TEXTBOOK CHAP1
1
Introduction to financial accounting
ON COMPLETION OF THIS CHAPTER, YOU SHOULD BE ABLE TO: v describe the basic purpose of financial accounting v identify the users of accounting information and the decisions they make that require accounting information v identify the people who are involved in financial accounting v describe how accrual accounting differs from cash accounting v calculate accrual profit for an organisation v explain the basic contents of the three key financial statements and describe the purpose of each statement v describe the basic principles and assumptions of accounting v explain why accounting is important.
CHAPTER OVERVIEW
This chapter introduces you to financial accounting and illustrates some useful accounting concepts and techniques. It outlines a way of thinking about financial accounting that will be important to your career, whether you become an accountant or a user of accounting in business or in other walks of life. You will be introduced to the social setting of financial accounting and some of the people involved. Financial accounting is complex and requires much judgement because it attempts to serve the needs of all these people, not all of whom necessarily see things the same way. You will then be introduced to one of the cornerstones of how financial accounting works: accrual accounting, the broad framework within which financial accounting reports are prepared. You will also be introduced to the three key financial statements and the basic financial statement assumptions. Examples from the financial press will hopefully convince you of the importance of accounting information.
2
v FINANCIAL ACCOUNTING: AN INTEGRATED APPROACH
1.1 Use and preparation of accounting
Use
Financial accounting has value because the information it produces is used in a variety of ways. Users include managers, investors, bankers, financial analysts and many others. Such people study accounting to learn how to
Introduction to financial accounting
ON COMPLETION OF THIS CHAPTER, YOU SHOULD BE ABLE TO: v describe the basic purpose of financial accounting v identify the users of accounting information and the decisions they make that require accounting information v identify the people who are involved in financial accounting v describe how accrual accounting differs from cash accounting v calculate accrual profit for an organisation v explain the basic contents of the three key financial statements and describe the purpose of each statement v describe the basic principles and assumptions of accounting v explain why accounting is important.
CHAPTER OVERVIEW
This chapter introduces you to financial accounting and illustrates some useful accounting concepts and techniques. It outlines a way of thinking about financial accounting that will be important to your career, whether you become an accountant or a user of accounting in business or in other walks of life. You will be introduced to the social setting of financial accounting and some of the people involved. Financial accounting is complex and requires much judgement because it attempts to serve the needs of all these people, not all of whom necessarily see things the same way. You will then be introduced to one of the cornerstones of how financial accounting works: accrual accounting, the broad framework within which financial accounting reports are prepared. You will also be introduced to the three key financial statements and the basic financial statement assumptions. Examples from the financial press will hopefully convince you of the importance of accounting information.
2
v FINANCIAL ACCOUNTING: AN INTEGRATED APPROACH
1.1 Use and preparation of accounting
Use
Financial accounting has value because the information it produces is used in a variety of ways. Users include managers, investors, bankers, financial analysts and many others. Such people study accounting to learn how to