Chapter 1 Flashcards
(12 cards)
What is accounting?
Accounting is the process of recording, summarizing, and reporting financial transactions to provide useful information for decision-making.
What is the main purpose of financial accounting?
The main purpose of financial accounting is to provide financial information to external stakeholders, such as investors, creditors, and tax authorities.
What is management accounting?
Management accounting involves the preparation of internal reports that help managers make informed business decisions.
Who are the main addressees of financial accounting?
The main addressees include creditors, investors, state (tax authorities), employees, managers, workers, suppliers, and customers.
What do creditors want to know from financial accounting?
Creditors want to assess the company’s ability to repay loans.
What information might investors seek from financial reports?
Investors seek information about the company’s profitability, financial health, and potential for growth.
Why do tax authorities need financial information?
Tax authorities use financial information to determine if the company is complying with tax regulations and paying the correct amount of taxes.
What do employee managers want from accounting information?
Employee managers want financial data to make strategic decisions regarding the company’s operations and resource allocation.
How does accounting help suppliers and customers?
Suppliers and customers may use accounting information to assess the financial stability of the company before entering into contracts.
Profit distribution information for your uncle
Tax office inquiry about profits
Keeping accounts for future reference
Bank requesting annual accounts for loan approval
external interest
internal interest
external interest
external interest
What is the difference between financial and management accounting?
Financial accounting focuses on external reporting for stakeholders, while management accounting is concerned with internal decision-making and performance management.
Who are the addressees of the financial reports in financial accounting? Explain their interests.
Creditors: Interested in repayment ability.
Investors: Seek profitability and growth potential.
Tax Authorities: Ensure compliance with tax laws.
Employee Managers: Need data for operational decisions.
Workers: Concerned about job security and company health.
Suppliers: Assess reliability for transactions.
Customers: Evaluate the company’s financial stability.
