Maire Loughran

Cheat Sheet / Updated 05-05-2023

Creating and operating a nonprofit organization can be a gratifying and worthwhile endeavor. Success depends on developing a good idea that meets a real need, testing that idea, planning (and then planning some more), and inspiring others. Though the work is demanding, it’s also deeply rewarding. Here, we include helpful information to help you raise money when you’re just starting out and apply for e-grants.

Article / Updated 09-15-2022

Financial statement fraud, commonly referred to as "cooking the books," involves deliberately overstating assets, revenues, and profits and/or understating liabilities, expenses, and losses. When a forensic accountant investigates business financial fraud, she looks for red flags or accounting warning signs that indicate suspect business accounting practices. These red flags include the following: Aggressive revenue recognition practices, such as recognizing revenue in earlier periods than when the product was sold or the service was delivered Unusually high revenues and low expenses at period end that can't be attributed to seasonality Growth in inventory that doesn't match growth in sales Improper capitalization of expenses in excess of industry norms Reported earnings that are positive and growing but operating cash flow that's declining Growth in revenues that's far greater than growth in other companies in the same industry or peer group Gross margin or operating margins out of line with peer companies Extensive use of off–balance sheet entities based on relationships that aren't normal in the industry Sudden increases in gross margin or cash flow as compared with the company's prior performance and with industry averages Unusual increases in the book value of assets, such as inventory and receivables Disclosure notes so complex that it's impossible to determine the actual nature of a particular transaction Invoices that go unrecorded in the company's financial books Loans to executives or other related parties that are written off A business that engages in such fraudulent practices stands to lose a tremendous amount of money when penalties and fines, legal costs, the loss of investor confidence, and a tarnished reputation are taken into account.

Cheat Sheet / Updated 02-22-2022

Intermediate accounting builds on basic financial accounting skills. It's still all about generally accepted accounting principles (GAAP) and preparing financial statements. The material that intermediate accounting covers, however, goes beyond basic accounting scenarios. Think of financial accounting as the appetizer and intermediate accounting as the main course. Hope you're ready to chow down (Number Munchers, anyone?)!

Cheat Sheet / Updated 02-09-2022

Auditing is the process of investigating information that’s prepared by someone else — such as a company’s financial statements — to determine whether the information is fairly stated and free of material misstatement. Having a certified public accountant (CPA) perform an audit is a requirement of doing business for many companies because of regulatory- or compliance-related matters. For example, potential investors or lenders use audited financial statements to decide whether they want to purchase stock or loan money to a business.

