Apuntes Introduction to Accounting

INTRODUCTION TO ACCOUNTING
Practical sessions group 81

UNIT 1: ACCOUNTING AND INFORMATION SYSTEM

1. Accounting concept and objectives
2. Classification of Accounting
3. Users of Accounting information
4. The Accounting framework
4.1 Requirements for Accounting information
4.2 Accounting harmonization and regulation

5. Spanish Accounting Plan

1. Accounting concept and objectives

Accounting is about the past, organizing data to know what happened in the firm. We
have two types of statements: Financial statements (Balance sheet and Income
statement (past)), Budget (future). Financial statements (Balance sheet and Income
statement (past)), Budget (future).

- Accounting is the language of business
- Accounting is the process of identifying, measuring, processing, and
communicating financial information about a business or other economic entity.
- Accounting organized and summarized economic information for decision
makers.

Accounting is a link between business activities and decision makers



2. Classification of Accounting

, • Financial accounting is concerned with the development of external information
for users outside the company
- External decision-makers use financial statements to evaluate how well a
business has achieved its goals
• Managment accounting is defined to include the information developed for
people within the company as an aid in decision-making and improve the
efficiency and effectiveness of existing products and services
- Internal decision-makers use information provided by management
accounting about operating, investing, and financing activities. It provides
information about how they have done in the past and what they can expect
in the future.

3. Users of Accounting information

Major categories of decision-makers/users:

1. Internal users: They are permanently linked to the company. They are the users
with the capacity to make decisions regarding the management and control of
the company.
• Managers (CEOs, members of the board and middle managers)
2. External users: They are affected by the company´s decisions.
• With a direct financial interest in the business: investors (owners and
shareholders), creditors and lenders, customers.
• With an indirect financial interest in the business: government and tax
authorities, labour unions and employees; Auditors; General public.

1-B

2-G

, 3-C

4-A

5-E

6-F

7-D

4. The Accounting Framework

The objective of the accounting framework is to provide a true and fair view of the entity
to aid the economic decision making.

It sets out the concepts that underline within the preparation and presentation of
financial statements for external users. They are like the rules of “accounting game”.

General Accepted Accounting Principles (GAAP):

Professional framework for measurement and disclosure of financial information.

There are two primary sets of GAAP:

• International Financial Reporting (IFRS) in European Union countries.
• US GAAP in U.S companies

Both sets of accounting conceptual frameworks contain conventions, rules and
procedures that determine acceptable accounting practices.

International Accounting bodies and professional organisations

- International Accounting Standards Board (IASB)
- International Federation of Accountants (IFAC)
- Accountancy Europe
- American Accounting Association (AAA)
- Financial Accounting Standard Board (FASB)

National Accounting bodies and professional organisation in Spain

- Accounting and Auditing Institute (“Instituto de Contabilidad y Auditoría de
Cuentas”) (ICAC)
- Spanish Accounting and Business Administration Association (“Asociación
Española de Contabilidad y Administración de Empresas”)

The accounting framework in Europe:

International Financial Reporting Standards (IFRS): accounting guidelines formulated
by the international Accounting Standards Board (IASB).