms
    9. Summary
    10. Multiple Choice
    11. Questions
    12. Exercise Set A
    13. Exercise Set B
    14. Problem Set A
    15. Problem Set B
    16. Thought Provokers
  18. Financial Statement Analysis
  19. Time Value of Money
  20. Suggested Resources
  21. Answer Key
    1. Chapter 1
    2. Chapter 2
    3. Chapter 3
    4. Chapter 4
    5. Chapter 5
    6. Chapter 6
    7. Chapter 7
    8. Chapter 8
    9. Chapter 9
    10. Chapter 10
    11. Chapter 11
    12. Chapter 12
    13. Chapter 13
    14. Chapter 14
    15. Chapter 15
    16. Chapter 16
  22. Index

We use accounting information to make decisions about the business. Computer applications now provide so much data that data analytics is one of the newest career areas in business. Universities are beginning to offer degrees in data analysis. Software companies have created different applications to analyze data including SAS, Apache Hadoop, Apache Spark, SPSS, RapidMiner, Power BI, ACL, IDEA, and many more to help companies discover useful information from the transactions that occur. Big data refers to the availability of large amounts of data from various sources, including the internet. For example, social media sites contain tremendous amounts of data that marketing companies analyze to determine how popular a product is, and how best to market it. There is so much data to analyze that new ways of mining it for predictive value have evolved.

Another emerging area involves cryptocurrency, or the use of a digital currency that uses encryption technologies that make these cryptocurrencies impossible to counterfeit. The use of cryptocurrency does not require a bank to transfer or clear funds as is the case with other currencies. Bitcoin is the most well-known cryptocurrency. Blockchain is the platform on which Bitcoin is built. Blockchain serves as a shared ledger for Bitcoin but is also the foundation of many other applications. Simply put, blockchain offers different parties to a transaction (e.g., a buyer and a seller) the opportunity to use a shared ledger rather than each having their own separate ledgers as is the case with traditional systems. Bitcoin is currently accepted by some large, well-known companies including PwC and EY (the two largest of the “big 4” accounting firms), and Overstock.com.

Enterprise resource planning (ERP) software is a collection of integrated programs that track all operations in a company, from payroll to accounts payable, manufacturing, and maintaining electronic connections with suppliers. For example, companies that sell goods to Walmart, have access to Walmart’s electronic inventory records so the vendors can make sure Walmart has the right amount of goods on hand. Having such a close relationship brings rewards. They will probably receive payment sooner, using EFT (electronic funds transfer).

The use of accounting information systems (AISs) has drastically changed the way we prepare tax returns. Software is now written to walk anyone through preparing his or her own tax return using an expert system. An expert system asks questions like: are you married? If the answer is yes, the software knows to use the married tax tables, and if the answer is no, it uses the single tables. Based on this answer, it will know what kind of question to ask next. Accountants who understand expert systems and tax will be writing and auditing tax software programs.

Firms are also developing and using artificial intelligence (AI) systems to perform tasks previously performed by accounting professionals, but now are freeing up the professionals to perform higher-level tasks requiring analysis and judgment. Finally, security of all of this available data is a very important issue, and there are a number of career paths and certifications that information technology professionals can attain. The Information Systems Audit and Control Association (ISACA) offers several certifications including Certified Information Systems Auditor (CISA), Certified in Risk and Information System Controls (CRISC), Certified Information Security Manager (CISM), and others. There is so much technology that we are inundated with more information than we can use. Because the information is being generated by a machine, we generally trust the computation (although there are cases where a bug in the program can even cause problems with simple math), but we also know the old saying, “garbage in, garbage out.” The computer does not always know that your typo is garbage. If you enter the wrong number, the system processes it as if it were the right number. That means we have to build some way into the program to control what is input into the system. For example, if you fill out a form online and it asks for your zip code, does it let you enter just four digits? No—the computer knows that it should only go to the next step if you enter five digits. However, you can enter the wrong digits and it might not catch it. It is critical that we build as many internal controls into our computerized systems as possible so that we can find errors at the input stage before they get into our system. In other words, by using these “preventive” controls, we do not allow “garbage” data to get into our system.