Article / Updated 04-06-2021

Modern financial accounting is a double-entry system: For every entry into the company accounting records, there has to be an opposite and equal entry. In other words, debits must always equal credits. (Financial accounting has quite a bit in common with Newton’s third law of motion — the one about every action having an equal and opposite reaction.) Technology gives you a hand here: No accounting software package worth its salt will let you enter a lopsided transaction into the accounting books. The fundamental accounting equation The fundamental accounting equation (also known as the accounting equation or the balance sheet equation) proves that all transactions are equal and opposite. It demands that Assets = Liabilities + Owners’ equity A truncated version of this equation states Net assets = Owners’ equity This version of the equation just moves liabilities over to the other side of the equal sign; net assets are all assets minus all liabilities. Before we go any further, I need to define our cast of characters in this equation: Assets are resources a company owns. Some examples are cash, equipment, and cars. Liabilities are debts the company owes to others. The biggie liabilities you encounter in your financial accounting class or at work as a financial accountant are accounts payable and notes payable. Owners’ equity is what’s left over in the business at the end of the day — a company’s assets minus its debts. Many financial accounting textbooks define owners’ equity as the owners’ claim to the company’s assets. You may read the explanation of owners’ equity and think, “That’s just another way to say ‘net worth’.” But you can’t use the term net worth interchangeably with owners’ equity in an accounting setting. Generally accepted accounting principles (GAAP) do not allow accountants to restate assets to their actual value, which would be required to calculate a company’s net worth. Here’s a simple example of the fundamental accounting equation at work; assume the numbers represent a company’s assets, liabilities, and owners’ equity in thousands, millions, or perhaps even billions of dollars: Assets = Liabilities + Owners’ equity 100 = 40 + 60 Or Net assets = Owners’ equity 60 = 60 Get familiar with accounts As an accountant within a business, you summarize accounting transactions into accounts that you use to create financial reports. Each and every account your company uses is annotated in a list called the chart of accounts. The business uses that chart of accounts to record transactions in its general ledger: the record of all financial transactions within the company during a particular accounting cycle. The chart of accounts is not a financial report. It is merely a list of all accounts you’ve previously set up to handle the company transactions. When you’re “doing the books,” as the saying goes, you record your normal business transactions using accounts you set up in the chart of accounts. Each account in the chart of accounts has a unique account number. Regardless of what accounting software package your company uses, the numbering sequence is pretty much set in stone to ensure consistency among companies and among their financial reports. The number of accounts you can set up in the chart of accounts is virtually unlimited, so you can customize it to fit your business perfectly. Here’s the numbering sequence that’s most used for charts of accounts: Number Sequence Account Type 1000 to1999 Assets 2000 to 2999 Liabilities 3000 to 3999 Equity 4000 to 4999 Income 5000 to 5999 Cost of goods sold expenses 6000 to 7999 Operating, general, and administrative expenses 8000 to 9999 Non-business-related items of income and expense Instead of using a four-digit numbering sequence, some software programs use a three-digit numbering sequence. For example, instead of 1000 to 1999 for assets, some software programs may use 100 to 199. Here’s a brief explanation of the accounts in the 5000–9999 numbering sequence: Cost of goods sold (COGS) expenses: COGS is the cost of the product that a company sells. The company can either make the product that it sells or buy it from someone else and then resell it. Operating, general, and administrative expenses: These accounts reflect all expenses a business incurs while performing its business purpose that do not directly relate to making or wholesaling a product — in other words, any expense that’s not a COGS. Some examples are telephone and postage expenses. Nonbusiness-related items of income and expense: A company may bring money in or spend money that generally accepted