Accounting guru Jack Fox has solutions for your financial quandaries. Just Ask Jack about your accounting woes, and he’ll make sense of the IT numbers game in this monthly Q & A column.
Q. Why is business financial management important to the IT professional? Isn’t that the CFO’s responsibility?SJ in NY
A. Fox: Competent financial management is critical to the success and very survival of a wide variety of organizations. In the technology community, it is common to select the chief financial officer or the chief information officer for advancement to the CEO position. For the CIO professional looking for a promotion or a greater understanding of the IT arena, an understanding of the basics of financial management has become invaluable.
The goal of business financial management is to maximize the value of the firm. Successful financial management requires a balance of a number of factors, and there are no simple rules or solution algorithms that will ensure financial success under all circumstances. The overall goal toward which corporate financial and IT managers should strive is the maximization of earnings per share subject to considerations of business and financial risk, timing of earnings, and dividend policy.
The basic concepts of the fundamental principles of accounting, analytical techniques for interpretation of financial data, basic budgeting concepts, financial planning and control, and the analysis of long-term investment opportunities are applicable to IT as well as finance. Financial and IT professionals who can profitably harness the principles and techniques of financial and information resources will be able to manage their organizations more effectively than their competitors.
Q. The CFO of my company had said in a meeting that accounting is a financial-information system that is intertwined with the IT department’s function. What did she mean by that statement?JA in WA
A. Fox: First, let’s examine the financial-information system concept. Accounting is a financial-information system designed to record, classify, and interpret financial data. The accrual concept states that accounting income is measured by matching the expenses incurred in a given accounting period with the revenues earned in that period. Double-entry accounting is an information system that provides a set of techniques to keep track of accounting (information) data while minimizing the probability of classification errors. Debits are entries on the left-hand side of an account, while credits are entries on the right-hand side of an account. Using the double-entry accounting (information) system, the sum of the debits must always equal the sum of the credits. The accounting (information) cycle is a seven-step process:
- Analyze transactions from information source documents
- Journalize the entries
- Post general ledger
- Adjust general ledger
- Close and balance ledger
- Prepare financial statements
- Analyze financial statements
Now, back to your question: The major reason and benefit from intertwining financial and IT management is to facilitate business initiatives. IT professionals have an important opportunity to propel the firm’s adaptation of technology to business initiatives and especially to e-commerce initiatives. This vital area of intertwining technology and business is the foremost challenge facing the financial and information technology segments of the business.
Jack Fox is Executive Director of The Accounting Guild in Las Vegas. Fox has been assisting thousands of accountants and IT consultants in building their own successful businesses. He has also coached for effective leadership in IT functions of small to medium-size enterprises since 1984. Fox is the author of five books, including the third edition of Starting and Building Your Own Accounting Business, published by John Wiley & Sons.
Do you spend half your time making a budget, only to readjust again a month later? Can you make sense out of the spreadsheets that your accounting department is constantly sending you? What’s the best way to calculate ROI or TCO? If you have an accounting conundrum that you’d like answered or explained, send your question to Ask Jack. Every month, Jack Fox will answer questions from savvy CIOs who just don’t have time to become experts in bean counting.