Introduction to Accounting: Concepts, Bases and Policies

Objectives of financial accounting

Financial statements

Trading

Profit and Loss acc

Balance Sheet

Cash Flow

Financial Accounting

Organisation of the current accounting period

Financial position at the end of the year

Managment Accounting

Future financial desicions

past transactions

Firm can:

Plan

Control

Make desicions

Qualities of financial information

Relevant

Meet requirements

Reliable

certified by director/auditor

Comparable

compared on consistent bases

Understandable

info. should be clear, concise and understandable

Users of Financial accounting

Banks, lending institutions

Trade Creditors

Ordinary Shareholders

Employees and trade unions

Government

Four Fundamental Concepts of Accounting

Going Concern

no intention that the business may close down

Accruals

all income and exp. must be included whether or not they have been paid or recieved

Consistency

Accounting items must be treated the same

Prudence

Caution!!! Profits shouldn't be overstated etc

Accounting Basis

the ways in which items are treated

Accounting Policy

when a business decided what base will they use

Other Accounting concepts

Entity

Distinction between business affairs and private affairs

Money measurement

items with monetary value

Materiality

greater than 5%of profits,then its a material

Realisation

profits are earned when goods/services are passed to customer

Double Entry

every Debit,a corresponding Credit

Period of account

one acc period consists with the next

Objectivity

accounts are prepared with no personal bias