accounting principles (GAAP) classify as nonbusiness-related. For example, a business treats interest it earns on investments as nonbusiness income. If a company sells an asset at a loss, that’s an example of a nonbusiness expense. Keep in mind that if a company is in the business of loaning money, interest earned on these loans is considered business income. Likewise, a car dealership must report losses on sales of vehicles as business expenses. Defining debits and credits Now that you understand the basics of accounts and the chart of accounts, it’s time to learn the mechanism of journal entries, which you use to enter financial information into the company’s accounting software. Writing journal entries is a major area of concern for first-year accounting students, students who are taking accounting only because it’s required for a business degree, and small business owners. The logistics of presenting the journal entry don’t cause the concern; instead, the worry is how to figure out which account is debited and which is credited. Here’s one of the immutable laws of accounting: Assets and expenses are always debited to add to them and credited to subtract from them. Liability, revenue, and equity accounts are just the opposite: These accounts are always credited to add to them and debited to subtract from them. Always, always, always — there is no exception to this rule. Many financial accounting textbooks attempt to ease the student into debits and credits through horizontal analysis, which uses statement-driven information to record transactions using the terms adding and subtracting instead of debits and credits. I find this approach more confusing to my students because it erroneously reinforces the untruth that debiting means “adding to” and crediting means “subtracting from” — which is not always true. Because you will have homework and test questions using horizontal analysis, it’s important I give you the information you need for you to be a superstar when answering these questions. First, I’ll set up the facts of the business transactions leading to the horizontal analysis. Say that you opened an Etsy shop to market your handcrafted tables. You run an ecofriendly shop using reclaimed wood that you salvage from abandoned buildings, fences, and other structures. April 2021 is the first month you are in business, for which you have the following five transactions: You open a business bank account with a contribution to your business of $3,000. You purchase $725 of woodworking equipment. A salvage trip resulted in a fantastic score of pine planks, which the owner of the property sold to you for $275 cash. An independent programmer charges you $1,000 to set up your Etsy shop. You gave the programmer a deposit of $500 and agreed to pay the balance next month. While you were unloading the pine planks, a passerby paid you $1,800 cash for a finished coffee table in your garage. This figure shows how these events show up when using the horizontal analysis method. Make sure to note while reviewing the figure that the fundamental accounting equation (Assets = Liabilities + Equity) is satisfied. Assets total $5,025. Liabilities + equity also totals $5,025 (1,225 + $3,000 + 800). Learning about the transaction methodology Before you enter an event into a business accounting system, you have to consider the transaction methodology, a five-step process for deciding the correctness of whatever entry you’re preparing. After you get into the financial accounting rhythm, this becomes an automatic analysis you do by rote. Here are your five considerations: What’s going on? This question addresses the precipitating event for the entry. For example, did the company buy a new piece of business equipment or sell some product to a customer? Which accounts does this event affect? Is the account an asset, liability, owners’ equity, revenue, or expense? Assets would definitely be affected by the purchase of business equipment, and revenue would be affected by a customer sale. How are the accounts affected — by a debit or credit? Looking back to your rules of debits and credits, buying assets adds to the account so it’s a debit. Making a sale adds to a revenue account so it’s a credit. Do all debits for an entry equal all credits for the same entry? Think about the fundamental accounting equation. For every debit there has to be an equal credit. Does the entry make sense? Do the actions you take match the facts and circumstances of the business event? For example, although the net effect on the books is the same, you can’t credit an expense to record revenue.

