Download - Week 1 L Accounting Information & Role
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Week 1
The Role of Accounting Information inBusiness Organisations
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The Role of Accounting Information inBusiness Organisations
Aim
To introduce students to the purpose and scope of FinancialAccounting
Learning outcomesAfter studying this session, you should be able to:-
(1) Define accounting and the information it provides
() !dentify users of financial accounting information
(") !dentify the desirable #ualities of accounting information($) %nderstand the differing roles of the accounting profession
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Accounting
What is accounting? Or
What do you do as an accountant?
Why do you do that?
&ecording, analysing and summarising thetransactions of an entity to provide information fordecision ma'ing
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The scope and objectives of financial accounting
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The Purpose of Accounting:
Why do you keep accounting records?
o* much profit or loss has the business made+
o* much money do ! o*e+
ill ! have sufficient funds to meet my commitments+
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Accounting as an information system
Accounting is an information system *hichprovide useful information to the decision ma'ers
ainly, there are t*o types of accounting systemaccording to their users:
To the e.ternal usersFinancial
accounting system
To the internal usersanagerialaccounting system
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Types of information
Financial accounting 0
&ecording the day to day activities of business
roducing periodic summaries
2nd result is for e.ternal usersrepared in accordance *ith la* and accounting
standards
istorical nature
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Financial accounting system
Financial accounting is an information system *hichprocesses financial transactions to provide useful financialstatements to
4urrent and prospective investors,
Financial analysts and
All the public interests
Financial accounting system:
Inputs!et of
financialtransactions
"rocessingRecording#
summari$ing data
Outputs!et of financial
statements
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Types of information
%anagement accounting - The supply of accountinginformation to internal management in order that
!t can attempt to plan and control its future business
activities
!nternal %sers
6ot a legal re#uirement
istorical and future planning
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&ifferences 'et(eenFinancial and %anagerial accounting
Financial accounting %anagerialaccounting
Type of information )istoricalinformation
Forecasting for thefuture
Type of users *+ternal users Internal users
Outputs Financial statements Budgets
Type of figures ,uantitati-e only ,uantitati-e and.ualitati-e
Why (e pro-ide them %andatory Optional
)o( could (e preparethem
According to IFR! ornational accountingstandards
According to themanagement re.uest/
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Types of information
Financial management 0
4oncerned *ith raising finance and
4ontrolling financial resources,
For e.ample:- Dividend payment decision
- 9an' loans
- 4redit anagement
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Types of information
Auditing
;imited company accounts must be audited by anindependent, #ualified e.ternal auditor
The auditor reports on *hether the accounts sho* atrue and fair vie*
!nternal auditors have a role defined bymanagement, usually reporting on the effectiveness
of controls
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0sers of accounts
2#uity !nvestor
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*+ternal users Internal users
1 !nvestors
9an's"
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haracteristics of useful information
!nformation that is most useful for decision ma'ing
"rimary .ualities
1- &elevance
- &eliability!econdary .ualities
"- 4omparability
$- %nderstandability /- Timeliness> 4onsistency
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"rimary .ualities1/
1/ Rele-ance
!nformation must be relevant to the decision-ma'ingneeds of users
&elevance is closely related to timely informationFor e.ample:
A potential investor to predict future profitability anddividend levels *ill be at least partly based on the
financial statements
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"rimary .ualities13
2/ Relia'ility
3a4Faithful representation 0 information provided must representfaithfully
3' 4 5eutrality6o'7ecti-ity
!nformation must be neutral, that is free from bias and provided in anob?ective manner
3c4 "rudence
- Assets or income are not overstated and
- ;iabilities or e.penses are not understated
3d4 ompleteness!t must be complete *ithin the bounds of materiality and cost
An incomplete information can cause to be false or misleading and thusunreliable
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!econdary .ualities15
8/ ompara'ility
%sers need to be able to compare financial statements
of a business through time to identify trends in itsfinancial position and performance
%sers also need to be able to compare one business
*ith another
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!econdary .ualities17
9/ 0nderstanda'ility
!nformation provided to users must not be so comple.
that a user *ith a reasonable 'no*ledge of accounting,*ould not be able to understand it
To ensure that all information relevant to users is
given to them even though it may be comple.
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!econdary .ualities18
:/ onsistency
The presentation and classification of items in thefinancial statements should stay in the same form
from one period to the ne.tFor e.ample:
Depreciation method
=toc' valuation method
6ote: A change is allo*ed if there is a significantchange in the nature of the operation or a change isre#uired by !F&=
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Business organisations
=ole traders
artnerships
4ompanies - private and public
4lub>=ociety4harities
!dentify the basic characteristics in your group
2n?oy drag and drop activity