Lecture 1 Flashcards
What is accounting?
The process of identifying, measuring and communicating information to permit informed judgements and decisions by users of the information.
Source: McLaney E. and Atrill P. (2023) Accounting & Finance: An Introduction
What is the primary purpose of financial accounting?
To provide accounting information for external users.
Source: McLaney E. and Atrill P. (2023) Accounting & Finance: An Introduction, Glossary
What does management accounting focus on?
The identification, measurement and communication of accounting information for the managers of a business.
Source: McLaney E. and Atrill P. (2023) Accounting & Finance: An Introduction, Glossary
Fill in the blank: Accounting is known as the _______ of business.
[language]
List some important questions that accounting information can answer.
- What is our financial performance?
- How much profit have we made?
- Have we enough cash to pay our employees’ wages?
- What level of dividends can we pay to our shareholders?
- Should we expand our product range?
- How much raw material will I need? How much will it cost?
- How many units of product do I have to sell to cover my cost?
What are the two main types of accounting covered in the module?
- Financial Accounting
- Management Accounting
What is the accounting equation?
Assets = Liabilities + Equity
This fundamental equation represents the relationship between a company’s resources and its obligations.
What is the significance of the income statement?
It measures and reports the profit (or loss) the business has generated during a period.
Also known as the statement of profit or loss.
True or False: Financial statements are the output of the financial accounting process.
True
What does the balance sheet show?
The assets, liabilities, and equity of the business at a particular point in time.
Also known as the Statement of Financial Position.
What is the role of stakeholders in financial accounting?
They use accounting information to make informed decisions regarding the business’s performance and financial health.
What is the purpose of the statement of cash flows?
To show a business’s sources and uses of cash for a period.
Fill in the blank: Accounting principles and standards are guided by the _______.
[Conceptual Framework]
Who is credited with the early development of accounting?
Luca Pacioli
Often referred to as the father of accounting.
What is meant by double entry bookkeeping?
A technique to record transactions where each transaction has a double effect on at least one of the accounting elements.
Identify the users of financial accounting information.
- Owners-Managers
- Shareholders
- Managers
- Employees
- Lenders
- Suppliers
- Customers
- Government
- Investment Analysts
- Community
What is the total comprehensive income?
Net income for the year + other comprehensive income (or loss).
What are the office hours for Dr. Silvia Pazzi?
Tuesdays from 11am to 1pm.
What is the main aim of the module?
To identify key concepts underpinning financial accounting and to prepare a range of financial statements.
How can students effectively study accounting?
- Attend lectures and seminars
- Revise lecture slides
- Read additional materials
- Practice seminar questions
- Seek feedback during office hours
What activities does a company engage in?
They can be measured by money and involve the company and third parties.
What is the Accounting Equation?
Accounting elements are linked together in the Accounting Equation.
What is included in the preparation of financial statements?
- Record transactions in the journal and T-accounts
- Close off T-accounts
- Prepare a trial balance
- Make year-end adjustments
How old is accounting?
Earliest evidence dates back to 8000–5000 BCE from Mesopotamian civilizations.
Who first described a system of double-entry bookkeeping?
Luca Pacioli in 1494.
What is the title of Luca Pacioli’s book that explained bookkeeping?
Summa de Arithmetica, Geometria, Proportioni et Proportionalita.
What are the two main types of business organizational structures mentioned?
- Sole trader
- Partnership
- Companies
What is the regulatory framework for accounting in the UK?
- Legislation: The Companies Act
- Accounting Standards: IFRSs or UK FRSs (UK GAAP)
What is the role of the Financial Reporting Council (FRC) in the UK?
The UK accounting standard setter.
What standards do UK listed companies use?
IFRS since 2005.
What is the purpose of international accounting standards?
To allow relevant comparisons by using similar accounting methods.
Who are the standard setters for international accounting?
- IASB (International Accounting Standards Board)
- IASC (International Accounting Standards Committee)
What does the IFRS Conceptual Framework describe?
The objective and concepts for general purpose financial reporting.
What is the primary objective of general purpose financial reporting according to the 2018 Conceptual Framework?
To provide useful financial information to existing and potential investors, lenders, and other creditors.
What makes information relevant in financial reporting?
It is capable of making a difference in decisions made by users.
What are the key attributes that make financial information useful?
- Relevance
- Faithful representation
- Completeness
- Neutrality
- Freedom from error
What is materiality in financial reporting?
An entity-specific aspect of relevance that influences user decisions.
What are the enhancing qualitative characteristics of useful information?
- Comparability
- Verifiability
- Timeliness
- Understandability
What is the definition of prudence in accounting?
The exercise of caution when making judgements under conditions of uncertainty.
Fill in the blank: The _______ framework for financial reporting was issued by the IASB.
Conceptual
True or False: IFRS standards are enforceable in all countries.
False