Article / Updated 04-06-2021

Accounting journals are a lot like the diary you may have kept as a child (or maybe still keep!). They are a day-to-day recording of events. But accounting journals record business transactions taking place within a company’s accounting department. Accountants call journals the books of original entry because no transactions get into the accounting records without being entered into a journal first. A business can have many different types of journals. The most common ones are tailored to handle cash, accrual, or special transactions. Use journals to record cash transactions All transactions affecting cash go into the cash receipts or cash disbursements journal. Some accounting software programs or textbooks may refer to the cash disbursements as the cash payments journal. No worries — both terms mean the same thing. Cash receipts journal Let’s talk about the most popular cash journal first: the cash receipts journal. After all, everyone loves to receive cash! When accountants use the word cash, it doesn’t just mean paper money and coinage; it includes checks and credit card transactions. In accounting, cash is a generic term for any payment method that is assumed to be automatic. When you sign a check and give it to the clerk behind the store counter, part of your implicit understanding is that the funds are immediately available to clear the check. Ditto paying with a credit card, which represents an immediate satisfaction of your debit with the vendor. (Never mind the fact that a three-day lag usually occurs between the time the charge is processed and when the money hits the vendor’s checking account.) Here are examples of some cash events that require posting to the cash receipts journal: Customer sales made for paper money and coinage: Many types of businesses still have booming cash sales involving the exchange of paper money and coins. Some examples are convenience stores, retail shops, and some service providers such as hair salons. I am still amazed by the amount of cash my retail clients take in from customers every Customers making payments on their accounts: Any payment a customer makes for goods or services previously billed goes in the cash receipts journal. Interest or dividend income: When a bank or investment account pays a business for the use of its money in the form of interest or dividends, the payment is considered a cash receipt. As a technical matter, many businesses record interest income reflecting on their monthly bank statement in the general journal. Interest and dividend income is also known as portfolio income. Many times it’s also considered to be passive income because the recipient doesn’t have to work to receive the portfolio income (like you do for your paycheck). One caveat, though: For tax purposes the Internal Revenue Service does not consider interest and dividend income to be passive. Asset sales: Selling a business asset like a car or office furniture can also result in a cash transaction. You may see an example in your textbook where a company is outfitting its executive office space with deluxe new leather chairs so it’s selling all the old leather chairs to a furniture liquidator and there is an exchange of some mode of cash between the parties to the sale. Keep in mind that this list isn’t comprehensive; these are just a few of the many instances that can necessitate recording a transaction in the cash receipts journal. Various types of cash receipts receive different treatment on a company’s income statements. For example, cash sales are treated one way, and interest income and dividends are treated another way. The cash receipts journal normally has two columns for debits and four columns for credits: Debit columns: Because all transactions in the cash receipts journal involve the receipt of cash, one of the debit columns is always for cash. The other is for sales discounts, which reflects any discount the business gives to a good vendor who pays early. For example, a customer’s invoice is due within 30 days, but if the customer pays early, it gets a 2 percent discount. Credit columns: To balance the debits, a cash receipts journal contains four credit columns: Sales Accounts receivable Sales tax payable, which is the amount of sales tax the business collects on the transaction (and doesn’t apply to every transaction) Miscellaneous, which is a catch-all column where you record all other cash receipts like interest and dividends Not all sales are subject to sales tax. Your state department of revenue determines what sales transactions are taxable. For example, in many states, fees for accounting or legal services are not subject to sales tax. In addition to the debit and credit columns, a cash receipts journal also contains at least two other columns that don’t have anything to do with debits or credits: The date the transaction occurs The name of the account affected by the transaction Depending on the company or accounting system, additional columns may be used as well. This figure shows an example of a portion of a cash receipts journal. Cash disbursements journal On the flip side, any payment the business makes using a form of cash gets recorded in the cash disbursements (or payments) journal. Here are a few examples of transactions you see in a cash disbursements journal: Merchandise purchases: When a merchandiser, a company selling goods to the public, pays cash for the goods it buys for resale, the transaction goes in the cash disbursement journal. Payments the company is making on outstanding accounts: This includes all cash disbursements a company makes to pay for goods or services it obtained from another business and didn’t pay for when the original transaction took place. Payments for operating expenses: These transactions include checks or bank transfers a business uses to pay utility or telephone invoices. The cash disbursements journal normally has two columns for debits and two for credits: Credit columns: Because all transactions in the cash disbursements journal involve the payment of cash, one of your credit columns is for cash. The other is for purchase discounts, which are reductions in the amount a company has to pay the vendor for any purchases on account. For example, a business offers customers a certain discount amount if they pay their bills within a certain number of days. Debit columns: To balance these credits, the debit columns in a cash disbursements journal are accounts payable and miscellaneous (a catch-all column where you record all other cash payments for transactions, such as the payment of operating expenses). A cash disbursements journal also contains at least three other columns that don’t have anything to do with debiting or crediting: The date the transaction occurs The name of the account affected by the transaction The pay-to entity (which means who the payment is made to) Depending on the company or accounting system used, more columns could be used as well. This figure shows an example of a partial cash disbursements journal. Record accrual transactions Accrual transactions take place whenever cash doesn’t change hands. For example, a customer makes a purchase with a promise to pay within 30 days. Using accruals and recording business transactions using the accrual method are the backbone of financial accounting. In my experience teaching financial accounting, students have a big problem with figuring out accruals, understanding how accrual transactions interact with cash transactions, and knowing when it’s appropriate to record an accrual transaction. Following, is information about your two accrual workhorse journals, the sales journal and purchases journal. Sales journal The sales journal records all sales that a business makes to customers on account, which means no money changes hands between the company and its customer at the time of the sale. A sales journal affects two different accounts: accounts receivable and sales. In the sales journal, accounts receivable and sales are always affected by the same dollar amount. This figure presents an example of a sales journal. When you record credit sales in your sales journal, you follow up by posting the transactions to each customer’s listing in the accounts receivable ledger. Use the sales journal only for recording sales on account. Sales returns, which reflect all products the customers return to the company after the sales are done, do not record in the sales journal. Instead, you record them in the general journal. Purchases journal Anytime a business buys using credit (on account), it records the transaction in its purchases journal. The purchases journal typically has a column for date, number, and amount. It also has the following columns: Accounts payable: Because the company is purchasing on account, the current liability account called “accounts/trade payable” is always affected. Terms: This column shows any discount terms the company may have with the vendor. For example, 2/10, n/30 means the company gets a 2 percent discount if it pays within 10 days; otherwise, the full amount is due in 30 days. (The n in this shorthand stands for “net.”) Name: The company records the name of the vendor from whom the purchase is made. Account: This column shows to which financial statement account(s) the purchase is taken. In the example shown here, there are two accounts, accounts payable (A/P) and purchases. Because no other accounts (such as sales tax) are affected, A/P and purchases are for the same dollar amount. If the company collects sales tax too, a column would be added to report this amount as well.

