Accounting Information: Users and Uses Flashcards
- component of accounting
- is a routine process subsequent to transaction analysis
- relates only to the recording of transactions
Bookkeeping
- 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.
Accounting
4 Key Components of Accounting Definition:
Quantitative
Financial
Useful
Decisions
- Accounting relates to numbers (Strength)
- Important events cannot be easily describes by one or two numbers (Weakness)
Quantitative
- 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.
Financial
- supported by long tradition of theory.
- IFRS, GAAP, PICPA pronouncement
Useful
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.
Decisions
FUNCTIONS OF AN ACCOUNTING SYSTEM
Analyze transactions
Handle Routine Bookkeeping tasks
Structure information so it can be used to evaluate the performance and health of the business.
- analyze business events to determine if information should be captured by the accounting system.
Analysis
day-to-day keeping track of transactions.
Bookkeeping
use summary information to evaluate the financial health and performance of the business.
Evaluation
Roles of Accountant
Measuring and Reporting
Advising
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.
Measuring and Reporting
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.
Advising
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.
Management/Internal Users
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.
Primary/External Users
concerned with providing useful information related to the deployment of resources and the exploitation of opportunities for management.
Management Accounting
concerned with providing useful information about business entities for primary users.
Financial Accounting
Financial reports for internal use by company management.
Examples: budgets, cost analysis, divisional performance reports
Internal Reporting/Management Accounting
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.
External Reporting/Financial Accounting
Other Users of Financial Information
Suppliers
Customers
Employees
Competitors
The Press
NGOs
Government Agencies
Primary Financial Statements
Balance Sheet
Statement of Changes in Equity
Statement of Comprehensive income
Statement of Cash Flow
Notes to Financial Statements
