Recording Business Transactions
This chapter explains the rules regarding debits and credits. Debits and credit increase and decrease certain accounts. Spend some time learning the rules of debits and credits, since they are the foundation of accounting principles. Posting a debit where a credit should be, or vice versa, will cause you to be out of balance. You will then have to re-trace all of your postings to uncover your error, which would be very frustrating and time-consuming. Since accounting is the "language of business", it is very important that you understand the building blocks of the language. Even if you hire a CPA to do your books, you need an understanding of what drives your results so that you can manage accordingly, and avoid becoming a victim of fraud.
Salary potential of accountants
Selecting a major represents much more than the choice of courses a student takes in college. To a
significant degree, the student's major, along with academic performance, will determine the career
paths available upon graduation. Few professionals would recommend a specific career choice based
solely on salaries. However, as students select their major and map out their career path, it is
important that they make informed decisions with respect to the potential financial rewards of the
various options. Outlined below is information on selected salaries for many accounting-related
careers. These salaries, current as of 2009, should be viewed only as guidelines. Salaries at all levels
can vary significantly between locations. Also, one should add 10 to 15 per cent to the listed salary for
professional certifications (such as the CPA) or for a graduate degree (Masters of Accounting or MBA).
| Salaries for Public Accounting, Non-Partners |
|
|---|---|
| Position | |
| Large CPA Firms: | Salary Range |
| Starting Salaries |
$35,750 - $42,500 |
| Salary between 1-3 years | $41,000 - $51,250 |
| Manager/Director | $77,750 - $119,000 |
| Small CPA Firms: | |
| Starting Salaries | $29,500 - $36,250 |
| Salary between 1-3 years | $33,750 - $42,500 |
| Manager/Director | $62,750 - $84,500 |
| Salaries for Corporate Accounting |
Large Corporations |
| Position | Salary Range |
| Chief Financial Officer/Treasurer | $244,500 - $347,000 |
| Vice President, Finance | $189,000 - $293,500 |
| Director of Finance | $121,500 - $178,250 |
| Director of Accounting | $115,250 - $157,500 |
| Controller | $105,750 - $147,250 |
| Assistant Controller | $89,750 - $114,750 |
| Tax Director | $117,000 - $209,750 |
| Tax Manager | $78,000 - $113,750 |
| Audit Director | $127,750 - $200,750 |
| General Accounting - Manager | $61,250 - $83,250 |
| General Accounting - 1-3 years experience | $37,500 - $48,750 |
| General Accounting - starting salary | $31,750 - $39,750 |
Students interested in a career in accounting and finance can find detailed information for these
and many other accounting related careers at Robert Half (www.roberthalf.com). Also, accounting
professors are generally familiar with starting salaries and job opportunities for accounting graduates,
so you may want to address more specific questions about potential careers and salaries with them.
In Chapter 1, we illustrated the income statement, statement of retained earnings, balance sheet,
and statement of cash flows. These statements are the end products of the financial accounting process,
which is based on the accounting equation. The financial accounting process quantifies past
management decisions. The results of these decisions are communicated to users - management,
creditors, and investors - and serve as a basis for making future decisions.
The raw data of accounting are the business transactions. We recorded the transactions in Chapter 1
as increases or decreases in the assets, liabilities, and stockholders' equity items of the accounting
equation. This procedure showed you how various transactions affected the accounting equation.
When working through these sample transactions, you probably suspected that listing all transactions
as increases or decreases in the transactions summary columns would be too cumbersome in practice.
Most businesses, even small ones, enter into many transactions every day. Chapter 2 teaches you how
to actually record business transactions in the accounting process.
To explain the dual procedure of recording business transactions with debits and credits, we
introduce you to some new tools: the T-account, the journal, and the ledger. Using these tools, you can
follow a company through its various business transactions. Like accountants, you can use a trial
balance to check the equality of your recorded debits and credits. This is the double-entry accounting system that the Franciscan monk, Luca Pacioli, described centuries ago. Understanding this system
enables you to better understand the content of financial statements so you can use the information
provided to make informed business decisions.