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FAC1503-accounting summaries.
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FAC1503-accountingsummaries.
, lOMoARcPSD|15195834
Accounting
Ch 1 function and objectives of accounting
Bookkeeping: identification and recording of economic events
Accounting : orderly and systematic identification and recording of monetary values of economic transactions of an
individual entrepreneur (person) or business enterprise (entity or institution), the reporting on the results of these
transactions, and the provision of financial information by submitting financial statements, which information is used
as a basis or decision making. Incl bookkeeping.
GAAP: generally accepted accounting practices
SAICA: south afr institute of CA
APB: accounting practices board – the ones who ok GAAP, issues IFRS ( intnl financial reporting standards); adopted
IASB( intnl acc standards board FRAMEWORK for the prep and presentation of financial statements); intnl text of IFRS
( intnl fin reporting standard) approved
IFRS- apply to all general purpose fin statements
Objective of fin statements: to provide info about fin pos, performance and cash flows of an entity that is useful to
those users in making economic decisions
Companies act requires financial statements that comply with provisions. If fin st prepared acc to GAAP, can be
incorporated or not
Function of acc: provide fin info to all interested parties
Financial results of economic activities (use of resource to create new value)
- Value added to net worth of a person or entity during particular period
- Accumulated net worth of entity or person
Info on fin results of entity provided in complete set of fin statements
- St of fin position as at end of period
- St of comprehensive income for period
- St of changes in equity for period
- St of cash flows for period
- Notes: summary of significant acc policies and other explanatory info
- St of fin pos as at beginning of earliest comparative period when entity applies acc policy retrospectively or
makes a retrospective restatement of items in its fin statements, or when it reclassifies items in its fin st
Notes: risks, uncertainties, resources, obligations
Entity concept: economic unit whose fin results are determined on its own, separate from owners, define entity
clearly. Most defined by statute eg companies, cc, or common law. Does not have to be acknowledged legal entity,
any economic entity that requires st = accounting entity.
Private with profit motive: sole proprietor
: partnerships
:cc
: companies
Private without profit motive: clubs
: Charitable orgs
: churches,
:ed institutions
, lOMoARcPSD|15195834
:associations and trusts
Public: state and organs
Purpose of Framework is to assist:
- Development of future acc standards, review of existing standards
- Harmonise regs to reduce number of alternative acc treatments
- National standard setting bodies to dev national acc standards
- Prepares of fin st to apply acc standards
- Auditors to assess if fin st in line with intnl acc standards
- Users of fin st to interpret and evaluate info in fin st
Fin st do not incl director or chairman reports, management discussions or analysis, belong in fin or annual report.
Reporting entity= entity for which there are users who rely on the fin st as their major source of fin info about the
entity.
Need for fin info:
- Support decision-making
- Decisions directed at planning or exercising control
- Planning decisions- historical info as basis to plan future actions
- Control decision- evaluate results of fin activities, take corrective steps
- Accountability and stewardship
Users use fin st to
- Decide when to buy, sell, hold equity investment
- Assess stewardship and accountability of management
- Assess ability of entity to pay and provide benefits to employees
- Assess security for amounts lent to entity
- Determine taxation policies
- Determine distributable profits and dividends
- Prepare and use national income stats
- Regulate activities of entities
Users: investors (provide capital), employees (stability and profitability, benefits), lenders (repaid with interest),
suppliers, trade cred ( amounts due paid), customers (continued existence), governments and agencies (resource
allocation, regulation, taxation, stats), public.
Responsibility of management to prepare and present fin st
Objective of fin st:
- Provide useful info about fin performance, fin position and changes in fin pos
- Result of stewardship
- Does not necessarily show non-financial info
Financial performance:
-financial results= fin performance for particular period and fin pos at specific point in time
- reflects profit made or loss incurred by entity over spec period of time
- statement of comprehensive income: revenue and expenses shown as separate items; shows profit or loss
- assess potential changes, predicts capacity to generate cash flows from existing resources
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