Intro To Accounting Flashcards
Define accounting
Accounting is a system for recording information about business transactions to provide summary statements of accompanies financial position and performance to users who require such information.
What are the two main sets of summary statements or main sets of books ?
Financial accounting: standardised reports for external users
Managerial accounting : customised reports for internal users
Who are the external users of financial statements?
Investors and creditors
What questions might investors ask that financial statements answer?
- Is X Company earning satisfactory Income?
- How does X Company compare in size and profitability with Y Company?
What questions my creditors have that financial statements answer?
Will X Company be able to pay its debts when they come due?
Who are the internal users of financial statements?
Marketing department managers
Management department managers
HR managers
What questions might the marketing department ask that financial statements answer?
What should be charged for the next launch to maximise net income
Questions would management have that financial statements answer?
Which product line is most profitable?
Should any product line be eliminated?
What questions would HR have that financial statements answer?
Can the company afford to give it’s employees employees a raise this year?
What is the nature of the reports produced in financial accounting?
- General purpose reports
- Contains information that will be useful for a range of users
What is the nature of the reports produced in management accounting?
- Specific purpose reports designed either the particular decision or particular manager in mind
What is the level of detail in financial accounting documents?
- Reports provide users with a broad overview of the position and performance of an entity for the period
What is the level of detail in management accounting?
- Reports provide considerable detail to managers
- This helps them with particular operating decisions
What are the existing regulations for financial accounting?
They are subject to accounting regulation like:
GAAP
IFRS
What is the existence of regulations for management accounting?
- No external regulation determining the form and content
- Because reports are used internally
What is the reporting interval for financial accounting?
Annually semi-annually quarterly, according to the regulatory requirements and entity’s description
What is the reporting interval for management accounting?
As frequently as required by managers
- This is either weekly or monthly
What is the time orientation for financial accounting?
- Mainly provides information about the performance and position of the entity for the past period
What is the time orientation for management accounting?
Reports provide information about the future as well as past performance
What is the range and quality of information in financial accounting
- It focuses on information that can be quantified in monetary terms
What is the range and quality of information in management accounting?
There is financial and non-financial information
How can accounting help uses make better decisions?
It has a dual role
- it acts as a steward: confirming past performance
- it is predictive: can be used to predict the future
