Chapter 18. PROFIT ANALYSIS FOR BUSINESS MANAGERS

First, a Word about Managerial Accounting

Unless you happened to start reading this book with this chapter, you know that the previous chapters focus on the external financial statements reported by businesses. As you probably know, accounting involves more than preparing a company's external financial statements, although this is certainly one of its main functions.

Every business must install an accounting system, which includes forms, procedures, records, reports, computer hardware and software, and personnel, to keep the day-to-day operations of a business running smoothly and to prevent delays and stoppages. Every accounting system needs strong internal controls to deter and detect errors and potential fraud. Fraud and various other types of dishonesty can plague any business.

Perhaps I needn't remind you, but many different tax returns have to be filed on time by every business—for income taxes, property taxes, sales taxes, and payroll taxes. Accountants are in charge of tax compliance in a business. Accountants are the tax experts because tax laws are written in the language of accounting.

Designing accounting systems, complying with tax laws, and preparing external financial reports are three bedrock accounting functions of every business. And the accounting staff in a business has another very important function—providing information to its managers for their decision making, planning, and control. This fourth function of accounting ...

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