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Frk 111 - Chapter 1 Summary
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This is a comprehensive and detailed summary on Chapter 1; Nature and function of accounting for FRK 111. Quality stuff!! U'll need it!!
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1. Nature and function ofaccounting
1.1. History and development of accounting
Luca Pacioli and the double-entry system
Assets, equity and liabilities will each have both a debit and credit side and each type
of asset, equity and liability will have its own account (which will appear in the
general ledger)
Purpose of these accounts is to summarise all transactions that will have an
influence on them
To ensure double entry system is adhered to, for every debit there will be a
corresponding credit
These entries correspond with the influence the transaction has on assets, equity
and liabilities so always remember that the accounting equation must always be in
balance.
Further development of accounting
As businesses grew and started to go global and some merged/ took over other businesses,
accounting developed too. This is known as the conceptual framework.
In SA, financial information had to adhere to SA standards of Generally Accepted Accounting
Practice (GAAP)
Because of globalisation, international standards were set by an independent, non-profit
organisation called the International Accounting Standards Board (IASB) jointly known as
International Financial Reporting Standards (IFRS)
Two most prominent SA accounting bodies are; The South African Institute of Chartered
Accountants (SAICA) and the South African Institute of Professional Accountants (SAIPA)
formerly known as CFA and CPA
The goal of IFRS is to provide a global framework for how entities prepare and disclose
financial statements. They provide general guidance for the preparation of financial
statements
International standards are important for large entities with interests in different countries.
Single set international standards simplify accounting procedures by allowing an entity to use
one reporting language throughout. Single standards also provide investors and auditors
with a consistent review of finances
1.2. What is accounting
A continuous scientific process
That involves bookkeeping of transactions
And the reporting of financial activities of an entity
Through financial statements to the users thereof
The aim of accounting
Provide financial information about entity’s economic activities
, To current and future interested parties
To enable them to make informed decisions about the entity
The domains of accounting
Accounting
financial Management
accounting accounting
Financial accounting: a medium through which financial information is communicated to
interested parties by means of three primary statements (the statement of profit or loss and
other comprehensive income, the statement of financial position and the statement of cash
flows) thus it is mainly for external users of financial information
Management accounting: is concerned with reporting on specific activities inside the entity
and caters mainly for internal users of financial information. Financial statements fit the use
of management accounting can be compiled on a weekly, monthly quarterly or half-yearly
basis.
1.3. What is an entity
An economic unit;
That operates separately from other units and;
Whose financial statements are recorded separately from any other unit
It can be a person, partnership, close corporation, company or non-profit organisation
An entity with a legal personality has authority to own property, incur debt and perform all other
legal acts as if it is a person. Close corporations and companies resort under legal entities.
financial
1.4. Financial statements statements
Post-closing trial
balance
Closing process
Post-adjustment
trial balance
Adjustments
Pre-adjustment
trial balance
Ledgers and (12th trial
monthly trial balance)
Journals balance
Occurance of
transactions
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