Understanding Accounting

What is the definition of accounting?

A system used for recording and processing financial information and producing reports for interested parties to make informed decisions about the future of the business.

What are the 3 main objectives of accounting?

Providing information for: decision making, discharging accountability, evaluating performance.

Why is it important for accountants to provide accurate and reliable information?

To evaluate business performance, decide on expansion or investment, manage resources efficiently, and ensure sustainable business growth.

What are the four main financial reports used in accounting?

Balance Sheet, Income Statement, Statement of Changes in Equity and Statement of Cash Flows.

Who are the internal users of accounting information?

Owners, managers, executives, and board of directors who make operational decisions.

Who are the external users of accounting information?

Investors, suppliers, customers, employees, public, governments, and lenders.

What is the first step in the accounting process?

Recording transactions, which involves collecting raw data from business transactions.

What are source documents in accounting?

Evidence that a transaction has occurred, such as receipts, invoices, purchase orders, and cheque butts.

What is the purpose of the reporting step in the accounting process?

To report financial information to stakeholders on the financial state of the business through financial statements.

What is involved in the interpreting and analysing step of the accounting process?

Analysing transactions and financial reports to help owners and management make informed decisions.

What is the role of accountants in interpreting reports?

To explain the information in reports and assist users in understanding the financial state of the business.

How do external users of accounting information use it?

To make informed decisions about investments, credit, and business relationships.

What does the term 'stakeholders' refer to in accounting?

Individuals or groups that have an interest in the financial performance and reporting of a business.

Why is it important for businesses to evaluate their performance regularly?

To identify areas for improvement and guide future strategic planning.

What is the last step in the accounting process?

Budgeting/Forecasting, which involves setting targets and supervising them.

What is quantitative data?

Information expressed in numerical form and which is measureable. It is referred to as objective information meaning it can be proven and verified

What is qualitative information?

Information which is considered subjective information because it is biased, opinion-based or personal. It is guessing why something has occurred. This cannot be measured or given a value.