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Intro to Accounting
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2 Accounting Areas Financial Accounting Past Events
Performance over the year Position at end of year Trading, Profit and Loss account Balance Sheet Cashflow Statement OBJECTIVE: Info for internal and external use to make economic decisions Comply with company law and accounting regulatory bodies Management Accounting Past and Future Events Budgeting Costing etc OBJECTIVE: information for the organisation to plan control and make economic decisions Info is for internal use for managers to make management decisions
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Qualities of financial information
Relevant – meet user needs Reliable – certified by auditor or a director Comparable – prepared on consistent basis from one period to the next so that results can be compared and economic decisions Understandable – Clear, concise and easily understood -follow convention
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Users Users Users Interests Banks and Lenders
Capacity to repay interest Ability to repay capital Security – collateral Gearing Trade Creditors Liquidity – working capital to repay Credit terms being met Where in the priority list Shareholders Profitability Dividend Share Value Liquidity – cashflow - keep trading Directors & Managers Liquidity – keep trading Management team and performance Employees and unions Wage levels – trend Staff levels Liquidity Competitors Comparison in performance Changes in business strategies Takeover potential Revenue Tax liability calculation EU and Gov grants Gov contracts Users
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4 Fundamental Concepts Going Concern – stay in business for foreseeable future 1 yr Accruals – income and expenditure accounted for in the period it occurs not in the period it is paid eg electric Consistency – items treated in same way from one accounting period to the next eg depreciation policy Prudence – caution should be exercised. Losses can be anticipated but not gains. Profits may not be overstated
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Explain these concepts
Other Concepts Entity Concept Money Measurement Concept Materiality Concept Realisation Concept Double Entry Principle Period of Accounting Convention Objective Concept Explain these concepts
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Accounting Bases Procedures and Policies for Preparing Accounts
How items are treated = accounting bases Eg how depreciation is treated, the method of stock valuation, use of the historical cost convention Accounting Policies used to prepare accounts should be explained by way of a note to the accounts. Notes should be clear, fair and brief
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