Accounting Flashcards
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Differences between Financial and Management Accounting
- Level of reporting detail
- Regulatory Framework
- Time Horizon
- Degree of Standardisation
- Range and quality of info needed.
Flow of Accounting Info
- Record Accounting Data
- Classify data
- Summarise data
- Communicate info
What is Accounting?
- Accounting is the system of recording all the transactions of a firm
- They are recorded on a daily at the end of a particular time frame, a report is produced.
Why does a Business Organisation have an accounting system?
In order to let internal and external parties of the firm:
- if they are making a profit or loss
- what the business worth
- how much is owed.
What are the key Elements in an Accounting info flow?
- Record accounting data:
collect and record all accounting data - Classify data
classify data to ensure its to the owner. - Summarise Data
provide the managers of the business with info in a concise form - Communicate Information
the final year in presenting the businesses financial statements
Users of Info include:
- Owners; whether firm is profiting
- Competitors; perhaps to identify weaknesses
- Govt; for taxation regulation
- suppliers; whether or not to do trade
e. g. if the firm in question is unable to make prompt payments, making a loss.
gross prof formula
sales - cost of sales = gross profit
gross prof formula
gross - expenses = operating prof
net prof/loss formula
operating prof + other incomes
- interest paid
- tax
= prof/loss
the accounting equation
assets - liabilities = owners equity
assets = liabilities + owners equity
objectives of accounting?
- lets orgs know if they are making prof or loss
- what their business is worth
- how much cash they have
- how much is owed to them
- help them keep a financial check on the things they do
accounting map
- assets
- liabilities
- equity
- revenues
- expenses
what is management accounting
- intended to meet the needs of managers within an organisation
- produces detailed reports to support decision making
- reports aren’t subjected to (external) accounting standards or the law, and can be customised to specific managers needs.
what is financial accounting
- concerned with prep of financial statements for owners and other users mainly outside the firm.
- reports the performance and financial status of the business for the past period
- standardised reports subject to legal requirements, accounting, regulation and standards.
Margin Of safety
MOS= total sales-breakeven point in sales
Non current assets
- plant and equipment
- motor vehicles
current assets
- inventories
- trade receivables
- cash
equity
- ordinary shares
- share premium
- retained prof
non current liabilities
- debenture
current liabilities
- trade payables
- other payables
- accrued interest (payable)
- taxation payable
benefits of budgeting
- requires senior managers to plan
- promotes coordination and communication
- helps senior managers evaluate performance
- motivates staff to achieve companys goals
limitations of budgets
Planning for the future may not motivate
be employees especially if the targets are not
achievable.
That is either they are impossible to reach or
employees do not take them
seriously.
they should be realistic
definition of management accounting
Provision of information required by management for planning, organising and control - for such goals as:
recording, analysing and reporting actual costs and inputs of products, services and processes
working with other functions:
establishing standards of performance
establish cost, revenue and quantity budgets