Week 1- Accounting (in a Business Context)

Question 1

Define accounting

Answer 1

The process of identifying, measuring and communicating economic information to permit informed judgements and decisions by the users of that information

Question 2

What is the purpose of accounting?

Answer 2

Providing information which is potentially useful for making economic decisions and which, if provided, will enhance social welfare

Question 3

What does conventional accounting focus on?

Answer 3

• Conventional accounting entities
• Narrowly conceived economic events
• Financial description
• Users of information with a conventional financial focus

Question 4

Define accounting entities

Answer 4

Any unit, of any size or composition, in society in whose account of activities we are interested in

Question 5

Define direct economic events

Answer 5

Economic events that have direct implications for the accounting entity (i.e. actual/potential; in the past/present/future)

Question 6

Define financial description

Answer 6

Financial characteristics of direct economic events

Question 7

Define users of information

Answer 7

Individuals and groups who are deemed to have some reasonable right to and need for accounting information

Question 8

What is a business?

Answer 8

A particular type of organisation regulated by law, with particular types of goals and particular types of ownership

Question 9

What is the main objective of a business?

Answer 9

To maximise owners wealth in the context of a concern to balance this with the needs of others stakeholders

Question 10

What do businesses need accounting information for?

Answer 10

• Planning
• Control
• Decision making
• Accountability

Question 11

Who are the main users of financial information relating to a business?

Answer 11

• Owners
• Customers
• Competitors
• Employees and their representatives
• Government
• Community representatives
• Investment analysts
• Suppliers
• Lenders
• Managers

Question 12

Discuss the information needs of management

Answer 12

• Need information for running the business and to maximise profit for the owners of the company by utilising their assets to generate profit. Information needs include data on performance and financial position of the company
• Past information as well as perditions about future performance
• Frequency of reporting is at least monthly (internal use)

Question 13

Discuss the information needs of owners as investors

Answer 13

• Separation of ownership and management as a result of expansion of capitalistic production
• Interested in the return from their investment?
• Should I buy or sell shares?
• Interested in financial performance and financial position

Question 14

Discuss the information needs of employees

Answer 14

• Can the company pay their wages?
• Information about the working environment (how much spent on health and safety)
• Will they have continuous employment for the future?

Question 15

Discuss the information needs of lenders

Answer 15

• Assess the economic stability and vulnerability

Question 16

Discuss the information needs of suppliers or trade creditors

Answer 16

• Credit worthiness of their customers
• Will they want goods in the future?

Question 17

Discuss the information needs of customers or trade debtors

Answer 17

Continuity of supply

Question 18

Discuss the information needs of governments and their agencies

Answer 18

• Government planning, national statistics, taxation and regulation of utilities (price cap on gas and electricity prices)

Question 19

Discuss the information needs of public interest

Answer 19

• Impact on local economy
• Environmental concerns

Question 20

What are the 2 types of accounting?

Answer 20

Financial and management

Question 21

Describe financial accounting

Answer 21

Financial reporting, communicating company information for decision making (at the end of the accounting year)

Question 22

Describe management accounting

Answer 22

Internal use, for decision making of mangers (frequently during the year)

Question 23

Name 5 thing financial and management accounting differ on

Answer 23

• Reports produced
• Level of reporting detail
• Time orientation
• Regulation requirements
• Information range and quality

Question 24

Compare financial and management accounting

Answer 24

Financial
- tend to be general purpose
- usually broad overview
- subject to accounting regulation
- usually annual or bi annual
- almost always historical
- focus on financial information, emphasis on objective, verifiable evidence

Management
- tend to be specific purpose
- often very detailed
- unregulated
- as short as required by managers
- uses projected future information as well as past information
- contains financial and non financial information, uses information that cannot be verified