Article / Updated 04-06-2021

This article goes through the sections that you most often find in a corporate annual report. With the exception of the audited financial statements, the sections are put together in an effort to draw the external reader into the inner workings of the business in an attempt to raise the users’ comfort with — and confidence level in — the company. Writing the narrative for a corporate annual report is an art. Many times, the report is contracted out to professionals rather than produced in-house, although the company’s chief executive or managing director always has a say in the format of the report. Keep in mind that this article contains just a brief overview of what you may expect to see in a corporate annual report. Especially if a company is very large, it may include a plethora of additional information. If you have the time, pickup Reading Financial Reports For Dummies by Lita Epstein MBA (Wiley), which walks you through reviewing financial reports from A to Z. The chair of the board of directors Many casual investors in a corporation have absolutely no idea who or what the chairperson of the board of directors is. While the duties of the chairperson are quite similar from company to company, the individual holding the position is unique to the particular company. The chairman of the board of directors is the head honcho who oversees the board of directors (and is usually elected by the other members of the board). The board of directors consists of individuals elected by the shareholders to guide the overall philosophy of the business. The day-to-day activities of any business are not handled by the board of directors; they’re handled by company management. However, approving the hiring of upper management personnel, such as the chief financial officer (CFO) and chief executive officer (CEO), is a function of the board of directors. In the corporate annual report, you meet the chairman via a letter whose salutation is something like “Dear Fellow Shareholder.” The letter gives the company’s top management team a chance to review for the users all the great accomplishments the company achieved during the preceding year. The letter also summarizes goals for the future. It ends by thanking the shareholders for their support and offering a firm promise to work tirelessly to continue earning the trust of the shareholders and growing their value in the company stock. Key financial data In the beginning of the annual review, the company gives the shareholders a very condensed version of how well the company performed during the preceding year. This condensed information provides the lazier readers with what the company perceives as the main points of interest. At the very least, this section contains a summary of operations, earnings per share data, and balance sheet data: Summary of operations: This summary shows the company’s bottom line net income for at least three years (and preferably five to ten years). Net income is the excess of revenue and gains over expenses and losses during a financial period. Earnings per share (EPS): This calculation shows the distribution of net income over all shares of the company that are outstanding. Many investors home in on this figure, comparing it to their other investments and to other companies’ EPS in the same industry. For example, an investor may compare the EPS of The Coca-Cola Company to the EPS of PepsiCo to gauge the value of one company’s stock over the other. Three calculations you may see in an annual review are basic EPS, diluted EPS, and cash dividends. Here’s an example of each: Basic EPS: To figure basic EPS, take net income for the financial period and divide it by the weighted average number of shares of common stock outstanding. The weighted average factors in the fluctuations of stock outstanding during the entire year instead of just taking stock outstanding at January 1 and stock outstanding at December 31 and dividing it by two. Any homework assignments or test questions in your financial accounting class will provide you with the weighted average figure (or enough info so you can figure it out yourself). See the sidebar “Calculating weighted average” to walk through a simple example. If ABC Corp. has net income of $100,000, and the weighted average number of shares of common stock outstanding is 33,167, basic EPS is $3.02. Diluted EPS: If the company has issued stock options or long-term debt or preferred stock that the investor has the option to convert into common stock, the company also has to show diluted EPS, which is a complicated calculation. (Stock options are benefits allowing employees to purchase a special number of shares of company stock at a determined date.) Diluted EPS calculates earnings per share by estimating how many shares could theoretically exist after all stock options and convertible debt have been exercised. So if ABC Corp.’s weighted average of common stock outstanding after adding in these extras is 35,200, its diluted EPS is $2.84 ($100,000 divided by 35,200). Cash dividends: This calculation is the amount per share paid to investors of record. It usually isn’t the same amount as EPS, although EPS is one tool the board of directors can use when deciding the dividend to pay to the shareholders of record. Balance sheet data: This section shows selected figures from the balance sheet in which the company believes the shareholders have an interest. For example, the company may show total assets, which are all assets (current and long-term) that the company owns as of the balance sheet date. The company may also show long-term debt, which is any debt the company won’t have paid off within 12 months of the balance sheet date. This figure shows an example of this condensed financial data. Even though these figures are very compressed, the figures are based upon — and must reconcile with — the audited financial statements. Tout company achievements In this section, which has a distinct public relations purpose, the company expands upon any facts the chairman of the board discusses in his letter to the shareholders. For example, this section may break out how the company has increased growth per capita, which is the average per person living in an area the company serves. Per capita growth could mean that the company sold more products to existing consumers or expanded its sales base into new markets or countries. Companies want to emphasize that they are attracting new customers while still maintaining a bond with existing customers. Looking into the future In its annual report, a company also addresses where it sees itself in the short- and long-term future. Doing so addresses any concerns that an investor may have that the business is a going concern: that it will be able to stay in business for at least 12 months beyond the balance sheet date, generating or raising enough cash to pay its operating expenses and make appropriate payments on debt. Obviously, investors aren’t going to get all fired up about their ownership in the company stock if they believe the company will be around for only a couple of more years. Therefore, annual reviews normally give at least a ten-year plan on growth methodology. A lot of times, companies associate their growth predictions with social and economic transitions — for example, changes in population demographics such as aging and income. Getting to know key management and board members This section of the annual report introduces other members of the board of directors, the management team for each division of the company, and committee members (such as members of the audit committee). Most likely, the report includes pictures of all of them posed at the company headquarters.

