1.2. Introduction to Accounting

Question 1

Defining accounting…

Answer 1

A body of knowledge: understanding the theory, general accounting principles and standards.

A practice and process: what accountants actually do in their jobs.

Accountancy: the overall institutional framework within which accounting knowledge is constructed, shared and practiced.

Question 2

Financial accounting…

Answer 2

Concerned with corporate accountability towards shareholders, investors and the government.

Ensures laws, tax regulations and other legal obligations are being upheld.

Reports what happened in the past year.

Held to strict laws and standards.

Question 3

Management accounting…

Answer 3

Concerned with hierarchical accountability.

Helps internal managerial processes of decision making, planning and control by providing managers with necessary information to make effective decisions.

Management accountants report back projections to help companies in the future.

Question 4

Auditing…

Answer 4

An external person who checks how the accounts have been produced.

Provides their independent opinion on whether they believe the financial statements are accurate and truthful.

They also help to reduce the potential for fraud and material errors.

Question 5

Sustainability accounting…

Answer 5

A company that produces sustainability accounting documents may benefit from having a positive public reputation.

Although firms are not legally obliged to provide sustainability / ESG information, they can.

Question 6

Accounting and modern society…

Answer 6

Accounting is the language through which we:
- Understand and organise capitalist economies and societies.
- Conceptualise organisations and their objectives.
- Track activities and outcomes.
- Measure value.
- Compute success and failure.