1. the accounting scene Flashcards
Accounting elements
Recording
Summarising
Objective of accounting
Providing useful info to investors
Financial Statements
Statement of Profit or loss
Statement of financial position
Statement of cashflow
Statement of Profit or loss
Reflects the performance of a business over a period of time
Statement of financial position
Reflects the position of a business at a point in time
Statement of cash flow
Summaries the inflows and outflows of cash over a period of time
Who uses financial statements
Investors Customers Suppliers Lenders Government Competitors The public Employees Management
Who uses financial information: Investors
Helps to shape investment decisions
Who uses financial information: Lender group
Liquidity of the company
What’s the maximum they should lend
Will the interest and capital be repaid
Who uses financial information: Employees
Ability to pay salaries
Job security
Exec salaries vs. other companies
Who uses financial information: Suppliers
Will they get paid
Who uses financial information: The government
Business continuity of key services
Tax and vat
Who uses financial information: The public
Looking at public spend
Tax avoidance measures
Qualitative characteristics of financial statements
Accurate Complete Cost effective Understandable Relevant Accessible Timely Easy to use
Fundamental Qualitative Characteristics
Relevance
Faithful representation
Enhancing Qualitative Characteristics
Comparability
Verifiability
Timeliness
Understandability
Bookkeeping
The recording of monetary transactions, appropriately classified, in the financial records of an entity
Financial accounting
Statutory External Annual Require by law Past performance and current Must comply with international accounting standards
Management accounts
Can be in any format
Detailed accounts to control and plan
Reflects budgets, forecast and historical
Prepared monthly
Business Organisation
Regularly enters into transactions that are expected to provide a reward measurable in monetary terms
Sole traders
Individuals running a business
Owner and manager are the same
Owner = the business from a legal perspective
Partnerships
Two or more people running and owning a business together
Each partner is liable for the debts
Limited company
Business is it owns legal entity
Owners = shareholders
Clubs and societies
Provide a service to members
May do some trading
Charities
Providing a services to a particular group
May trade I.e. Charity shops
Still need to prepare financial statements
Local and central government
Financed by the public
Provide services to the public
