Week 1- Introduction to accounting Flashcards
What does accounting mainly involve?
Accounting mainly involves collecting, analysing, and communicating financial information for the purpose of making informed decisions.
For a sole trader accounting information will be needed by:
1- Government (HM Revenue and Customs) for tax collecting purposes
2- The bank for the purposes of lending money to the business
3- A person intending to buy the business when the existing owner retires
In a partnership, there is a need for accounting information for the following people:
1- Partners wishing to be sure that they are receiving a fair share of the partnership profits.
2- HM Revenue and Customs
3- Banks who provide finance
Do partnerships need to make accounting information public?
No
Limited liability companies are registered under what act?
Companies Act. Memorandum
Who sets out the powers required for ltd companies?
articles of association
Limited companies must make accounting information available to the public through what?
The Registrar of Companies Annual Financial Statement.
The 3 main financial statements include:
1- Statement of financial position- sometimes referred to as the balance sheet
2- Income statement- sometimes referred to as the profit/loss account
3- Statement of cash flows
What accounting information do managers need and why?
1- Performance of company,
2- Variances of budgets to actuals
3- Share performance
This is because this enables them to manage the business efficiently and to make effective decisions
What accounting information would investors need and why?
1- Assessment of performance of management
2- Profitability
3- Dividends payments
This information will help them determine whether they should buy, hold or sell shares
What accounting information would the government need and why?
Business profits
This is needed in order to assess the company’s tax liabilities
What is financial accounting?
The field of accounting concerned with the summary, analysis and reporting of financial transactions related to a business.
What is management accounting?
A field of accounting and advice given to a company that is used within the business.
What are some of the features of management accounting?
1- No legal requirement.
2- Internal to the company- unpublished, confidential
3- Used for planning, budgeting, and forecasting any period
What are some of the features of financial accounting?
1- Legal requirement
2- External to the company- published and registered
3- Must comply with regulations
