Fundamentals of Management: Accounting, Leadership Styles, and Team Management

Status of Accounting in Economy

Aim and Subject of Accounting

The aim of accounting - the formation of information about company for internal and external users.

For external users, the purpose of accounting - the formation of information of financial position: financial results and their changes for a wide range of interested users. Interested users - natural and legal persons in need of information about the organization and are able to appreciate it; Organization staff have the right to know about the organization's ability to pay for the work; Distributors are entitled to know about the enterprise solvency; Authorities need the information to regulate the national economy areas and tracking statistics.

For internal users information is necessary for decision-making, planning, analysis and control of production and financial activities.

Accounting provides:

• Identification of the economic entity, the measurement of business transactions, recording them in the accounting records in order to prepare for future use;
• processing accounting data, their safety until a certain point, then their generalization in the necessary useful information (internal and external);
• The transfer of information in the form of reports to those who need it to make decisions.

continuous documentation of business transactions let you create full and reliable information about the organization, necessary to make sound decisions at all management levels, to evaluate the behavior of the enterprise in the market, identifying financial condition.

Objectives of Accounting

1. To maintain the cash accounts through the Cash Book and to find out the Cash balance on any particular day.
2. To maintain various other Journals for recording day-to-day non -cash transactions.
3. To furnish information regarding Purchases and Sales, both Cash and Credit.
4. To find out the net profit or net loss or surplus or deficit for any particular period.
5. To detect any defalcations and to check the frauds and misappropriations of money.
6. To help the management by supplying accounting ratios, reports and relevant data.
7. To calculate the cost of productions.8) To help the management formulate policies for controlling cost, preparation of quotation for competitive supply

Accounting Cycle

Accounting cycle is a step-by-step process of recording, classification and summarization of economic transactions of a business. It generates useful financial information in the form of financial statements including income statement, balance sheet, cash flow statement and statement of changes in equity

Accounting Cycle Steps

1. Identifying and Analyzing Business Transactions The accounting process starts with identifying and analyzing business transactions and events. Not all transactions and events are entered into the accounting system. The transactions identified are then analyzed to determine the accounts affected and the amounts to be recorded.
2. Recording in the Journals A journal is a book - paper or electronic - in which transactions are recorded. Business transactions are recorded using the double-entry bookkeeping system. They are recorded in journal entries containing at least two accounts (one debited and one credited). Transactions are recorded in chronological order and as they occur. Journals are also known as Books of Original Entry.
3. Posting to the Ledge Also known as Books of Final Entry, the ledger is a collection of accounts that shows the changes made to each account as a result of past transactions, and their current balances. After the posting all transactions to the ledger, the balances of each account can now be determined. For example, all journal entry debits and credits made to Cash would be transferred into the Cash account in the ledger. We will be able to calculate the increases and decreases in cash; thus, the ending balance of Cash can be determined.
4. Unadjusted Trial Balance A trial balance is prepared to test the equality of the debits and credits. All account balances are extracted from the ledger and arranged in one report. Afterwards, all debit balances are added. All credit balances are also added. Total debits should be equal to total credits.
5. Adjusting Entries Adjusting entries are prepared as an application of the accrual basis of accounting. At the end of the accounting period, some expenses may have been incurred but not yet recorded in the journals. Some income may have been earned but not entered in the books. Adjusting entries are prepared to update the accounts before they are summarized in the financial statements.
6. Adjusted Trial Balance An adjusted trial balance may be prepared after adjusting entries are made and before the financial statements are prepared. This is to test if the debits are equal to credits after adjusting entries are made.
7. Financial Statements When the accounts are already up-to-date and equality between the debits and credits have been tested, the financial statements can now be prepared. The financial statements are the end-products of an accounting system.
8. Closing Entries Temporary or nominal accounts, i.e. income statement accounts, are closed to prepare the system for the next accounting period. Temporary accounts include income, expense, and withdrawal accounts. These items are measured periodically. The accounts are closed to a summary account (usually, Income Summary) and then closed further to the appropriate capital account. Take note that closing entries are made only for temporary accounts. Real or permanent accounts, i.e. balance sheet accounts, are not closed.
9. Post-Closing Trial Balance In the accounting cycle, the last step is to prepare a post-closing trial balance. It is prepared to test the equality of debits and credits after closing entries are made. Since temporary accounts are already closed at this point, the post-closing trial balance contains real accounts only