Article / Updated 04-06-2021

This article offers an overview of the statement of cash flows. You prepare the statement of cash flows using certain components of both the income statement and the balance sheet. The purpose of the statement of cash flows is to show cash sources (money coming into the business) and uses (money going out of the business) during a specific period of time. This information is used by investors and potential creditors to gauge whether the business should have sufficient cash flow to pay dividends or repay loans. The statement of cash flows is very important for financial accounting because generally accepted accounting principles require you to use the accrual method of accounting. This means that you record revenue when it is earned and realizable (regardless of when money changes hands), and you record expenses when they are incurred (regardless of when they are paid). On the flip side, when using the cash method of accounting, a transaction isn’t acknowledged until money changes hands. (A company may use a cash-basis statement for income tax return preparation.) The statement of cash flows gives the financial statement user a basis for understanding how noncash transactions showing up on the balance sheet and income statement affect the amount of cash the company has at its disposal. Sources and uses of cash I tell my students that if I could choose only one of the three key financial statements to evaluate a company’s ability to pay dividends and meet fiscal obligations (both of which indicate a healthy business), I would pick the statement of cash flows. That’s because even though the income statement shows eventual sources and uses of cash, the statement of cash flows gives you a better idea of exactly how a business is paying its bills. Not all cash is created equal. As a general rule, a business presents itself in a more positive position if its costs are being covered by cash it brings in from the day-to-day running of the business rather than from borrowed funds. As a potential investor or lender, I want to see that cash the company brings in through operations exceeds any cash brought in by selling assets or borrowing money. This is because selling assets and borrowing money can never be construed as continuing events the way bringing in cash from selling goods or services can be. Financial accounting, which is done on the accrual basis, does not show the cash ins and outs of business operations. The statement of cash flows gives the user of the financial statements a better idea of cash payments and receipts during the year in two ways: By eliminating the effects of accounts receivable and payable By showing cash brought in by means other than the continuing operations of the business and cash paid out for items outside the scope of continuing operations — for example, for the purchase of fixed assets Sections of the cash flow statement There are three sections on a statement of cash flows: operating, investing, and financing. Each section addresses cash ins and outs that the business experiences under completely different circumstances: Operating: This section shows items reflecting on the income statement. The three big differences between the cash and accrual methods will be accounts receivable, which is money owed to the company by its customers; accounts payable, which is money the company owes to its vendors; and inventory, which are goods held by the business for resale to customers. Investing: This section usually shows the sale and purchase of long-term assets. The purchase of long-term assets reflects on the balance sheet. The sale of long-term assets reflects both on the balance sheet and income statement: It reflects on the balance sheet as a reduction of the amount of assets the company owns, and on the income statement as a gain or loss from disposing of the asset. Financing: The financing section shows the cash effects of long-term liability items (paying or securing loans beyond a period of 12 months from the balance sheet date) and equity items (the sale of company stock and payment of dividends). A short statement of cash flows The following figure gives you a very abbreviated version of what a statement of cash flows looks like. There are two different ways to prepare a statement of cash flows: the direct method and the indirect method: The direct method reports cash receipts and disbursements. The indirect method starts with net income from the income statement and adjusts for noncash items reflecting on the income statement such as depreciation, which is allocating the cost of long-lived assets over their useful life.

