Week 11: Flashcards
Organizations take decisions on a daily basis and accounting is a central part of its management systems.
True; concerned with recording analyzing and sharing information. decision making
Organizations make decisions include the following and not limited to:
How financial plans are made. How investment decisions are made. Financing a business and cost management.
Accounting
is concerned with the collecting, analyzing and communicating financial information.
Finance also known as
Financial Management: like accounting, exists to help decision makers. It is concerned with the ways in which funds for a business are raised and invested.
How do you identify finance and the forms to choose?
the main forms of finance available
the costs and benefits of each form of finance
the risks associated with each form of finance;
the role of financial markets in supplying fiance
is accounting a form of business
yes
What does relevance mean in accounting?
accounting information should make a difference. capable of influencing user decisions. must help predict future events (such as next years profit) and to help confirm past events (such as establishing last years profit).
materiality
An item of information should be considered material, or significant, if its omission or misstatement could alter the decisions that users make.
What is faithful representation?
Accounting information should represent what it is supposed to represent.
Should be the following:
Complete
Neutral without bias
Free from error no errors in the way in which the estimates are prepared and described.
What are further qualities in accounting?
Comparability
Verifiability
Timeliness
Understandability
Further qualities
Comparability
comparisons. better comparisons can be made where the accounting system treats items that are basically the same in the same way where policies for measuring and presenting accounting information are made clear.
Further qualities
Verifiability
Quality provides assurance to users that the accounting information provided faithfully represents what it is supposed to represent. Accounting information is verifiable where different, independent experts would be able to agree that it provides a faithful portrayal.
Further qualities
Timeliness
Accounting information should be produced in time for users to make their decisions. A lack of timeliness will undermine the usefulness of the information.
Understandability
Accounting information should be set out as clearly and concisely as possible.
management accounting
seeks to meet the accounting needs of managers
financial accounting
seeks to meet the needs of the other users identified earlier in the chapter
the main areas of difference stands in accounting management are as follows
Nature of reports produced. level of detail regulations Reporting interval Time orientation Range and quality of information
Nature of reports produced
financial accounting reports tend to be general purpose. Aimed primarily at providers of finance such as owners and lenders, they contain financial information that will be useful for a broad range of users.
level of detail
financial accounting reports provide users with a broad overview of the performance and position of the businesses for a period.
Regulations
financial accounting reports of many businesses are subject to regulations imposed by the law and by accounting rule makers. These regulations often require a standard content and perhaps a standard format to be adopted. Management accounting reports on the other hand are not subject to regulation and can be designed to meet the needs of particular managers.
What are the 4 characteristics of an asset in accounting?
A probable future of economic benefit must exist
Benefit must arise from past transactions: must have already occurred.
The business must have the right to control the resource
The asset must be capable of measurement in monetary terms.
Missing one condition for asset meaning in accounting purposes means it is still considered an asset? True or False
False
Tangible assets
assets that have physical substance and can be touched such as inventories.
Intangible assets
assets that have no physical substance but which, nevertheless, provide expected future benefits (such as patents) are referred to as intangible.
what are the 2 classified claims
Equity (owners claims) and liabilities (claims of outsiders)
what is a current liabilities?
basically amounts due for settlement in the short term. To be more
precise, they are liabilities that meet any of the following conditions:
Financial Statements
background to present the elements of performance management, providing the required characteristics of balance, profit and loss account, additional information, cash flow statement, statement of changes in equity
and the business activity report as a supplementary statement of the financial statement
of selected entities.
Cash flow is also known as
Financial measures
Performance management
improvement - synchronizing improvement to create value for and from customers with the result of economic value creation to stockholders and owners.
accounting is also identified as
accounting system
Financial statement is..
final element of business entity financial accounting and contains multidimensional data obtained from the accounting books
Performance management is based on
using financial measures (ex-pressed in monetary units) and non-financial measures (not expressed in monetary units).
Assets
financial values of things owned by or owning to the business e.g. car, house
liabilities
financial values of things owed by the business: loans trade payables
Capital or equity
the amount invested in the business by the owners: share cap or retained earnings
Long term is also referred to
non current for ongoing use in the business (normally over one year ) not for resale
short term or current assets or liablities
quickly turn around normally within one year
in a standard statement layout what is listed first in assets non current and current?
assets furthest from cash
assets closest to cash
assets further from cash
what type of accounting equation does the standard layout reflect?
Assets= Equity + Liabilities
what equation does the alternative layout represent?
Assets - Liabilities = equity
Useful life of an asset
Physical life and economic life
Accruals convention
that profit is the excess of revenue over expenses for a period not the excess of cash receipts over cash payments.
Accruals accounting the same as accruals convention?
Yes
Income statement
also called profit and loss account measures and reports how much profit a business has generated over a period.
revenue
measure of the inflow of economic benefits arising from the ordinary operations of a business
