accounting

accounting

1. process/function of accounting

   • identify
     • measure
       • record
         • classify
           • summarise
             • communicate
               • stewardship
                 • issue annual financial reports to shareholders showing how funds entrusted&been used
               • decision making
                 • for the future in the entity
             • in financial statements
           • into 5 accounting elements-Assets,Liabilities,Expenses,Revenues,Capital
         • in a systematic manner by using double-entry bookkeeping system
       • all transactions that can be quantified/measured in monetary values
     • all transactions that related to business/has financial significance

2. 2 types

   • financial accounting
     • report to those outside the organisation
     • emphasize on summarising past activities
     • data must have objectivity&verifiability
     • information must be precise
     • must follow Accounting Standards
     • madatory to report
   • managerial accounting
     • report to those inside the organisation
     • empasize on decision making in the future
     • data must be relavant
     • information must be timely
     • need not follow Accounting Standards
     • not mandatory to report

3. users

   • shareholders
     • profitability,risk,safety,business performance
   • management
     • past&forcast information
   • lenders&creditors
     • profitability,future liquidity,cash flow
   • employees
     • future performance,survive,safe employment/promation
   • government
     • taxation,economics policies&regulations
   • public
     • allocation of resources,how it affected physical&commercial environment

4. qualitative characteristics

   • understandability
     • presentation of financial statements must be simple & clear,easy to read,data being classified appropriately,significant events are highlighted
   • reliability
     • users are able to depend upon with confidence,reliable information
       • faithful representative
       • verifiable
       • neutrality
       • completeness
   • comparability
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   • relevance
     • have potential to influence user's decisions
       • predictive
       • feedback
       • timeliness
       • completeness
       • materiality

5. elements of accounts

   • Assets
     • future economics benefits as a result of past transactions/events
     • fixed assets(providing service/returns >1year)
     • current assets(tangible benefits realisable <1year)
     • intangible assets (intangible benefits receivable in the future)
   • Liabilities
     • future sacrifices of economics benefits as a result of past transactions/events
     • debts owed by entity to outside parties
     • Long term liabilities(debts due >1year)
     • current liabilities(debts due<1year)
   • Revenues
     • inflows/savings in outflow of economic benefits
     • increases owner's equity
   • Expenses
     • consumption/losses of future economic benefits
     • decreases owner's equity
     • reduces in assets/increases in liabilities
     • benefits consumed <1 accounting period
     • benefits consumed in the case of assets
   • Capital/Owner's Equity
     • owner's residual claims against the net asset of entity
     • Net Asset=Capital