NZAtrill CH01 WIP Essay

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Chapter 1
Introduction to accounting and finance Compiled by N. C. McGuigan and T. Kern © 2011 Pearson

Learning objectives
1. Define accounting
2. Discuss the role of accounting information
3. List the main user groups for a business entity
4. Summarise the different uses that can be made of accounting information 5. Explain the different procedures involved in the accounting information system
6. State the key characteristics of accounting information

© 2011 Pearson

Learning objectives cont’d
7. Discuss the recent crisis in accounting
8. Relate the steps in the planning process
9. Discuss the nature of control in the decision-making process
10. List some alternative business objectives
11. Compare and contrast financial and management accounting
12. Provide an overview of the main financial statements

© 2011 Pearson

Nature and role of accounting
Learning objective 1: Define accounting



Accounting is concerned with the collection, analysis and communication of economic information. •

Accounting information is useful to those who need to make decisions and plans about businesses, and for those who need to control those businesses.
© 2011 Pearson

Nature and role of accounting cont’d
Learning objective 2: Discuss the role of accounting information



Stewardship
The more traditional role of providing accountability reports of transactions for a given period



Decision usefulness
The more recent role of assisting users with making informed choices about the allocation of scarce resources © 2011 Pearson

Nature and role of accounting cont’d
Learning objective 3: List the main user groups for a business entity

Figure 1.1

© 2011 Pearson

Nature and role of accounting cont’d
Learning objective 4: Summarise the different uses that can be made of accounting information
User group

Use

Customers

To assess the ability of the business to continue in business and to supply the needs of the customers.

Suppliers

To assess the ability of the business to pay for the goods and services supplied. Government

To assess how much tax the business should pay, whether it complies with agreed pricing policies, or with environmental legislation, etc.

Owners

To assess how effectively the managers are running the business and to determine likely levels of risk and return in the future.

Lenders

To assess the ability of the business to meet its obligations and to pay interest and to repay the principal.
© 2011 Pearson

Nature and role of accounting cont’d
Learning objective 4: Summarise the different uses that can be made of accounting information cont’d
User group

Use

Employees (nonmanagement)

To assess the ability of the business to continue to provide employment and to reward employees for their labour.

Investment analysts To assess the likely risks and returns of the business in order to determine its investment potential and to advise clients accordingly.

Community representatives To assess the ability to continue to provide employment, to use community resources, to help fund environmental improvements, etc.

Managers

To help make decisions and plans for the business and to help exercise control to try to ensure that plans come to fruition.

Competitors

To stay abreast of what and how well other businesses in the market are doing.
© 2011 Pearson

Accounting as an information system
Learning objective 5: Explain the different procedures involved in the accounting information system



Identify and capture relevant economic information



Record the information collected in a systematic manner



Analyse and interpret the information collected



Report the information in a manner that suits the needs of users © 2011 Pearson

Accounting as an information system cont’d Figure 1.2

© 2011 Pearson

Accounting as a service function
Learning objective 6: State the key characteristics of accounting information



Relevance (ability to influence decisions)



Reliability…