Article / Updated 04-06-2021

Being a financial accountant is a pretty good gig. A plethora of career options is open to you, whether you dream of being self-employed or see yourself working for a larger business, and whether your dream job is part-time or full-time. A financial accountant can follow many different career paths, from being a certified public accountant to working for nonbusiness entities, such as charitable organizations. Some require certification, and others don’t. Certified public accountant If you want the challenge of working for many clients (which is the nature of public accounting) but desire the stability of working for an employer, you may prefer to focus on jobs at CPA firms. These firms range in size from the Big Four (KPMG, Ernst & Young, PricewaterhouseCoopers, and Deloitte) to regional CPA firms, such as Grant Thornton and many others. Here are a few examples of the work you can do as a public accountant: Financial statement preparation: Many businesses require help preparing their financial statements with an independent accountant on speed dial. While the company controller and other accounting staff does most of the work, I often have clients call me for help classifying a transaction, figuring out the right procedure to correct an error, or finding out the ramifications of new GAAP on their business activities. Assurance services: You must be a licensed CPA to work in this field, which includes all types of auditing services. For example, all business owners and managers want to know how well their businesses are doing. That’s where you come in. Because you’re an outsider, you can take a step back and cast a fresh, independent eye on the way a company is doing business. You can give company management a firm foundation upon which to base any needed changes. A subset of assurance is attestation services, meaning the CPA issues written documents expressing her conclusion about the reliability of a written assertion that is the responsibility of another party. The number of topics you may focus on during an attestation engagement is pretty much limitless. For example, you may conduct a breakeven point analysis, which requires figuring out how much revenue the client must bring in to cover expenses. Public accountants also conduct audits, which means they gather and judge evidence to issue an opinion on the effectiveness of a company’s internal controls: policies and procedures set in place to provide guidelines on how employees should do their jobs. CPAs also conduct financial statement audits, issuing opinions on whether the financial statements under audit are materially correct. Consultant Accounting consultants are talent on demand when a business needs a particular skill. As an accounting consultant, you can be self-employed or register with an agency who secures the clients referred to you. This is different than an accountant employment agency, because you do the work as independent contractor only as needed – which means you can also work as much or as little as you want. Some typical gigs are writing company accounting manuals, helping companies set up accounting policies, or stepping in as an interim controller. Every company should have at least a cursory manual for every job within the company. That way, when an employee leaves, there is no ambiguity on the part of the new hire on how to the do the job. In my experience, the best accounting manuals are a collaboration between the accounting staff doing the job at the company and an outside accountant/technical writer who looks at the accounting procedures with a fresh eye. This leads to better controls, efficiency, and effectiveness. It’s often a callback job as the company changes and needs to update the manual. I have stepped in for a few companies as their interim controller. What happens is the controller leaves the company, and during the selection process, which can take time, the company needs someone to keep the accounting department running. This way, the company has the luxury of finding the perfect match. As interim controller I have usually been involved in the interviewing process as well. Corporate accountant Not every accountant has multiple business clients. Someone who does accounting work for a single company is called a private, corporate, or industry accountant. Quite a few corporate accounting jobs are available. Depending on the size of the business, the job can be tailored to a specific task or cover the whole extravaganza from start to finish — from recording accounting transactions to preparing financial statements. Being a CPA may not be a requirement but can certainly be helpful — ditto earning an MBA. Here are a few examples of the types of corporate accounting jobs available to financial accountants: Controller: A controller is the chief accounting officer of a business entity and is responsible for both financial and managerial accounting functions. In a small business, a controller is often just a bookkeeper with a better title. Departmental accountant: In this position, you cover the gamut of financial accounting tasks; you could handle accounts payable or receivables, account for company assets, or handle U.S. Securities and Exchange Commission (SEC) reporting. Departmental accountants also take care of cash disbursements and receipts. This position can be managerial because this person is responsible for such tasks as the monthly closing of the financial statements and consolidation of domestic and international subsidiaries, coordination and support of annual and interim audits, and tax compliance. Departmental accountants interact frequently with senior management and play a critical supporting role in business processes, customer quotes and proposals, and management analyses pertaining to the effectiveness and efficiency of business operations. Internal auditor: These accounting professionals provide internal auditing work for their employers. Internal auditing involves making sure the company runs efficiently and effectively. For example, the auditor may review financial statements or evaluate departmental or company-wide operating efficiency. Many working in this field are Certified Internal Auditors, Additional information about this certification can be found at the Institute of Internal Auditors’ website. Forensic accountant Forensic accountants specialize in legal disputes or litigation, Examples of civil disputes are contract compliance, economic damages, disagreements related to mergers or acquisitions, hidden assets during bankruptcy or divorce proceedings, and business valuations. They can also get involved in money laundering or murder for hire —and you thought accounting was dull! In my experience, the forensic accountant follows one simple rule to perform this job: Follow the money. From the most complicated engagement (murder for profit) to the most simple possibility (a spouse has a separate bank account with the bank statements going to a personal post office box), if you follow the money, you eventually arrive at the truth. Sound interesting? Check out the requirements for related certifications: Forensic Certified Public Accountant: To earn this certification, you must first be a licensed CPA and then pass a five-part exam. However, someone who is already licensed as a Certified Fraud Examiner (CFE) or who is Certified in Financial Forensics (CFF) is exempt from taking the Forensic CPA examination. (Keep reading to find out about the CFE and CFF designations.) If you’re curious about this accounting specialty, consider picking up Forensic Accounting For Dummies by Frimette Kass-Shraibman and Vijay S. Sampath (Wiley). Certified Fraud Examiner: A CFE is a financial accountant who works to find fraud, which is the intentional misstatement of facts occurring in businesses. A CFE also provides anti-fraud