accounting concepts Flashcards
what two types of accounting are there?
financial and managerial
what does financial accounting involve?
distributed to external stakeholders e.g. share holders
have to share these reports annually
concentrates on profits, assets and cash levels.
what does management accounting involve?
provides info within the company - internally.
this allows them to assess performance against its financial objective
generally produced every month
what is the GAAP
GAAP - Generally Accepted Accounting Practise - require businesses to produce its finances correctly and within the legal requirements.
what is the FRC and FRS
the financial report council advise companies on different financial report standards that companies are accepted to adhere to.
why is it important to adhere to the correct accounting principles?
enables businesses to compare accounts - across different companies and different years.
it makes sure all companies are viewed in the same way by investors for example
generates confidence in the accounting system
failing to meet requirements means that business will be liable to pay a large cost.
What are the seven principles of accounting
consistency going concern accruals materiality objectivity prudence realisation
what is consistency?
making sure that all the accounts are made in the same way
what is going concern?
a principle that believes there is no reason not to believe the accounts
what is accruals?
the dates used should be made the date the transaction was made not the when the purchase was made/
materiality?
accounting for assets which only make a difference to the accounts if they weren’t there. for example not including the cost of paperclips.
objectivity?
realistic based on facts
prudence?
not to “window dress” the stats
