Chapter 1: Introduction to Accounting and Finance

What qualities should an account possess?

1. Relevance

2. Faithful representation

3. Comparability

4. Verifiability

5. Timeliness

6. Understandability

What is relevance as a quality?

The info should make a difference. It should be capable of influencing a decision. It should predict future events or help confirm past events.

What is faithful representation as a quality?

The info produced is an accurate representation of the business.

What is comparability as a quality?

The info should be prepared using the same measurement techniques and reported in a similar fashion.

What is verifiability as a quality?

This quality assures the users that the account is faithfully represented.

What is timeliness as a quality?

The account should be made in time.

What is understandability as a quality?

The account should be clear and concise.

What is accounting as an information system?

1. Information identification

2. Information recording

3. Information analysis

4. Information reporting

What is financial accounting?

This seeks to meet the needs of owners and lenders. It should also be useful to other stakeholders.

What is management accounting?

This seeks to meet the accounting needs of managers. It is often used for a specific purpose.

What are board of directors tasked with?

1. Setting the overall direction and strategy for the business.

2. Monitoring and controlling the activities of the business.

3. Communicating with shareholders and others connected with the business.