MANG 1046 – INTRODUCTION TO
ACCOUNTING AND FINANCE REVISION
NOTES
Accounting is defined as the management of economic events in of three basic
activities that is identification, recording and communication. The modern
accountant’s role is making decisions and not simply doing the function of
bookkeeping.
Managerial accounting refers to the interpretation of information for decision
making and control of an organisation’s operations. This is used by the internal users
of the company such as managers etc…
Financial accounting refers to the publication of financial statements and other
financial reports. This is used by external users of the company such as investors
etc…
Main elements in Accounting
Assets is a resource controlled by the entity from which future economic benefits are
expected to flow to the entity.
Liability is an entity’s obligation to transfer economic benefits as a result of past
events.
Equity is the residual interest in the assets of an entity after deducting all of its
liabilities.
Income is the increase in equity (other than those relating to contributions from the
owners).
Expense is the decrease in equity (other than those relating to contributions from
owners).
Main Accounting concepts and conventions
Business entity is the business being separate from its owner(s).
Historical cost refers to the transactions that are recorded at the cost when they
occurred.
Going concern happens when the entity will continue in operation for the
foreseeable future.
, Accruals refers to the revenue and costs that must be recognised as when they are
earned or incurred and not as money that is received or paid.
Consistency refers to the presentation and classification of items should stay the
same from one period to the next,
Materiality refers to the information that is material if its omission or misstatement
could influence the economic decisions of users.
The IFRS (International Financial Reporting Standards) identifies 2 levels of
qualitative characteristics of useful financial information.
Fundamental Qualitative Characteristics where it refers to the requirement for
information to be useful. This includes relevance and faithful representation.
Relevance refers to the information that is relevant if it influences stakeholder
decisions.
Faithful representation refers to the financial statements must capture the economic
activity of an entity. Information should be complete, neutral (freedom from bias) and
free from error (no significant errors or omissions).
Enhancing Qualitative Characteristics refers to the enhancement usefulness of
accounting information. This includes comparability, verifiability, understandability
and timelessness.
Comparability refers to the provision to its users with information that is readily
comparable.
Verifiability refers to the independence and knowledgeable observers should find
similar results when measuring an item.
Understandability refers to the accounting information that is prepared for
stakeholders with ‘reasonable understanding of business’.
Timeliness refers to the help for users to make informed decisions, for instance
shouldn’t be out of date.
There are 3 main types of profit-making business entity.
Proprietorship / Sole Trader
A sole trader is generally owned by one person, it is often a small service-type of
business organisations. Owner receives any profits, suffers any losses and is
personally liable for all debts incurred by the business.
A sole trader is defined as an individual that may enter into business alone by either
selling goods or providing a service. If cash is not available, the sole trader may
borrow from a bank to start off the business. Legally, the owner and the business are
treated as one legal entity and suffers from unlimited liability.
ACCOUNTING AND FINANCE REVISION
NOTES
Accounting is defined as the management of economic events in of three basic
activities that is identification, recording and communication. The modern
accountant’s role is making decisions and not simply doing the function of
bookkeeping.
Managerial accounting refers to the interpretation of information for decision
making and control of an organisation’s operations. This is used by the internal users
of the company such as managers etc…
Financial accounting refers to the publication of financial statements and other
financial reports. This is used by external users of the company such as investors
etc…
Main elements in Accounting
Assets is a resource controlled by the entity from which future economic benefits are
expected to flow to the entity.
Liability is an entity’s obligation to transfer economic benefits as a result of past
events.
Equity is the residual interest in the assets of an entity after deducting all of its
liabilities.
Income is the increase in equity (other than those relating to contributions from the
owners).
Expense is the decrease in equity (other than those relating to contributions from
owners).
Main Accounting concepts and conventions
Business entity is the business being separate from its owner(s).
Historical cost refers to the transactions that are recorded at the cost when they
occurred.
Going concern happens when the entity will continue in operation for the
foreseeable future.
, Accruals refers to the revenue and costs that must be recognised as when they are
earned or incurred and not as money that is received or paid.
Consistency refers to the presentation and classification of items should stay the
same from one period to the next,
Materiality refers to the information that is material if its omission or misstatement
could influence the economic decisions of users.
The IFRS (International Financial Reporting Standards) identifies 2 levels of
qualitative characteristics of useful financial information.
Fundamental Qualitative Characteristics where it refers to the requirement for
information to be useful. This includes relevance and faithful representation.
Relevance refers to the information that is relevant if it influences stakeholder
decisions.
Faithful representation refers to the financial statements must capture the economic
activity of an entity. Information should be complete, neutral (freedom from bias) and
free from error (no significant errors or omissions).
Enhancing Qualitative Characteristics refers to the enhancement usefulness of
accounting information. This includes comparability, verifiability, understandability
and timelessness.
Comparability refers to the provision to its users with information that is readily
comparable.
Verifiability refers to the independence and knowledgeable observers should find
similar results when measuring an item.
Understandability refers to the accounting information that is prepared for
stakeholders with ‘reasonable understanding of business’.
Timeliness refers to the help for users to make informed decisions, for instance
shouldn’t be out of date.
There are 3 main types of profit-making business entity.
Proprietorship / Sole Trader
A sole trader is generally owned by one person, it is often a small service-type of
business organisations. Owner receives any profits, suffers any losses and is
personally liable for all debts incurred by the business.
A sole trader is defined as an individual that may enter into business alone by either
selling goods or providing a service. If cash is not available, the sole trader may
borrow from a bank to start off the business. Legally, the owner and the business are
treated as one legal entity and suffers from unlimited liability.
