Giulia Paolucci Financial Accounting: Nature and Purpose

Financial Accounting = Summarising financial data for external stakeholders Management Accounting = Providing information for internal users for planning and control GAAP = Regulatory principles for developing and disclosing annual reports Annual Report = Main output of financial accounting for external benefit

Financial Accounting = Mandated by regulatory bodies/agencies Management Accounting = Not regulated by any specific authority GAAP = Guidelines specified by regulatory bodies/agencies Internal Users = Beneficiaries of management accounting information

Annual Report = Published form of financial data for external parties Management Accounting Output = Flexible documents for internal planning purposes Financial Accounting Purpose = Beneficial for people outside the organization Management Accounting Purpose = Aids managers in planning and controlling operations

<p>Does not follow specific form requirements = Management Accounting Summarises data from accounting records = Financial Accounting Provides information to help plan operations = Management Accounting Mandatory regulatory oversight = Financial Accounting</p> Signup and view all the answers

<p>Finance Department = Utilizes both financial and management accounting data Sales Department = May require financial data for performance evaluation Purchasing Department = Could benefit from cost-related information in management accounting HR Department = May need management accounting information for resource allocation</p> Signup and view all the answers

<p>Financial Data Summarization = Key in financial accounting for external stakeholders' understanding Internal Planning Support = Critical role of management accounting in operations control Regulatory Compliance Guidelines = Ensuring consistency and transparency in financial reporting External Stakeholder Benefit = 'Main purpose of financial accounting to provide information outside the organization</p> Signup and view all the answers

<p>Assets = Economic resources expected to benefit the business in the future Liabilities = Obligations to outside parties giving resources Owners’ Equity = Represents the owners’ claims on the assets of the business Revenues = Income generated from business operations</p> Signup and view all the answers

<p>Income Statement = Shows the profitability of a business over a specific period of time Balance Sheet = Reflects the financial position of an entity at a specific moment Statement of Cash Flows = Tracks the movement of cash in and out of a business Statement of Changes in Equity = Details the changes in owners' equity over a period</p> Signup and view all the answers

<p>Fixed assets = Resources Trade receivables = Resources Shareholders’ equity = Sources Financial debts = Sources</p> Signup and view all the answers

<p>Current expenses = Costs incurred in day-to-day operations Cash = Liquid asset representing immediate spending power Trade liabilities = Debts arising from business transactions Trade debts = Amounts owed for goods or services received</p> Signup and view all the answers

<p>Resources = Cash, Trade Receivables, Fixed assets, Current expenses Sources = Shareholders’ equity, Financial debts, Trading debts, Revenues Capital Use = Fixed assets, Shareholders’ equity, Trade Receivables, Financial debts Capital Source = Cash, Trade liabilities, Current expenses, Revenues</p> Signup and view all the answers

<p>Financial Accounting 17 The Balance Sheet and Income Statement construction = Discusses how to construct the Balance Sheet and Income Statement Financial Accounting 18 Sources and Resources Scheme = Explains the scheme related to sources and resources in accounting Financial Accounting 19 Resources and Sources = Details resources like Cash, Trade Receivables, Fixed assets, etc. Financial Accounting 20 Resources and Sources = Further elaborates on resources and sources indicating future benefits or obligations</p> Signup and view all the answers

<p>Cash-basis accounting = Records only cash receipts and cash payments Accrual-basis accounting = Revenues recognized when earned; expenses recorded when incurred Cash basis accounting = Revenues are recorded when cash is received Accrual basis accounting = Expenses are recorded when incurred (in the same period as related revenues)</p> Signup and view all the answers

<p>Net income = Difference between revenues and expenses for a specific period Loss = Occurs when the difference between revenues and expenses is negative Revenues recognition = Process of realizing earned revenues when goods or services are delivered Expenses = Decreases in assets due to profit-directed activities</p> Signup and view all the answers

<p>Equity financing = Capital provided by shareholders Financial debt financing = Capital lent by lenders Own funds financing = Borrowed capital Financial liabilities financing = Capital endowment by government</p> Signup and view all the answers

