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Introduction Transcript
Speakers: Interviewer, Paul Kimmel, Ph.D., CPA
(Music playing)
(On-screen text: Author's Corner)
(On-screen text: Paul Kimmel, PhD, CPA, Accounting)
INTERVIEWER: Why is this course important for all business students?
(On-screen text: Accounting in Business, The Language of business)
PAUL KIMMEL, PHD, CPA: You'll frequently here accounting described as the language of business, and it's probably too frequently referred that way. But what does that mean?
(On-screen text: Paul Kimmel, PhD, CPA, Associate Professor, University of Wisconsin, Milwaukee)
In any activity that you might get involved in, there's always a particular terminology that, you know, whether you're sailing or playing a sport, that you need to be familiar with in order to participate and to enjoy that activity.
And in business, the way people communicate is through accounting numbers. And so it's very important that managers at every level of the organization and employees at every level of the organization have a basic understanding of accounting. For example, one of the primary ways that accounting numbers are used are to measure performance.
(On-screen text: Accounting in Business, The Language of business, Measure performance)
And so if you're a manager evaluating the people working for you, you need to be able to use accounting numbers in order to gauge their performance, and in addition, if you're an employee being evaluated, you want to understand what numbers were used to evaluate you performance. In addition, you need to understand that accounting numbers are the primary source for most business decisions.
(On-screen text: Accounting in Business, The Language of business, Measure performance, Make Decisions)
That any decision relies on, you know, hard numbers, and so you need to know how to use those numbers, but you also need to understand where those numbers came from. And, frankly, one of the most important things a student could get from this course is kind of a healthy skepticism of accounting that you need to understand what both the strengths and weaknesses of accounting numbers are.
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(On-screen text: What types of accounting does this course address?)
INTERVIEWER: Can you discuss some of the types of accounting this course is going to talk about?
PAUL KIMMEL, PHD, CPA: There are actually quite a lot of different areas that accountants are involved in. For example, when most people think of accounting, they think of tax accounting. But in this course, we're looking at two types of accounting: financial accounting and managerial accounting.
(On-screen text: 2 Types of Accounting, Financial Accounting, Managerial Accounting)
The beginning of the course addresses financial accounting, and financial accounting is the accounting that a company does to report to external parties.
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So if you're reporting to your stockholders or you're reporting to your creditors, the numbers that you would give to them in the form of an annual report are financial accounting numbers. Alternatively, the latter part of the course addresses managerial accounting.
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And managerial accounting are the numbers that the accounting department provides internally to the managers and other employees in the company that they use for a wide variety of reasons but primarily to make decisions.
The outputs, because of the uses of the accounting, the outputs, or the format of the numbers, is quite different. The financial accounting presents very standardized financial reports.
(On-screen text: 2 Types of Accounting, Financial Accounting, General Purpose, Managerial Accounting)
And the first couple of weeks of this course, the students learn how to use those reports and some of the basic measures that can be calculated using the information that's provided in those reports.
On the other hand, managerial accounting is quite different because there isn't standardized reporting but rather, management needs to know what they need. What information do they need from the accounting department in order to make their decisions?
(On-screen text: 2 Types of Accounting, Financial Accounting, General Purpose, Managerial Accounting, Specific Purpose)
And then they go to the accounting department and ask, can you provide us with this. And so that is another reason why it's very important that somebody taking this course gets a basic understanding of accounting. You aren't going to be turned into an accountant, but rather, you have the ability to understand what it is that the accounting department can do for you.
The -- another big difference between financial accounting and managerial accounting that you learn a little bit about in the beginning of the course, is the fact that financial accounting numbers, because they're being provided to external parties, they need to be audited. And so you learn a little bit about the role of the auditor and why that having an auditor provides a lot more confidence to the users of the financial statements, versus internal numbers.
(On-screen text: 2 Types of Accounting, Financial Accounting, General Purpose, Audited, Managerial Accounting, Specific Purpose, Not Audited)
Numbers provided for managerial accounting purposes don't need to be audited because they aren't being provided to external parties.
(On-screen text: What are some of the skills and concepts you will learn in this course?)
INTERVIEWER: Can you also discuss the skills and concepts that students are going to learn in this course?
PAUL KIMMEL, PHD, CPA: There's going to be a wide range of skills that students will pick up in this course.
(On-screen text: Concepts in This Course)
To begin with, you learn the basic components of an annual report and how to use those components.
(On-screen text: Concepts in This Course, Components of an annual report)
In addition, there are some basic measures of profitability and financial position that are covered in the beginning of the course that are very useful for managers to have an understanding of. In addition, after the financial accounting component to the course, we move into managerial accounting.
(On-screen text: Concepts in This Course, Components of an annual report, Measure profitability and financial position, Financial and Managerial accounting)
You learn how to do basic costing, and you aren't going to become a cost accountant in this course.
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But it's very important that a student have an understanding of how is it that the accounting department is coming up with those costing numbers. Cost -- cost is the basis for so many different decisions, and it's important to understand that there are actually quite a number of different ways that cost can be determined.
Once you understand the basics of costing, then you learn how to use some of that information so we move in to break-even analysis, the calculation of break-even point, and cost-volume profit which are very important and useful skills for management in evaluating the profitability and cost structure of the company.
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In addition, when looking at basic break-even analysis and cost-volume profit analysis, it's very important that a manager understand at an intuitive level the differences between variable costs and fixed costs.
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And we'll see that that difference in the nature of those costs and how the company chooses to structure their business in light of those differences has a big impact on probability.
After that, we move into budgeting, budgeting whether you're a small business or a big business.
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It's important to have budgeting for planning purposes, for evaluation purposes, and for control purposes. And so in this course, the student will learn the basics of budgeting.
And finally, after we've gone through budgeting, as well as standard costs, we conclude the course with incremental analysis.
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Incremental analysis is a standardized approach to address many of the most important business decisions that a manager needs to make. And so in doing incremental analysis, you can look at whether or not you should outsource something, whether or not you should accept an order from a customer when they requested a special order. Should we continue on in this line of business or move into a different line of business? And we'll see that it's an approach that can address a wide variety of issues, and it's widely used by many, many businesses.
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