Fundamental Accounting Principles

. Time period. Complex activities of company of company are reported in time intervals such as month or quarter but at least once a year.The time interval brings the need to estimate amounts relevant to that period. . Consistency Whatever methods is chosen for recording items( e.g. Depreciation of fixed assets, inventories valuation) it should be used in subsequent period to enable comparisons of profits and the worth of the entity. . Economic entity principle. This is the concept that the transactions of a business should be kept separate from those of its owners and other businesses. This prevents intermingling of assets and liabilities among multiple entities, which can cause considerable difficulties when the financial statements of a fledgling business are first audited. . Matching. This is the concept that, when you record revenue, you should record all related expenses at the same time. . Monetary unit principle. This is the concept that a business should only record transactions that can be stated in terms of a unit of currency. . The prudence concept is an accounting principle that requires an accountant to record liabilities and expenses as soon as they occur, but revenues only when they are assured or realized.

Legal Regulation of Accounting for Entrepreneurs

Legal Regulation of Accounting for Entrepreneurs in Czech Republic (in other countries)

In the CR, all legal persons with an annual turnover more than 25 mil. CZK must keep (double-entry) accounting according to Czech law. Companies with their stock registered in a stock market of any EU country must keep accounting (and prepare Financial Statement) according to IFRS. Persons with an annual turnover less than 25mil CzK don't have to keep accounting records. They keep only tax evidence which is based on money receipts and payments. They can keep accounting voluntarily. Reporting entities in CR are predominantly legal entities with their registered office in Czech republic, then foreign entities provided they do business in the CR or carry on other activities under special regulation, organisational units of the state under the special legal regulation ( ministries, municipal authorities), and natural persons defined in the Section 1 of the Accounting Act ( Accounting Act, 1991).

• Natural person with annual turnover under 25 mil. CZK- tax recording
• Natural person with annual turnover over 25 mil. CZK- financial accounting CR
• Legal person (partnership, corporation)-financial accounting CR
• Person with stocks registered at EU stock market -IFRS records for CZ tax authorities.

Financial reporting requirements stem from the fourth and seventh directives of the European Union (EU). Some important terms and principles are taken from IFRS (International Financial Reporting Standards), the most important being the priority that facts be portrayed truly and accurately. Other basic principles - such as the accruals principle, the principle of due care, and the principle of going concern - are also in accordance with internationally recognised financial reporting principles. This applies in particular to banks, financial institutions, and private enterprises. The accounting rules valid for other types of organisation are closer to valid tax regulations and the needs of the state. Despite the fact that Czech accounting principles and IFRS are becoming closer, the financial reporting and accounting system in the Czech Republic is still influenced strongly by tax regulations.

Mandatory Chart of Accounts

A chart of accounts (COA) is the list of all accounts and their numbers used in the entity's accounting. Chart of accounts assigns a number to each account, usually in ascending order from assets to liabilities, equity, expenses and revenues. It divided to classes and groups. by an organization to define each class of items for which money or the equivalent is spent or received. Accounts are typically defined by an identifier (account number) and a caption or header and are coded by account type. The general ledger contains ledger accounts in accordance with the chart of accounts.

Mandatory Chart of Accounts in the CR is embodied in the Accounting Act No 563/1991 Coll. The regulations lay down number of classes and groups of accounts:

• Class 0: groups 01- intangible fixed assets, 02- depreciable tangible fixed assets
• Class 1: groups 11- materials, 12-investories of own production, 13- merchandise.
• Class 2: groups 21- cash, 22-bank account, 23- current bank loans
• Class 3: groups 31- receivable, 32- payables
• Class 4: groups 41- registered capital, 42-retained earnings and funds, 43- profit or loss
• Class 5: expenses. Class6: revenues. Class7: Closing account.

Characteristics and Content of Chart (List) of Accounts Used in Accounting Units

The Chart of Accounts starts first with the balance sheet accounts, which include: Current Assets: Includes all accounts that track things the company owns and expects to use in the next 12 months, such as cash, accounts receivable (money collected from customers), and inventory. Long-term Assets: Includes all accounts that tracks things the company owns that have a lifespan of more than 12 months, such as buildings, furniture, and equipment. Current Liabilities: Includes all accounts that track debts the company must pay over the next 12 months, such as accounts payable (bills from vendors, contractors, and consultants), interest payable, and credit cards payable. Long-term Liabilities: Includes all accounts that tracks debts the company must pay over a period of time longer than the next 12 months, such as mortgages payable and bonds payable. Equity: Includes all accounts that tracks the owners of the company and their claims against the company's assets, which includes any money invested in the company, any