Hi everyone! No time to read the whole Accounting book or just need some help? Here is a summary of everything we need to know for the Accounting Final Written Exam. Good luck studying!
- Accounting consists of three basic activities - it identifies, records and communicates the
economic events of an organization to interested users.
- First a company identifies the economic events relevant to its business. Then, it records those
events in order to provide a history of its financial activities. Recording consists of keeping a
systematic, chronological diary of events, measured in money terms. Finally, a company
communicates the collected information to interested users by means of accounting reports.
- Bookkeeping: usually involves only the recording of economic events. It is therefore just one
part of the accounting process.
- Internal Users of accounting information are managers who plan, organize, and run the business.
These include marketing managers, production supervisors, finance directors, and company
officers. To help internal users make decisions Managerial Accounting provides internal reports
about their companies. Such as, financial comparisons of operating alternatives, projections of
income for new sales campaigns, and forecasts of cash needs for the next year.
- External Users are individuals and organizations outside a company who want financial
information about the company. These include investors (use the information to decide whether
to buy, hold, or sell ownership shares) and creditors (use the information to evaluate the risks of
granting credit or lending money). Financial Accounting provide economic and financial
information for investors, creditors, and other external users.
- The standards of conduct by which actions are judged as right or wrong, fair or not fair, are
ethics. Effective financial reporting depends on sound ethical behaviour.
- Convergence: the efforts to reduce the differences between the several types of accounting
standards.
- Both relevance and faithful representation are two primary qualities that make accounting
information useful for decision-making. Here, Relevance is when the financial information is
capable of making a difference in a decision and Faithful Representation means the numbers and
descriptions match what really existed or happened.
- Cost Principle: dictates that companies record assets at their cost. This is true at the time the
asset is purchased and held.
- Fair Value Principle: states that assets and liabilities should be reported at fair value (the price
received to sell an asset of settle a liability).
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