Generally Accepted Accounting Principles and Income Revenue Expenditure Essay

Submitted By PrinceDimitri
Words: 705
Pages: 3

FACTSHEET
Task 1
Accounting is the way in which the business records of their financial statements.
The difference between management and financial accounting is that management accounting provides information to people within the organisation whereas financial accounting is for those outside the organisation such as shareholders.
The following are examples of financial accounting documents explaining what they are used for and who uses them.
1. Profit and loss account – This is used to show the business as to how much profit they are making as well as how much they are losing to certain limitations of the business. Third parties usually use profit and loss accounts to get a clear insight of the business and how well they are doing. This can include competitors wanting to do better than the business.

2. Budgets – This is used to show the business as to where the money is going and where the money is allocated. The people who use this information are people within the organisation and this is primarily because it shows each department how much money they are allowed as well as how to manage their money.

3. Cash flow – this is used to give a forecast as to how the business is doing and shows as how much money comes in and out. This is usually used by the accountants so that they can get an overview of the business and then make sense out of it for the managers to understand it.

The implications of not using financial accounts correctly is that they can essentially deal with legal issues and this is because they are breaking the law by recording data which is not that of a validity that can be trusted. Due to the fact that certain financial documents are confidential, therefore if in the wrong hands they can get insights to the business in which they are not entitled to.
The following are examples of management accounting documents explaining what they are used for and who uses them.
1. Pay slip – This is used for an employee to see how much they are getting paid. This is used by the manager so that he can pay the employees.

2. Income statement – This is used for the business to see how much income they have and is used by accounting department, finance department and the manager.

3. Budgets – This is used to show the business as to where the money is going and where the money is allocated. The people who use this information are people within the organisation and this is primarily because it shows each department how much money they are allowed as well as how to manage their money.

The implications of not using management accounts correctly is that the income in which the business will generate will be handed out into wrong departments because it…