Accounting Information: Users and Uses

Question 1

• component of accounting
• is a routine process subsequent to transaction analysis
• relates only to the recording of transactions

Answer 1

Bookkeeping

Question 2

• a financial information system and it is the language of the business.
• records and measures business activities, processes data into financial reports.
• the art of RECORDING, CLASSIFYING, and SUMMARIZING in a significant manner and in terms of money transactions and events which are, in part at least, of a financial character and INTERPRETING the results thereof.
• is formally defined as a system for providing QUANTITATIVE information, primarily FINANCIAL in nature, about economic entities that is intended to be USEFUL in making economic decisions.

Answer 2

Accounting

Question 3

4 Key Components of Accounting Definition:

Answer 3

Quantitative
Financial
Useful
Decisions

Question 4

• Accounting relates to numbers (Strength)
• Important events cannot be easily describes by one or two numbers (Weakness)

Answer 4

Quantitative

Question 5

• health and performance of a business are affected by many dimensions.
• personal, community, and environmental impact and public image.
• Accounting focuses on just the financial dimension.

Answer 5

Financial

Question 6

• supported by long tradition of theory.
• IFRS, GAAP, PICPA pronouncement

Answer 6

Useful

Question 7

although, accounting is the structured reporting of what has already occured, this past information can only be useful if it impacts decisions about the future.

Answer 7

Decisions

Question 8

FUNCTIONS OF AN ACCOUNTING SYSTEM

Answer 8

Analyze transactions
Handle Routine Bookkeeping tasks
Structure information so it can be used to evaluate the performance and health of the business.

Question 9

• analyze business events to determine if information should be captured by the accounting system.

Answer 9

Analysis

Question 10

day-to-day keeping track of transactions.

Answer 10

Bookkeeping

Question 11

use summary information to evaluate the financial health and performance of the business.

Answer 11

Evaluation

Question 12

Roles of Accountant

Answer 12

Measuring and Reporting
Advising

Question 13

Accountants measure and communicate the results of business activities.
To measure results accurately, accountants follow a standard set of procedures referred to as ACCOUNTING CYCLE.

Answer 13

Measuring and Reporting

Question 14

Accountants advise managers on how to structure those activities so as to achieve the goals of the business, such as generating a profit, minimizing costs, providing efficient services, etc.

Answer 14

Advising

Question 15

responsible for the entity’s activities.

responsible for preparing financial information for the primary users.

focuses on the information needed for planning, implementing plans and controlling costs.

the related area of accounting is referred to as MANAGEMENT ACCOUNTING.

Answer 15

Management/Internal Users

Question 16

investors/lenders who are not involved in the management of an entity’s activities but require financial information about the entity for decision-making.

They lack the ability to prescribe all the information they need from an entity and therefore must rely on information provided in financial reports.

Answer 16

Primary/External Users

Question 17

concerned with providing useful information related to the deployment of resources and the exploitation of opportunities for management.

Answer 17

Management Accounting

Question 18

concerned with providing useful information about business entities for primary users.

Answer 18

Financial Accounting

Question 19

Financial reports for internal use by company management.
Examples: budgets, cost analysis, divisional performance reports

Answer 19

Internal Reporting/Management Accounting

Question 20

Other external reports:
Special reports required by regulatory agencies such as Financial Supervision Commission in Taiwan, or SEC in the US.
Examples: registration statements, income tax forms required by the Nat’l Tax Bureau and local governments, corporate tax returns.

Answer 20

External Reporting/Financial Accounting

Question 21

Other Users of Financial Information

Answer 21

Suppliers
Customers
Employees
Competitors
The Press
NGOs
Government Agencies

Question 22

Primary Financial Statements

Answer 22

Balance Sheet
Statement of Changes in Equity
Statement of Comprehensive income
Statement of Cash Flow
Notes to Financial Statements