Computerized AISs have also brought changes to the audit trail. In the past, accountants had a set of books that were paper based. You could see where a transaction was recorded and posted (and see if it had been erased). Once you enter it into a computer, it becomes part of an electronic audit trail, but the trail is only as good as the program that runs it. The screen could show you one number, but the system could be working with a different number all together. In fact, there have been criminal cases in which people wrote programs to cover up fraud. One such program functioned so that when an item was scanned, the correct amount displayed to the customer, but it was recorded in the books as a smaller amount, so the company paid less in sales tax and much less in income tax.

AISs have become more important because information and technology are more important.

Concepts In Practice

Is Technology Always Better?

Technology allows one person to do a job that once took a dozen people to do. However, that can also lead to problems. For example, years ago, one person working in the accounts receivable department at Burlington Industries would have been in charge of a few customers. If those customers were not paying their bills on time, a person would be aware of it. Today, one person might be in charge of all accounts receivable. That person may not have time to call individual customers, so everything is preprogrammed. If the customer wanted to place a large order that caused them to go over their limit, the software would deny it instead of having a person weigh the risk of extending more credit.

A risk inherent in an AIS is that one person has access to a lot of information, and sometimes the information crosses department lines. Companies have to figure out ways to mitigate the risk, because AISs are truly essential to businesses today, especially with the growth of e-business and e-commerce. Think of the different business processes when a purchase is made through Amazon.com. Their AIS must be able to access inventory records, access customer information and records, process credit cards, calculate delivery dates, handle coupons or discounts, and remember where to ship the goods. Amazon would not be what it is today without all of its systems working together. Seeing what Amazon has accomplished opens the door for other companies to follow, and they will need people who understand the system.

Forensic accounting involves the use of accounting skills to inspect the accounting records in order to determine if fraud or embezzlement have occurred. Many universities are offering forensic accounting degrees to prepare students who can testify to criminal activity present in the accounting records.

Concepts In Practice

The Founding of the Securities and Exchange Commission

In 1933 and 1934, the US Congress passed two acts that established the Securities and Exchange Commission (SEC), giving it the right to regulate and enforce the regulations concerning commerce in the United States. The website of the SEC (https://www.SEC.gov/) allows you to view all public company financial reporting and provides a link to all current litigation against individuals and companies that have been accused of breaking an SEC regulation. If you go to the site and look for the Litigation Releases section, you can click on individual cases and find that some cases of fraud involve the use of an accounting information system.

The Patriot Act also came out of the 9/11 attacks (signed October 26, 2001). The letters in Patriot stand for the following: providing appropriate tools required to intercept and obstruct terrorism. The goal of the act was to prevent any other attacks on the United States by allowing enhanced surveillance procedures.

The act gave law enforcement officials the right to access computers to track IP addresses, websites visited, credit card information provided electronically, and so on, in an effort to uncover terrorism before an attack was made. Several parts of the act call for banks to report suspected money laundering activities. Money laundering is an attempt to hide the facts of the original transaction and would involve an accountant. If you were selling drugs for cash and then tried to deposit that much cash in a bank, the bank would report it, so you would try to cover up where the cash came from and run it through a legitimate company. That is money laundering.

The Patriot Act also includes a section requiring auditors to verify that a company has controls in place to prevent an attack on its accounting information system and that the company has a disaster plan including backup records in case of a disaster.

The AIS enables a company to record all of its business transactions. Systems are different depending on the company’s needs. The AIS holds a lot of the information used to run a business. One system can provide everything needed for external reporting to government agencies involving payroll and income taxation. The same system can provide the data needed for managerial analysis used for pricing, budgeting, decision-making, and efficiency studies. Every company is required to keep records of their financial activity, and this means job security for people who are knowledgeable about AISs.

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