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Summary Lecture Notes - Introduction To Accounting
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This lecture note explains accounting in brief. What is accounting, what are the types of accounting, and the different types of accounting reports.
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1.4 Essential reading and resources – 1What is accounting and why is it relevant?
Accounting is synonymous to the provision of financial information. Accountants collect, analyse and
communicate financial information to relevant user groups, in order to inform their decision making. An
important user group is the management of the firm which requires accounting information in order to decide
about:
the mix and quantity of products/services to produce and sell
whether the business should invest in a new project or not
the short-term and long-term financing needs of the business
how to cost their products/services and determine their price
whether to produce a component in-house or outsource
These are just some of the areas where accounting can facilitate better decision making.
External users such as investors, lenders, suppliers and competitors will also be interested in accounting
information, in order to assess:
whether to invest or withdraw their investment in the business (investors)
whether to offer a loan to the business (lenders)
whether to supply the firm with goods and what credit terms to offer (suppliers)
the profitability, efficiency and liquidity position of the business (competitors).
From the above examples, you should realise that accounting is much more than just preparing accounts and
double-entry bookkeeping. Accounting plays an essential role in informing better financial decision making.
This will be a recurring theme in this module.
Users of accounting information
McLaney and Atrill. Original materials from Accounting and finance: an introduction © copyright 2019
Pearson Education ltd. All rights reserved
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, Accounting information is useful to multiple different user groups. Note that this is not exhaustive. All of the
user groups above are likely to have an interest (or a stake) in the business. That is why they are known as
stakeholders (not to be confused with the shareholders who are the owners of the firm!). Each stakeholder
group will have their own unique informational needs. The challenge for the business is to provide
accounting information that is useful and relevant to the various stakeholders.
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