Ppt01

WHAT IS ACCOUNTING ?

1. Definition:

‘an information and measurement system that identifies, records, and communicates relevant, reliable, and comparable information about an organisation’s business activities.’ (McGrawHill P.4)

measuring:

identify the internal and external transactions, quantify them in money terms, record the transactions

processing:

analyse, classify and summarise them into relevant, reliable and comparable information

communicating:

prepare the financial statements for analysis and interpretation

Q: What is the difference between accounting and bookkeeping?

2. Financial vs. Management Accounting:

Financial Accounting:

available for outsiders

in form of formal, general-purpose financial statements

governed by Co.’s Ordinance & Hong Kong Accounting Standards (HKAS) & Stock Exchange’s Ordinance

e.g. annual audited accounts, prospectus

Management Accounting:

use by persons within the organization

confidential, detailed, specific purpose information

for management’s planning, control and decision making

in form of managerial reports:

e.g. dept.’s performances, set price levels, budgeting

ACCOUNTING CONCEPTS (McGrawHill P.9-10)

1. ENTITY CONCEPT (Study Guide Unit 1 P.8, McGrawHill P.10)

treat business as an entity separate from its owner(s), independent of its legal entity

the business owns the assets, incurs liabilities, and carries out transactions with third parties (which could include the owner(s))

distinguish private transactions from business transactions

basis for double-entry bookkeeping

2. TIME PERIOD CONCEPT (Study Guide Unit 1 P.8-9, McGrawHill P.92-93)

a business life is continuous

the operating life of an organization is divided into arbitrary equal time intervals (usu. one year) to facilitate the reporting of its performance

3. COST / HISTORICAL COST PRINCIPLE (Study Guide Unit 1 P.13, McGrawHill P.9-10)

resources acquired are recorded at the actual cost (historical cost),...