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Acc 1st Topic L6 in Slides

Accounting is a systematic process for identifying, recording, and communicating financial information, revealing a firm's profit or loss and asset values. Various users, including management, competitors, customers, and investors, rely on financial statements for decision-making and evaluations. The document also outlines ethical principles for accountants and different branches and concepts of accounting.

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9 views

Acc 1st Topic L6 in Slides

Accounting is a systematic process for identifying, recording, and communicating financial information, revealing a firm's profit or loss and asset values. Various users, including management, competitors, customers, and investors, rely on financial statements for decision-making and evaluations. The document also outlines ethical principles for accountants and different branches and concepts of accounting.

Uploaded by

Jay
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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ACCOUNTING

Definition
• It is a systematic process of identifying,
recording, measuring, classifying, verifying,
summarizing, interpreting and communicating
financial information. It reveals profit or loss
for a given period, and the value and nature
of a firm's assets, liabilities and owners'
equity.
Users of financial statements
• Users of financial statements
• There are many users of the financial statements produced by
an organization. The following list identifies the more common
users of financial statements, and the reasons why they need
this information:
Users of financial statements
• Company management. The management team needs to
understand the profitability, liquidity, and cash flows of the
organization every month, so that it can make operational
and financing decisions about the business.
• • Competitors. Entities competing against a business will
attempt to gain access to its financial statements, in order
to evaluate its financial condition. The knowledge they
gain could alter their competitive strategies.
Users of financial statements
• Customers. When a customer is considering which supplier to select
for a major contract, it wants to review their financial statements first,
in order to judge the financial ability of a supplier to remain in
business long enough to provide the goods or services mandated in
the contract.
• • Employees. A company may elect to provide its financial
statements to employees, along with a detailed explanation of what
the documents contain. This can be used to increase the level of
employee involvement in and understanding of the business.
Users of financial statements
• Governments. A government in whose jurisdiction a company is
located will request financial statements in order to determine
whether the business paid the appropriate amount of taxes.
• • Investment analysts. Outside analysts want to see financial
statements in order to decide whether they should recommend
the company's securities to their clients.
• • Investors. Investors will likely require financial statements to
be provided, since they are the owners of the business, and
want to understand the performance of their investment.
• Lenders. An entity loaning money to an organization will require financial
statements in order to estimate the ability of the borrower to pay back all loaned
funds and related interest charges.
• • Rating agencies. A credit rating agency will need to review the financial
statements in order to give a credit rating to the company as a whole or to its
securities.
• • Suppliers. Suppliers will require financial statements in order to decide whether
it is safe to extend credit to a company.
• Unions. A union needs the financial statements in order to evaluate the ability of a
business to pay compensation and benefits to the union members that it
represents
Ethics

•CODE OF ETHICS FOR


PROFESSIONAL ACCOUNTANTS
•Fundamental Principles 100.4 A
professional accountant is required
to comply with the following
fundamental principles
CODE OF ETHICS FOR
PROFESSIONAL ACCOUNTANTS
• (a) Integrity A professional accountant should be straightforward
and honest in all professional and business relationships.
• (b) Objectivity A professional accountant should not allow bias,
conflict of interest or undue influence of others to override
professional or business judgments
CODE OF ETHICS FOR
PROFESSIONAL ACCOUNTANTS
• (c) Professional Competence and Due Care A professional
accountant has a continuing duty to maintain professional
knowledge and skill at the level required to ensure that a client
or employer receives competent professional service based on
current developments in practice, legislation and techniques. A
professional accountant should act diligently and in accordance
with applicable technical and professional standards when
providing professional services.
CODE OF ETHICS FOR
PROFESSIONAL ACCOUNTANTS
• (d) Confidentiality A professional accountant should
respect the confidentiality of information acquired as a
result of professional and business relationships and
should not disclose any such information to third parties
without proper and specific authority unless there is a
legal or professional right or duty to disclose. Confidential
information acquired as a result of professional and
business relationships should not be used for the
personal advantage of the professional accountant or
third parties
CODE OF ETHICS FOR
PROFESSIONAL ACCOUNTANTS

• (e) Professional Behavior A professional


accountant should comply with relevant
laws and regulations and should avoid
any action that discredits the profession.
Types of business organizations
• 1. Formal business organizations
• Formal organization is one with a fixed set of rules of intra-organization
procedures and structures. As such, it is usually set out in writing, with a
language of rules that ostensibly leave little discretion for interpretation.
• 2. Informal business organizations
• The informal organization is the interlocking social structure that governs how
people work together in practice. It is the aggregate of, norms, personal and
professional connections through which work gets done and relationships are
built among people who share a common organizational affiliation or cluster
of affiliations. It consists of a dynamic set of personal relationships, social
networks, communities of common interest, and emotional sources of
motivation. The informal organization evolves, and the complex social
dynamics of its members also.
BRANCHES OF ACCOUNTING
. Financial accounting is a specialized branch
of accounting that keeps track of a company's
financial transactions. Using standardized
guidelines, the transactions are recorded,
summarized, and presented in a financial
report or financial statement such as an
income statement or a balance sheet.
BRANCHES OF ACCOUNTING
• 2. Financial Reporting involves the disclosure of
financial information to the various stakeholders about
the financial performance and financial position of the
organization over a specified period of time. These
stakeholders include – investors, creditors, public, debt
providers, governments & government agencies. In
case of listed companies the frequency of financial
reporting is quarterly & annual.
BRANCHES OF ACCOUNTING
• 3. According to the Institute of Management
Accountants (IMA): "Management accounting is a
profession that involves partnering in management
decision making, devising planning and performance
management systems, and providing expertise in
financial reporting and control to assist management
in the formulation and implementation of an
organization's strategy".
BRANCHES OF ACCOUNTING
• 4.Cost accounting is an accounting method that aims
to capture a company's costs of production by
assessing the input costs of each step of production
as well as fixed costs, such as depreciation of capital
equipment. Cost accounting will first measure and
record these costs individually, then compare input
results to output or actual results to aid company
management in measuring financial performance.
Accounting concepts
• Rules of accounting that should be followed in preparation of all
accounts and financial statements. The four fundamental concepts are
• (1) Substance over form is an accounting concept which means that the
economic substance of transactions and events must be recorded in
the financial statements rather than just their legal form in order to
present a true and fair view of the affairs of the entity.
• (2) Consistency concept: once an accounting method has been chosen,
that method should be used unless there is a sound reason to do
otherwise;
Accounting concepts
• (3) Going concern: the business entity for which accounts
are being prepared is in good condition and will continue
to be in business in the foreseeable future;
• (4) Prudence concept (also conservation concept):
revenue and profits are included in the balance sheet only
when they are realized (or there is reasonable 'certainty'
of realizing them) but liabilities are included when there is
reasonable 'possibility' of incurring them.
Accounting concepts
• (5) Historical Cost basis: asset value recorded
in the account books should be the actual cost
paid, and not the asset's current market value;
• (6) Matching: transactions affecting both
revenues and expenses should be recognized
in the same accounting period;
Accounting concepts
• 7) Materiality: minor events may be ignored, but the
major ones should be fully disclosed;
• (8) Money measurement: the accounting process
records only activities that can be expressed in
monetary terms (with some exceptions);
• (9) Realization: any change in the market value of an
asset or liability is not recognized as a profit or loss until
the asset is sold or the liability is paid off;

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