AIRCON WK 1

What is accounting

Accounting is about capturing, measuring, recording and communication the underlying economic events and transactions affecting an organisation

Purpose of accounting

accounting provides a way to describe economic activity(about resource flows and exchanges, resources controlled, claims against resources and transformation of resources) to hence inform decision making

What are the two components of good quality information

conceptual framework

• relevance

• faithful representation

• enhancing characteristics

  • comparability

  • verifiability

  • understandability

  • timeliness

VAC

• validity

• accuracy

• completeness details/completeness events

What is relevance

relevance refers to information having the capacity to affect users’ decision making and should be material in amount or nature

• capacity is having a predictive or confirmatory value

What is faithful representation

should be a true picture of the event/transaction by being complete, neutral and free from error

neutral: free from bias in selection or presentation of financial info

complete: should have all info (including descriptions and explanations) so users can understand the phenomeon

free from error: ensures info is consistent with disclosures and able to be justifed

Enhancing qcs

Verifiability: info represented should have potential for consensus between knowledgable and independent observers

compariability: ability to compare financial information with other entities or with the same entity overtime

understandability: able to make sense by those with reasonable business knowledge

timeliness: information should provided in a timely manner so it remains influential for deicision making

Where does accounting info come from

it comes from raw data being processed, organised and presented within a given context

Validity

focuses on the existence and authorisation of certain events/transactions

key questions:

• did transaction occur

• do the parties to the transaction exist

• do the resources involved exist

• was it authorised

Examples of invalid transactions

• theft cuz its not authorised

• recording a sale twice

• selling liquor to a minor

• selling to a non-existent customer

• recording inventory that doesn’t exist

• recording an event in the wrong period (invalid in current period)

Accuracy

• the extent to which an estimate corresponds with the correct value for the measurement

examples of inaccurate events

• data entry errors

• calculation errors

• underweighing products by lifting them

• overweighing products by putting more weight on

• entering the wrong number of products eg. saying 15 when you actually bought 14

• store not updating prices on barcode

Completness meaning+completeness details+completeness events

completeness: all information to understand a phenonmenon (including descriptions and explanations should be present)

completeness details: all data fields should be filled

completness events: all valid events that should be recorded have been recorded

examples of completness errors

completeness details

• forgetting date on transaction

• if you bought 15, but only scanned 14

• if you scanned a red apple but it only appeared as apple

completness events

• if you scan it but it doesn’t go thru due to system errors

• if you deposited 30$ but you didn’t record it