Introduction to Accounting and Finance

ACFI 1001 Chapter One Summary Introduction to Accounting and Finance

Accounting Definition Accounting is an information system concerned with the collection, analysis and communication of economic information. The role of accounting information The role as the provision of economic information to assist in: y Decision making y Planning y Control Main user groups for a business entity: y Resource providers owners, lenders, suppliers, employees y Recipients of goods and services customers y Reviewers auditors, government, unions, competitors, special interest groups y Managers Different uses that can be made of accounting information: y Financial information efficient use of resources y Financial position longer-term stability y Liquidity short-term survival y Compliance with plans, sales, expectations, regulations y Social Responsibility in relation to physical, environmental and human resources Different Procedures involved in the accounting information system: y Information identification relevant economic information y Information recording systematic y Information analysis including interpretation y Information reporting matching user needs Key characteristics of accounting information y Relevance decision usefulness in confirmation or prediction y Reliability to faithfully present y Comparability in classification, measurement and presentation y Understand-ability user-friendly y Cost/Benefit benefits exceed the cost of processing Recent crisis in accounting Common aspects of questionable financial reports: y Overstated figures for income and assets y Understated figures for expenses and liabilities y Inappropriate behaviour by management acting to satisfy shareholder and personal interests

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Introduction to Accounting and Finance Steps in the planning process y Setting the objectives or mission explains what the business is trying to achieve y Setting long-term plans explains how the objectives will be achieved over the medium term y Setting the budget represents the short-term financial plan Nature of control in the decision making process Control is identified as compelling events to conform to the plan Alternative business objectives: y Maximise sales y Maximise profit y Maximise investors return y Financial survival y Financial stability y Growth y Satisfying y Sustainable development y Wealth enhancement Differences in financial and management accounting Financial Accounting Report Nature General purpose Level of Detail Aggregated Restrictions Standardised or regulated Reporting Interval Less Frequently Time horizon Backward-looking Range of information Primarily monetary and objective Main Financial Reports y Cash-flow statements y The balance sheet y The statement of changes in owners equity y Income statement (profit and loss account)

Management Accounting Special purpose Dissected Minimum restrictions More Frequently Forward-looking Often non-monetary with less objective constraints

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