Week 13: Overview of Financial Accounting Flashcards
What is the main purpose of accounting?
To collect, analyze, and communicate financial information to help users make informed decisions.
Name two key areas of finance
1) Identifying sources of finance
2) Evaluating investment opportunities.
What is the role of finance in a business?
Finance focuses on raising and investing funds to create wealth for a business.
Who are the main users of accounting information?
Owners, managers, employees, lenders, suppliers, customers, government, competitors, investment analysts, and the community.
Why do lenders need accounting information?
To assess a company’s ability to repay loans and interest
How do competitors use financial statements?
To evaluate a company’s financial strength and competitive position
What are the two fundamental qualities of accounting information?
Relevance and faithful representation.
What does “comparability” mean in accounting?
Financial information should be presented consistently over time and across businesses to allow meaningful comparisons
Why is timeliness important in financial reporting?
Delayed financial information loses its usefulness for decision-making
What is the main difference between financial accounting and management accounting?
Financial accounting serves external users, while management accounting serves internal managers
Why is financial accounting regulated while management accounting is not?
Financial reports affect external stakeholders, so regulations ensure accuracy and transparency. Management reports are internal and flexible
Give one example of a management accounting report
A budget forecast for the next financial year
What are the four stages of an accounting information system?
1) Information identification, 2) Information recording, 3) Information analysis, 4) Information reporting
Why has accounting changed in recent years?
Due to globalization, technological advances, increased competition, and demand for better transparency
How does international harmonization of accounting standards benefit investors?
It makes financial statements more comparable across countries
Why is an understanding of accounting and finance important for managers?
Managers need to make financial decisions, interpret reports, allocate resources, and assess business performance
How do financial reports help businesses?
They provide essential data for decision-making, planning, and performance evaluation
Why isn’t all accounting information always produced, even if it’s useful?
If the cost of producing the information outweighs its benefits, it may not be worth generating
Give an example of a cost associated with producing financial information
Hiring accountants or auditors to prepare and verify financial statements
What is the primary goal of most businesses?
To create wealth for their owners
Name two other objectives a business might pursue besides profit
1) Providing high-quality jobs for employees, 2) Supporting environmental sustainability
Why must businesses consider stakeholders besides owners?
Disregarding employees, customers, or suppliers can harm long-term success and profitability
Why has financial reporting become more transparent in recent years?
Due to increased investor expectations, regulatory changes, and global business operations
How has management accounting changed in response to business competition?
It now includes market analysis, customer data, and competitor benchmarking to improve decision-making
