Financial Accounting An Integrated Approach

Financial Accounting An Integrated Approach - Financial...

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Financial Accounting An Integrated Approach 1 Introduction to financial accounting 1.1 Use, preparation and concepts 1.2 Financial accounting Financial performance means generating new resources from day-to-day operations over a period of time. Financial position is the enterprise’s set of financial resources and obligations at a point of time. Financial statements are the reports describing financial performance and position. Notes are part of the statements, adding explanations to the numbers. 1.3 The social setting of financial accounting 1.4 The people involved in financial accounting A user’s main demand is for the credible periodic reporting of an enterprise’s financial position and performance. The main groups of users owners and potential owners, creditors and potential creditors, managers, employees and unions, regulators and other government bodies, financial market analysts, accounting researchers, competitors, consumers and miscellaneous third parties such as politicians, journalists and judges. The preparers, or decision facilitators, are managers, accountants and bookkeepers and clerks. The auditors are credibility enhancers. 1.5 Accrual accounting Cash accounting involves recording revenues and expenses at the time cash is received or paid. It is reasonably precise. Accrual accounting involves recording revenues and expenses at the time they occur, not when cash is received or paid, because the timing of cash flow is often in a different accounting period to the substance of the transaction. Using the accrual accounting approach, attempts are made to: Include all cash receipts and payments that have already happened, as well as future cash receipts and payments that should be expected, based on existing transactions Measure the value of incomplete transactions Estimate figures when exact amounts are unknown Make an economically meaningful overall assessment of awkward problems. 1.6 The key financial statements The balance sheet shows an organisations resources and claims on resources at a particular point of time, thus indicating the organisation’s financial position at of that time. Assets = Liabilities + Shareholder’s Equity (A = L + SE) Assets are future economic benefits that are controlled by an organisation as a result of past transactions or other past events. Their value needs to be measurable in monetary terms. Liabilities are the future sacrifices of economic benefits that an organisation is presently obliged to make to other organisations or individuals as a result of past transactions or events.
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Shareholder’s equity is the excess of assets over liabilities. It is a residual claim of the shareholders on the assets of the organisation. It consists of two main elements: Share capital is the amount that owners have directly invested in the company. Retained profits represent the total cumulative amounts of profits that the company has retained in the business rather than
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This note was uploaded on 01/22/2011 for the course ACCT 101 taught by Professor Helen during the Three '10 term at University of New South Wales.

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Financial Accounting An Integrated Approach - Financial...

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