The nature and role of accounting in business Flashcards
(17 cards)
What is the role of accounting?
The purpose of accounting is to provide business owners with financial information that will assist them in making decisions about the activities of their firm.
Who are the users of accounting information?
The owner – to assess performance and make decisions
Accounts Receivable – to track amounts owed to the business
Accounts Payable – to track amounts the business owes
Banks and lenders – to evaluate the firm’s ability to repay loans
Prospective owners – to consider buying into the business
The government (ATO) – to assess tax obligations
What is financial data?
Raw facts and figures used to create financial information
What is financial information?
Sorted, classified and summarised financial data into a more understandable form
What is non financial information(include examples)?
Non-financial information is not expressed in dollars and cents, but is still important in developing a more accurate picture of the firm’s circumstances and ‘success’. e.g.
Staff turnover
Customer complaints
Followers on social media
What are ethical considerations(with examples)?
The financial decisions that a business makes often have non-financial consequences, including the social and environmental consequences of a financial decision. Examples of ethical considerations include:
Environmental: Can the toner cartridges of a photocopier be recycled?
Social: Is the item Australian-made, encouraging local employment?
What is the accounting conceptual framework?
Provides guidelines on how the accounting process should be completed, using:
Accounting Assumptions
Qualitative Characteristics
what is Accounting Entity Assumption?
The records of assets, liabilities and business activities of the entity are kept completely separate from those of the owner and other entities.
what is the Going Concern Assumption?
Assumes the business will continue to operate in the future, and its records are kept on that basis.
what is a Period Assumption?
Reports are prepared for a particular period of time (e.g. a month or a year) to allow comparability of results.
what is the Accrual Basis Assumption?
Revenues are recognised when earned, and expenses when incurred, so profit is calculated as revenue earned minus expenses incurred in that period.
What is Relevance?
Information that helps users make informed financial decisions.
what is Faithful Representation?
Information that truthfully reflects real economic events without bias.
what is Verifiability?
Information that can be confirmed by different people using the same methods.
what is Comparability?
Information that allows users to compare financial results across time and between entities.
what is Timeliness?
Information that is provided in time to influence decisions.
what is Understandability?
Information that is clearly presented and easy for users to comprehend.