<p>Shareholders' rights = Related to net profits and voting rights Financers = Include banks, market investors, and financial institutions One-man business companies = Repay debts as per contract/interest rate Market investors = Include investment funds, pension funds, and private equity funds</p> Signup and view all the answers

<p>Financing = Involves obtaining capital from shareholders or lenders Sales = Involves revenue generation through goods or services delivery Investing = Involves allocating resources for future benefits Operating = Involves day-to-day business activities</p> Signup and view all the answers

<p>Transaction = Any event that affects the financial position of the business and can be measured reliably Bookkeeping = The recording of transactions and events Financial Statements = Prepared in accordance with Generally Accepted Accounting Principles (GAAP) Accounting Principles = Rules and basic concepts of accounting used as a guide to action</p> Signup and view all the answers

<p>Balance Sheet = Shows the financial position at a specific moment of time Income Statement = Summary of revenues and expenses for a period of time Statement of Cash Flow = Summary of cash in and cash out for a period of time Financial Position = Summary of revenues and expenses for a period of time</p> Signup and view all the answers

<p>Profitability = Ability to sell products and generate profit Solidity = Ability to pay long-term and short-term debts Liquidity = Ability to pay debts and collect credits Reliability = Ability to pay long-term and short-term debts</p> Signup and view all the answers

<p>Understandable = The information should be easy to comprehend Relevant = The information should be applicable to the decision-making process Timely = The information should be provided when needed Comparable = The information should allow for comparisons across periods or entities</p> Signup and view all the answers

<p>Identifying transactions and events selection = Determining which transactions and events should be recorded Recording measuring and classifying = Physically recording transactions and events into books Communicating in the form of financial statements = Presenting financial information in structured reports Prepared in accordance with GAAP = Following established accounting rules for preparing financial statements</p> Signup and view all the answers

<p>Giulia Paolucci Financial Accounting 1 = 'Financial Accounting' based on actual transactions, not opinions or desires Giulia Paolucci Financial Accounting 2 = 'Financial Accounting' involves identifying, recording, and communicating transactions and events Giulia Paolucci Financial Accounting 3 = 'Financial Accounting' outputs include Balance Sheet, Income Statement, and Statement of Cash Flow Giulia Paolucci Financial Accounting 4 = 'Financial Statements' provide basic information to monitor performance in terms of profitability, solidity, and liquidity</p> Signup and view all the answers

<p>Unearned revenues = Revenues received in advance but not yet earned Prepaid expenses = Expenses paid in advance but not yet incurred Accrued revenues = Revenues earned but not yet received Accruals = Recognition of revenues and expenses before cash transactions occur</p> Signup and view all the answers

<p>Prepaid expenses = Decrease in prepaid expense account, Increase in relevant expense account Unearned revenues = Increase in unearned revenue account, Increase in relevant revenue account Accrued revenues = Increase in accrued revenue account, Increase in relevant revenue account Accruals = Recognition of liabilities or assets that were not previously recorded</p> Signup and view all the answers

<p>Prepaid expenses = No impact on the income statement until expenses are incurred Unearned revenues = No impact on the income statement until revenues are earned Accrued revenues = Recognition of revenue without immediate cash receipt Accruals = Recognition of revenues and expenses when they are incurred, not necessarily when cash is exchanged</p> Signup and view all the answers

<p>Prepaid expenses = Payment for an annual insurance contract before the coverage period Unearned revenues = Receipt of payment for services not yet provided Accrued revenues = Completion of a service with delayed payment reception Accruals = Recording revenue or expense when it is earned or incurred, regardless of when cash is exchanged</p> Signup and view all the answers

<p>Prepaid expenses = Can distort current period's profitability if not adjusted properly Unearned revenues = May overstate current period's revenue if not recognized appropriately Accrued revenues = Can lead to better matching of revenue with related expenses over time Accruals = Essential for providing a more accurate picture of a company's financial position</p> Signup and view all the answers

<p>Prepaid expenses = Cash paid before actual expense recognition Unearned revenues = Cash received before revenue recognition Accrued revenues = Revenue recognized before receiving cash payment Accruals = Recognition of transactions regardless of immediate cash involvement</p> Signup and view all the answers