Chapter 1 Flashcards
Define Accounting
The collection, analysis, and communication of economic information to help with
- Decision making
- Planning
- Control
What are the main user groups for accounting
- Resource Providers (Owners, Lenders, Suppliers, Employees)
- Recipients of goods & services (customers)
- Reviewers (Auditors, govt, union, competitors)
- Managers
What are the different uses of Accounting Info?
- Financial Performance (Efficient use of resources)
- Financial Position (Long term stability)
- Liquidity (short term survival)
- Compliance (with plans, sales, regulations)
- Social Responsibility (physical, environmental, human resources)
What is the recent Crisis in Accounting?
- Overstated figures for income & assets
- Understated figures for expenses & liabilities
- Inappropriate behavior by management acting to satisfy shareholder & personal interests
What is the difference between a Cash Flow Statement and a Profit (Income) Statement?
Cash Flow Statement - Shows the source and uses of cash for a period.
Profit Statement - Measures and reports how much wealth has been generated in a period
What are the key characteristics of accounting information?
- Relevance (able to influence decisions)
- Faithful Representation (complete, neutral and free from error)
- Comparability (items that are basically the same should be treated i the same manner for measurement and presentation purposes)
- Understandability (info should be as clear as possible and understood readily by recipients)
What are the key characteristics of accounting information?
- Relevance (able to influence decisions)
- Faithful Representation (complete, neutral and free from error)
- Comparability (items that are basically the same should be treated in the same manner for measurement and presentation purposes)
- Understandability (info should be as clear as possible and understood readily by recipients)
Besides enhancement of wealth, what other objectives might a business have?
- Sustainable development
- Growth
- Survival
- Long term stability
- Satisficing
- Maximization of sales revenue
- Maximization of profit
- Maximization of return on capital employed
What is the difference between Management Accounting and Financial Accounting
Management Accounting is concerned with providing managers with info for the day-to-day running of organisation
Financial Accounting is concerned with providing other users (e.g. external) with useful info
Discuss some key differences in the reports produced for Management vs. FInancial reporting
Management accounts (because they are used internally) can be more specific, as frequently run as needed by managers, format isn’t specified, and can include non-financial info like stock reports.
Overall, because it’s used internally, management accounting is less constrained
What are the main financial statements
- Cash flow statement
- Income Statement (profit & loss statement)
- Statement of financial position (balance sheet)
- Statement of changes in equity
How has computerisation impacted accounting
Made preparing reports more automatic, means accountants can spend more time on analysing the information vs. preparing it.
Also allows integrated reporting, i.e. pulling information from other areas of a business, aiding better decision making.
BUT fundamentals of accounting have not changed
There is a distinction between management and financial accounting. Do you think this might be misleading, and is there any overlap between the needs of managers & the needs of other users?
While differences certainly exist, there is a great deal of overlap. Eg. Managers might be interested in a historic overview of business operations (generally provided to other users). And Other users might welcome info on the future, e.g forecast levels of profits.
What is the FULL account equation
NB: According to Geof’s slides - not in textbook
Assets + Expenses = Liabilities + Equity + Revenue
