T1 Entities and financial reporting statements. Flashcards
The three questions generally answered by accounting:
- how are we doing, and are we doing well or badly?
- which problems should be looked at?
- which is the best alternative for doing a job?
uses and purposes of accounting
Accounting may be defined as:
- The classification and recording of monetary transactions
- The presentation and interpretation of the results of those transactions
- The monetary projection of future activities from alternative courses of action
the statement of principles definition
The SOP is a statement of guidelines, and comprises eight chapters that deal with the following topics:
- the objectives of financial statements
- identification of the entities required to provide financial statements
- the qualitative characteristics required to make financial information useful to users
the statement of principles (continued)
- the main elements included in the financial statements
- when transactions should be recognised in financial statements
- how assets and liabilities should be measured
- how financial statements should be presented for clear and effective communication
- the accounting by an entity for interests in other entities
features of useful financial information
- clarity
- consistency
- relevance
- accuracy
reliability
timeliness
accounting concepts:
- CONSISTENCY CONCEPTS
- ACCRUALS CONCEPTS
- HISTORICAL COST CONCEPT
- PERIODICITY CONCEPT
- going concern concept
- separate valuation concept
- substance over from concept
- business entity concept
- money measurement concept
- realisation concept
- dual aspect concept
- materiality concept
- prudence concept
true and fair view
- introduced in the companies act 1947
- was implemented by the UK in the companies act 1981
- it is now found in section 396 of the companies act 2006
- true and fair view relates to the extent to which the various principles, concepts and standards of accounting have been applied.
UK accounting and financial reporting standards
The framework of accounting that covers which data should be included within an accounting system, and how that data should be recorded and reported is included in:
- Statements of Standard Accounting Practice (SSAPs)
- Financial Reporting Standards (FRSs)
international accounting standards
- created in order to develop international accounting standards.
- The IASB (International Accounting Standards Board) publishes International Financial Reporting Standards (IFRSs).
branches of accounting
- financial accounting
- management accounting
- treasury management
- auditing
- taxation and VAT
- consultancy
all lead to: financial management and corporate finance
professional accounting bodies
- chartered institute of management accountants (CIMA)
- association of chartered certified accountants (ACCA)
- chartered institute of public finances and accountancy (CIPFA)
- institute of chartered accountants in England and wales (ICAEW)
- institute of chartered accountants in Scotland
- institute of chartered accountants in Ireland
types of business entity
PROFIT MAKING ORGANISATIONS:
- sole trader
- partnerships and LLP’s
- private limited companies (Ltd)
- public limited companies (plc)
NOT FOR PROFIT ORGANISATIONS:
- quangos
- voluntary organisations
- public sector
- charities
3 main financial statements that appear within a business’ annual report and accounts are the…
> balance sheet
income statement
statement and cash flows
revenue definition
income earned in the period from normal trading activities
- when an entity has income from activities that are not its core business e.g. receiving interest, then this is disclosed separately as “other income”
expenses definition
- yearly running costs.
- they are used up in the period being reported on e.g. electricity- heat & light, rent…
