Lecture 1A/1B Introduction to the Module/Accounting

Question 1

What is the Aim of Accounting?

Answer 1

Is to provide information that will improve the quality of decision making.

Question 2

What is Accounting? (Financial accounting).

Answer 2

The external publishing of a company’s financial position and performance.

FA information is…. used in making investment decisions and widely used to predict corporate business success and failure.

Question 3

What is Management accounting?

Answer 3

• Provides info internally to managers to help them measure and control processes within their business in a profitable manner.

Assits managers in:
- Strategy implementation
- Evaluation of the value added by different areas of the business.

Question 4

What is Accounting? (Auditing and Assurance Services area).

Answer 4

• Monitors and adds credibility to the external reporting disclosures made by companies.
• Assurance services can also add credibility to non-financial information such as sustainability reporting.

Question 5

Skills of an accountant may include:

Answer 5

• Critical thinking
• Collaboration with others
• Management of budgets and finance.

Question 6

Financial Accounting and Managerial Accounting key differences…

Answer 6

Users:
FA - External
MA - Internal

Format:
FA - Regulated
MA - Any

Frequency:
FA - normally annual
MA - As required.

Content:
FA - dominated by historic information based on past transactions.
MA - forward looking.

Question 7

What is the Role of a financial accountant?

Answer 7

• Prepares, reviews or audits the annual report and financial statements.
• Responsible for monitoring financial data, forecasting revenues and costs and prepare accurate statements.

Question 8

A couple of users of financial statements:

Answer 8

• Potential investors
• Owners
• Employees
• Competitors
• Suppliers
• Lenders

Question 9

Regulatory and Conceptual Framework:
International Accounting Standards Board (IASB).

Answer 9

Regulation:
- IASB responsible for setting international financial reporting standards (IFRS)
- Exists to harmonise accounting standards all over the world.

Conceptual framework:
- A document which sets out the concepts that underlie the preparation and presentation of financial statements.
- IFRS stems from concepts set out in the conceptual framework.

Question 10

Conceptual framework in further detail:

Answer 10

Deals with issues such as:
- Qualitative characteristics of useful financial information.
- Concepts of capital and capital maintenance.

Question 11

6 Characteristics of Good Quality Accounting information:

Answer 11

• Relevant
• Faithful representation
• Comparable
• Verifiable
• Understandable
• Timeliness.

Question 12

Relevant and faithful representation are …

Answer 12

• Fundamental characteristics per the IASB conceptual framework.

Question 13

Relevant…

Answer 13

• Info relevant it influences users economic decision making
• Informations relevance is affected by its nature and materiality.

Question 14

Faithful representation…

Answer 14

FR info means it is:
- Free from material error
- Neutral
- Prudent
- Complete

Question 15

Verifiable, Understandable, Timeliness, Comparable are…

Answer 15

enhancing characteristics per the IASB Conceptual framework.

Question 16

Comparable…

Answer 16

• Financial information must be comparable through time (prior to other periods) and to other entities e.g competitors.

Question 17

Verifiable…

Answer 17

• Info verifiable if there is an agreement between individual observers that the information is reliable

Question 18

Understandable…

Answer 18

• Reasonable knowledge is assumed.
• Complex matters should not be omitted.

Question 19

Timeliness…

Answer 19

• Financial statements need to be timely.

Question 20

Why are financial statements important?

Answer 20

Show us how much profit or loss a business is making.

Revenue - expenses = profit/loss

Also, show us how much a business is worth:

Assets - Liabilities = Equity (worth)

Question 21

Definition of revenue:

Answer 21

The value of goods or services sold during a period

Question 22

Definition of expenses:

Answer 22

• Value of goods or services consumed in generating revenue.

Question 23

3 examples of revenue and 3 examples of expenses:

Answer 23

Revenue:
- Sales
- Royalties
- Dividends received.

Expenses:
- Wages
- Tax
- Electricity.

Question 24

Definition of assets:

Answer 24

• Resources owned/controlled by the business to give future economic benefit.

Question 25

Definition of liabilities:

Answer 25

What the business owes (debts).

Equity is the investment by the owner…

Question 26

3 examples of assets and 3 example of liabilities.

Answer 26

Assets:
- Property
- Machinery
- Trade receivables.

Liabilities:
- Trade payables
- Overdraft
- Shareholder’s capital.

Question 27

Financial statements: Statement of Profit or Loss.

Answer 27

• illustrates the financial performance of a company.

PROFIT DOES NOT EQUAL CASHFLOW.

Question 28

Profit vs Cash Flow.

Answer 28

Cash Flow = Cash inflows - Cash Outflows.

Profit = Revenue - Expenses.

Profit is not a measure of cashflow as a profitable business may need an overdraft.

Question 29

Financial statements: Statement of financial position:

Answer 29

Illustrates the financial position of a. company and shows what a business is worth at a point in time.

Assets = Liabilities (balance sheet)