training and education. Being a CPA is not required to become a CFE, but you must have a bachelor’s degree and pass the CFE exam. For more information, visit the website for the Association of Certified Fraud Examiners. Certified in Financial Forensics: An accountant with a CFF designation researches and provides testimony regarding financial fraud, which includes intentional misstatements in a company’s financial statements (its income statement, balance sheet, and statement of cash flows). You have to be an active CPA and member in good standing of the AICPA to earn this certification. For more information about this certification, go to the AICPA website and do a site search for “forensic and valuation membership.” Government accountant You guessed it! Governmental accountants work for city, county, state, and federal government agencies. Their job is like not-for-profits in that there is no-profit motive. The motive lies in providing services to those agencies. Governmental accountants prepare financial statements that are open to the general public. The financial statements must show accountability to citizens while pursuing the goals of efficiency and effectiveness. Another good governmental accounting job is working on government audits for your local, state, or federal government. Two big federal employers are the Government Accountability Office (GAO) and the Internal Revenue Service (IRS). Although governmental auditing jobs require that you’ve completed a minimum number of accounting and auditing classes, a CPA license is not a requirement for any entry-level jobs or most upper-level ones. GAO auditors generally conduct compliance and operational audits. However, if you want a little more action, the GAO also hires criminal auditors who conduct investigations of alleged or suspected violations of criminal laws, particularly white-collar crimes that involve fraud, waste, abuse, and government corruption. Information technology auditor I have good news for computer geeks who are also interested in accounting! In the past, businesses produced paper trails that auditors, investors, and other interested parties could follow to find clues when examining the financial statements. But these days, those trails, communications, and payment methods are becoming predominantly electronic. Electronic data can be manipulated when a company’s internal controls are lacking. Data can be more difficult to track down than a piece of paper in a file cabinet. So financial accountants who are savvy on how to use information technology to audit ‘through the computer’ are — and will continue to be — in high demand. For example, robotic process automation (RPA) automates repetitive accounting tasks using bots. Knowing both the accounting side of and having a working knowledge of how to program the bots to do their job is a perfect example of melding accounting with IT! Income tax accountant Imagine how hard it is for the company accountant to keep up with business federal, state, foreign tax code, and other tax changes! The increasing intricacy of income tax laws fuels the demand for accountants knowledgeable in various aspects of tax law. The Tax Cuts and Jobs Act of 2017 (TCJA) changes corporation taxation. TCJA updated a bunch of sections of the U.S. tax code from who can use the cash method of accounting to accounting for inventories and a lot more! For more information, see the Internal Revenue Service (IRS) training materials. Another example is the Bipartisan Partnership Act of 2015 (BPA), effective for partnership returns after 2017. The BPA provides for a new audit regime for some layered and larger partnerships. By layered, I mean the partners in the partnership aren’t individuals —they could be other partnerships, trusts, and other entities. This is important because those partners could be nontaxable, meaning experienced accountants have to make sure there is correct presentation of the partners on the returns with drilling up to entities that ultimately bear the responsibility of the partnership income tax. Two other complicated areas of the tax code open for specialization is the credit for increasing research activities and accounting/taxation of conservation easements. In a nutshell, conservations easements are usually land donated to qualified organizations for which the owner reaps a tax advantage. Proper accounting/taxation is quite complicated and, per the IRS, an area of consistent abuse. International accountant Our world is a global marketplace. Most large corporations and many smaller ones are multinational, which means they operate both in and outside the U.S. Additionally, because of technological advances, small mom-and-pop businesses are also doing business globally. Despite the ongoing convergence efforts taking place since 2002, it has become obvious that for now U.S. GAAP and International Financial Reporting Standards (IFRS) are going to coexist. So international accountants have to ‘talk’ both U.S. GAAP and IFRS, understand business law and taxation in the United States and foreign countries, and understand currency exchange rates. Thinking it might be nice to be a traveling accountant? Learn more about international certified public accountants. Non-accounting accountant Yup, you are reading that correctly! Some jobs associated with accounting aren’t technically accountant positions. For example, most accountants can do a great job pitching various accounting software programs. But more interesting is the field of unbundled accounting software and apps —that is, helping clients create personalized accounting software as opposed to the kitchen sink QuickBooks method. You may be surprised to find out that CPA firms hire many college graduates with both accounting and data analytic (analyzing unorganized financial data) skills to assist the CPA audit teams. These number crunchers look at business risk and trends and run scenario testing —that is, what is the effect on the business when we do this versus that. Not-for-profit accountant These accountants work for organizations that are run for the public good — not because of any profit motive. In fact, not-for-profits render goods and services to the community regardless of whether the costs they incur to provide the goods or services will ever be recouped from the recipients. For example, patients of a not-for-profit medical office pay only a fraction of the real cost of providing the medical care. These types of organizations include hospitals, schools, religious organizations, and charitable agencies. One of my part-time jobs while getting my CPA firm up and running was preparing budgets and financial statements and coordinating the work on the United Way grant for a not-for-profit organization that provides medical and dental care for the medically underserved. It was the most fulfilling job I ever had, outside of self-employment. If you are a financial accountant with an altruistic bent, you should consider this specialty. The job was extremely interesting and varied, my fellow employees were supportive, and while I did not provide front-line services, I felt that I was helping to make a difference in the lives of people who genuinely needed aid.

Cheat Sheet / Updated 03-18-2021

Financial accounting is the process of preparing financial statements for a business. The three key financial statements are the income statement, balance sheet, and statement of cash flows. They serve two broad purposes: to report on the current financial position of the company, and to show how well the company performs over a period of time. Investors, creditors, and other interested parties rely on such information to find out whether a business is making or losing money, and they depend on financial accountants to help ensure that these statements are materially correct and understandable.