Intro to Accounting

2 Accounting Areas Financial Accounting Past Events Performance over the year Position at end of year Trading, Profit and Loss account Balance Sheet Cashflow Statement OBJECTIVE: Info for internal and external use to make economic decisions Comply with company law and accounting regulatory bodies Management Accounting Past and Future Events Budgeting Costing etc OBJECTIVE: information for the organisation to plan control and make economic decisions Info is for internal use for managers to make management decisions

Qualities of financial information Relevant – meet user needs Reliable – certified by auditor or a director Comparable – prepared on consistent basis from one period to the next so that results can be compared and economic decisions Understandable – Clear, concise and easily understood -follow convention

Users Users Users Interests Banks and Lenders Capacity to repay interest Ability to repay capital Security – collateral Gearing Trade Creditors Liquidity – working capital to repay Credit terms being met Where in the priority list Shareholders Profitability Dividend Share Value Liquidity – cashflow - keep trading Directors & Managers Liquidity – keep trading Management team and performance Employees and unions Wage levels – trend Staff levels Liquidity Competitors Comparison in performance Changes in business strategies Takeover potential Revenue Tax liability calculation EU and Gov grants Gov contracts Users

4 Fundamental Concepts Going Concern – stay in business for foreseeable future 1 yr Accruals – income and expenditure accounted for in the period it occurs not in the period it is paid eg electric Consistency – items treated in same way from one accounting period to the next eg depreciation policy Prudence – caution should be exercised. Losses can be anticipated but not gains. Profits may not be overstated

Explain these concepts Other Concepts Entity Concept Money Measurement Concept Materiality Concept Realisation Concept Double Entry Principle Period of Accounting Convention Objective Concept Explain these concepts

Accounting Bases Procedures and Policies for Preparing Accounts How items are treated = accounting bases Eg how depreciation is treated, the method of stock valuation, use of the historical cost convention Accounting Policies used to prepare accounts should be explained by way of a note to the accounts. Notes should be clear, fair and brief http://www.dairygold.ie/wp-content/uploads/2017/04/Annual-Report.pdf