ACCT1501_Study_Notes - ACCT1501 Notes Cheryl Mew Chapter 1 Introduction to Financial Accounting The basic purpose of financial accounting is to

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ACCT1501 Notes Cheryl Mew Chapter 1 Introduction to Financial Accounting The basic purpose of financial accounting is to produce useful info which is used in many and varied ways. People use the info generated by financial accounting to improve their decision-making in allocating scarce resources. 1.2 Financial Accounting Accounting is a process of identifying, measuring and communicating economic information to allow informed decisions by the users of that information. Financial Accounting periodic financial statements to external decision makers (investors, creditors) Financial accounting measures performance and position Management accounting information for planning and performance reports (internal decision makers) Financial performance generating new resources from day-to-day operations over a period of time Financial position the enterprise‟s set of financial resources and obligations at a point in time Financial Statements reports describing financial performance and position Notes part of the statements, adding explanations to numbers 1.3 The Social Setting of Financial Accounting Financial accounting: o Helps stock market investors buy/sell/hold o Helps banks and lenders lend? o Helps mangers run enterprises (in addition to help from management acct) o Provides basic financial records for day-to-day mgmt, control, insurance and fraud prevention o Used by govt in monitoring actions of enterprises and in taxes, e.g. GST Accounting is not a passive force within the social setting it tells us what is going on, and in doing so, affects decision making 1.4 The People Involved in Financial Accounting Main Participants: Information users, information preparers, auditors
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ACCT1501 Notes Cheryl Mew Users User is someone who makes decisions on his own behalf, or on behalf of an org User‟s main demand is for the credible periodic reporting of an enterprise‟s financial position and performance Main groups of users: Owners, Potential Owners, Creditors and potential creditors, Managers, Employees, Regulators/govt, Financial and market analysts, Competitors, Accounting researchers, customers, miscellaneous third parties Preparers (Decision Facilitators) Main groups: Managers, Bookkeepers and clerks, Accountants Auditors (Credibility Enhancers) Auditors report on the credibility of the enterprise‟s finan cial statements, on behalf of owners and others. Assists users by verifying financial statements have been prepared fairly Internal and external auditors Role is to scrutinise the preparation process External auditors are appointed by the owners not allowed to be owner or manager, ensuring that auditor is independent from company‟s – objectivity Accounting firms offer external auditing, advice on income tax, accounting, comp systems and many other financial and business topics 1.5 Accrual Accounting Accrual accounting system, impact of transactions is recognised in the time
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This note was uploaded on 10/20/2011 for the course COMMERCE 3502 taught by Professor All during the One '11 term at University of New South Wales.

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ACCT1501_Study_Notes - ACCT1501 Notes Cheryl Mew Chapter 1 Introduction to Financial Accounting The basic purpose of financial accounting is to

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