tutorial 1 (finc acc) Flashcards
What is Financial Accounting concerned with?
The analysis and reporting of financial transactions related to a business (e.g., sales, expenses, shares, etc.).
What is Management Accounting concerned with
The internal operations of a business and using financial data to improve the efficiency of operations (e.g., production budgets, etc.).
What is the definition of Accounting?
The process of identifying, measuring, and communicating economic information about an entity to a variety of users for decision-making purposes.
What are the 3 key components of Accounting?
1) Identifying
2) Measuring
3) Communicating economic information
How can Financial Accounting be helpful?
It provides a ‘snapshot’ of a business’s financial health at a given point in time through the 3 financial statements:
Balance Sheet
Income Statement
Statement of Cash Flows
How can Management Accounting be helpful?
It measures a business’s performance against forecasts and budgets to help avoid overruns and prevent pricing errors.
Who are the Internal users of financial information?
Employees, managers, CEO, CFO, Board of Directors. They use the information to compare business performance to competitors and internal expectations.
Who are the External users of financial information?
Investors, suppliers, banks, customers, tax authorities. They use the information to assess business success and ability to meet obligations.
What are the 3 components of an Asset
1) Past event
2) Present control
3) Potential future economic benefit
What are the 3 components of a Liability?
Past event
2) Present obligation
3) Outflow of economic benefit
What is Equity?
The residual interest in the assets of an entity after deducting all liabilities.
What are the 3 components of Equity?
Contributed Equity
2) Retained Earnings
3) Reserves
How do Drawings and Dividends affect Equity?
They reduce Equity as they represent distributions of earnings to owners or shareholders.
What is a Contingent Liability?
A potential liability whose existence depends on the outcome of a future event, not recorded on the Balance Sheet but disclosed in notes (e.g., potential lawsuits).
What is the basic accounting equation?
Assets = Liabilities + Equity
