Intro to Accounting

Financial Accounting

It is the process of Recording, Classifying, Summarizing, Interpreting information of financial nature; and Communicating the results to stakeholders.

WHAT IS ACCOUNTING?

Accounting comprises two stages:

• Book-keeping, which is the recording of day-to-day business transactions
  
• Preparation of accounts. i.e. summarizing the transactions of a period to provide interested parties with information about the performance and position of a business – usually over a period of one year.

Users of Financial Accounting Information

• Management
  
• Employees
  
• Customers (existing and potential)
  
• Government
  
• Banks /creditors
  
• Investors (existing and potential)
  
• General Public
  
• Students

Accounting - Importance

• Planning
  
• Decision making
  
• Motivation
  
• Controlling
  
• Organising

Accounting - Problems

• Only measures items that can be quantified in money terms
  
• Records only past information
  
• Cannot be prepared to satisfy the needs of all stakeholders

FEATURES OF USEFUL FINANCIAL INFORMATION

• Relevant for decision making
  
• Complete for its purpose.
  
• Should be sufficiently accurate for its purpose.
  
• It should be clear to the manager (and the stakeholders) using it.
  
• It should be timely.
  
• It should be provided at a cost which is less than the value of the benefits it provides

DIFFERENCE BETWEEN MANAGEMENT AND FINANCIAL ACCOUNTING

Management accounting

• Information is used within a business
  
• No to comply with IAS
  
• focus on specific areas of an organisation’s activities
  
• Uses predetermined costs, estimates and budgets for decision making

Financial Accounting

• For both internal and external use
  
• There is the need to comply with IAS
  
• concentrates on the organization as a whole
  
• Uses historical data