Summary Accounting and Finance for Non-Specialists 11th edition + MyLab Accounting, ISBN: 4099 Finance & Accounting
Summary of my accounting lab, spare yourself spending a lot of hours practicing online by using this document. Easy to pass!
Written in English, a few Dutch assignment notes ar...
1.1 what is accounting and nance
• Accounting reports are not made to understood by everyone; only people who know
how to read it and how to deal with nance and accounting.
• Businesses tend to produce accounting information that exceeds the minimum
requirements required by accounting regulations.
• The purpose of accounting is concerned with collecting, analysing and communicating
nancial information. The ultimate aim is to help those using this information to
make more informed decisions. There is normally no close substitute for information
contained in accounting reports.
• Accounting exists primarily to help user decision-making.
Aspects that resulted in the business environment becoming more turbulent and
competitive:
- rapid changes in technology
- Increasing sophistication of customers
- Increasing regulations of domestic markets
- Increasing pressure from owners for economic returns.
Managers should deal with risk when setting objectives by balance it against the likely
return.
- The higher the level of risk, the higher the expected return.
• Financial management is most closely associated with acquiring and deployin short-
term an long-term nance required by a business.
1.2 users of accounting
Non-pro t organisations have similar user groups to private-sector businesses. These
groups use accounting information for decision-making purposes.
• Managers are internal users of nancial information.
• Managers have the most control over the range and content of information it receives.
• The various groups seeking to get access to nancial reports of a business are referred
to as user groups.
1.3 usefulness of accounting
• Accounting information should be produced until the point where the cost of providing it
is no longer less than the bene ts.
• Relevance is most concerned with predictive value and con rmatory value; in uencing
user-decisions concerning the prediction of future events and the con rmation of past
events.
• To be relevant accounting information must cross a threshold of materiality (this can
di er for every kind of business (size etc.)
• Three elements of faithful representation: freedom from error, neutrality and
completeness.
• Accounting information is veri able when various, independent experts are able to
reach a consensus that it provides a faithful portrayal.
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• There are 2 fundamental qualities (faithful representation and relevance) and four
qualities that enhance the usefulness of accounting information.
• It is very di cult to assess what decisions may or may not have been taken with
information and their economic bene ts. The other costs such as cost of users time
analysing and interpreting information can be di cult to assess.
• Accounting information is not always easy to cost as management time will have to be
factored in and it is di cult to assess bene ts because the whole range of information
may not be known along with likelihoods for decisions.
• Accounting information can incorporate estimates. Estimates contain a degree of
uncertainty.
• Accounting information should represent what it is supposed to represent. To d so, the
information provided must re ect the substance of what has occurred rather than
simply its legal form.
• FAITHFUL representation
1.4 Accounting as an information system
The four stages of an accounting information system are:
1. Information identi cation
2. Information recording
3. Information analysis
4. Information reporting
Accounting can be seen as
• A form of service
• Part of a business’ total information system
1.5 Management accounting and Financial accounting
• Financial accounting does include expectations concerning the future
• Management accounting is free from regulations from external sources
• Management accounting is more detailed.
• Management accounting has less intervals than nancial accounting.
• Financial accounting reports re ect the performance and position of the business from
the past. I essence, they are backward looking. Financial accounting reports tend to
be genera purpose, compared to often speci c purpose management accounting
reports.
• Management accounting reports provide management with a considerable level of
detail and are forwar looking; these characteristics aid planning and control decisions.
(also looking more into customers now)
• Forecast nancial information is rarely provided in nancial reports because of fears
that the business will lose competitive advantage and fears over user ignorance
concerning the accuracy of forecast information.
1.6 The nancial objectives of a business
• A business is normally created to enhance the wealth of the owners.
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Chapter 2
2.1 The major nancial statements
Once assets are revalued, the frequency of revaluation then becomes an important issue
as assets recorded at out-of-date values can mislead users. Using out-of-date
revaluations on the statement of nancial position is problematic. It lacks the objectivity
and veri ability of historic cost; it also lacks the realism of current values. Revaluations
should therefore be frequent enough to ensure that the net book value, or carrying
amount, of the revalued asset does not di er materially from its fair value at the statement
of nancial position date.
Statement of nancial position can be seen as a snapshot.
• This statement doesn’t show how pro t is generated.
Cost of goods sold = only the costs of the goods that are sold.
Cash paid to buy (magazines) = all the cash that is paid for the total amount that is
bought and not necessary sold already.
Statement of cash ows:
- Opening balance
- Cash from sales of (magazines)
- Cash paid to buy (magazines)
- Closing balance
Income statement:
- Sales revenue
- Cost of goods sold
- Pro t or loss
Statement of nancial position:
- cash (closing balance)
- Inventories
- Total assets
- Equity
* all negative numbers needs to be between brackets.
2.2 Assets and claims:
The accounting quotation is equity + liabilities = assets / assets - liabilities = equity
* if the company has bought something on credit this amount outstanding will appear as
a trade payable.
* If someone has bought something on credit from the company this amount outstanding
will appear as a trade receivable (both are short term and will increase or decrease
cash)
- Assets are the economic resources of a business that are expected to bene t the
business in the future.
- Liabilities are amounts payable to outsiders.
- Equity is th owner's claim to the assets of the business.
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A current asset is not held principally for investment in the current period. It is held as:
- cash or near cash equivalent.
- It is expected to be sold within one year.
- It is held for sale or consumption during the business’ normal operating cycle.
*businesses are free to choose their accounting year.
- To comply with the accounting rules, internally generated goodwill should not be
shown as an asset on the statement of nancial position.
*if you need to calculate the total assets and you know the net assets gure and
liabilities. Total assets = net assets + liabilities.
- Some intangible assets are quit di erent; they lack a clear and separate identity and
re ect a variety of attributes which are part of the essence of the business. Goodwill
and product brands are often seen as examples of assets that lack a clear and
separate identity
Things that will have an e ect on the equity gure on statement of nancial position:
- The introduction of th owner's motor car into the business.
- The sale of inventories at a loss.
- Revalued inventories costing 16,000 to their net realisable value of 11,000
- Received 8000 from cash sale of inventories costing 7000.
*If there are n non-current liabilities the non-current ( xed) asset + current assets -
current liabilitie = ownership interest.
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