7.5: Accounting as a Profession

At this point you have seen the process of accounting in terms of identifying, recording, and summarizing financial transactions for a business. Much of what you have learned so far involves the basics of financial accounting, which involves producing reports to inform external groups – investors, boards of directors, creditors, and government/tax agencies – about the company’s financial status. It is an excellent start, but the scope of the accounting profession is much more broad and diverse and is covered in other textbooks.

A good stopping point for this text is to summarize the value of the material in this book and to look forward to what you might learn at more advanced levels. We’ll do this by briefly discussing the different areas of practice that an accounting professional may become involved in.

First, it is fair to say that any business person should have a background in accounting as part of their general business management skills. Accounting is the language of business, and professionals will necessarily plan, make decisions, and evaluate the progress of their firms based on financial information. A sound understanding of accounting adds to a professional’s credentials and effectiveness. Whether you work for a company or own your own business, you will need to analyze and act on information prepared through the accounting process.

You may also choose a career in accounting, where you have the opportunity to work in almost any industry imaginable. An accountant is a professional who performs accounting functions such as financial statement analysis and audits. Accountants may be employed by an accounting firm, work for a company with an internal accounting department, or set up an individual practice of their own. There are five major fields of accounting. The kind of work these professionals do is determined by the field they choose:

Management accountants provide company executives with the information and analyses they need to make decisions related to general company operations. Companies also use this information to prepare the financial reports that are distributed to shareholders, creditors, regulatory agencies and the Internal Revenue Service (IRS).

Public Accountants are part of the broadest accounting field. They provide accounting, tax, auditing and/or consulting services to corporations, individuals, governments, and nonprofits. Public accountants assist individuals and corporations with a variety of financial tasks, including computing and filing income taxes, reviewing financial records, staying up to date on fiscal regulations, creating financial statements and providing general accounting advice.

A certified public accountant, or CPA, is a person who has passed the difficult CPA Exam administered by the American Institute of Certified Public Accountants (AICPA) and has been licensed by one of the states in the U.S. Most state boards of accountancy, including Georgia, require candidates to have 150 college credits in order to sit for the CPA Exam. The CPA’s license is then renewed if the state’s requirements continue to be met, including earning continuing professional education credits annually.

Internal auditors review a company’s financial documents for accuracy and compliance with laws and regulations. They examine the internal controls of the organization and attempt to discover and prevent inaccuracy, mismanagement and fraud. They identify potential risks and propose preventative measures for increased operational efficiency, risk management and regulatory compliance.

Forensic accountants are examiners who analyze financial records to ensure they are compliant with standards and laws. Conversely, forensic accountants are brought in to uncover errors, omissions or outright fraud. They typically work in either investigation or litigation support.

Government accountants/auditors are employed by federal, state and local governments. They do the books for government agencies and manage budgets, expenses and revenues at the federal, state, county and city levels for organizations such as the military, law enforcement and public schools. They also audit businesses and individuals who are required to conform to government regulations or pay tax.

The following Accounts Summary Table includes all accounts covered in this document.

ACCOUNTS SUMMARY TABLE

ACCOUNT TYPE	ACCOUNTS	TO INCREASE	TO DECREASE	NORMAL BALANCE	FINANCIAL STATEMENT	CLOSE OUT?
Asset (*temporary)	Cash Accounts Receivable Notes Receivable Supplies Prepaid Rent Prepaid Insurance Prepaid Taxes Merchandise Inventory Purchases * Freight-In * Equipment Furnishings Truck Land Building Patent Copyright Trademark Goodwill Organization Costs Investment in ABC Stock Investment in ABC Bonds	debit	credit	debit	Balance Sheet	NO
Contra Asset (*temporary)	Estimated Inventory Returns Purchases Returns * Purchases Discounts * Allowance for Doubtful Accounts Accumulated Depreciation	credit	debit	credit	Balance Sheet	NO
Liability	Accounts Payable Wages Payable Salaries Payable Taxes Payable Interest Payable Unearned Fees Unearned Rent Note Payable Sales Tax Payable Federal Income Tax Payable State Income Tax Payable Social Security Tax Payable Medicare Tax Payable Federal Unemployment Tax Payable State Unemployment Tax Payable Bonds Payable Premium on Bonds Payable Cash Dividends Payable	credit	debit	credit	Balance Sheet	NO
Contra Liability	Discount on Bonds Payable	debit	credit	debit	Balance Sheet	NO
Stockholders’ Equity	Common Stock (CS) Paid-in Capital in Excess of Par - CS Preferred Stock (PS) Paid-in Capital in Excess of Par - PS Paid-in Capital from Sale of Treasury Stock Stock Dividends Distributable Retained Earnings Unrealized Holding Gain - Available-for-Sale Securities	credit	debit	credit	Balance Sheet	NO
Contra Stockholders’ Equity	Treasury Stock Unrealized Holding Loss - Available-for-Sale Securities	debit	credit	debit	Balance Sheet	NO
Contra Stockholders’ Equity	Cash Dividends Stock Dividends	debit	credit	debit	Retained Earnings Statement	YES
Revenue or Gain	Fees Earned Rent Revenue Sales Interest Revenue Dividends Revenue Investment Income Gain on Disposal of Fixed Asset Gain on Sale of Investment Gain on Redemption of Bonds Unrealized Holding Gain - Net Income	credit	debit	credit	Income Statement	YES
Contra Revenue	Allowance for Sales Returns Sales Discounts Sales Discounts Not Taken Sales Returns	debit	credit	debit	Income Statement	YES
Expense or Loss	Cost of Merchandise Sold Wages Expense Salaries Expense Rent Expense Utilities Expense Supplies Expense Insurance Expense Advertising Expense Maintenance Expense Depreciation Expense Taxes Expense Interest Expense Truck Expense Delivery Expense Bank Card Expense Bad Debt Expense Payroll Tax Expense Miscellaneous Expense Loss on Disposal of Fixed Asset Loss on Sale of Investment Loss on Redemption of Bonds Unrealized Holding Loss - Net Income	debit	credit	debit	Income Statement	YES