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Questions and Answers
What is the primary purpose of accounting in a business context?
What is the primary purpose of accounting in a business context?
Which of the following is NOT a user of accounting information?
Which of the following is NOT a user of accounting information?
What does the process of accounting primarily involve?
What does the process of accounting primarily involve?
Which question is typically asked by owners of a business in relation to accounting information?
Which question is typically asked by owners of a business in relation to accounting information?
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Management accounting primarily focuses on providing information for what purpose?
Management accounting primarily focuses on providing information for what purpose?
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What aspect of accounting often concerns creditors and lenders?
What aspect of accounting often concerns creditors and lenders?
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Which of the following best describes the role of employees in relation to accounting information?
Which of the following best describes the role of employees in relation to accounting information?
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What is a primary focus of management accounting?
What is a primary focus of management accounting?
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Which of the following statements accurately describes financial accounting?
Which of the following statements accurately describes financial accounting?
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Which environment factors are considered part of the internal accounting environment?
Which environment factors are considered part of the internal accounting environment?
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What type of information does management accounting utilize?
What type of information does management accounting utilize?
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How does the accounting environment affect business activities?
How does the accounting environment affect business activities?
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In financial accounting, the information provided is primarily for which group of users?
In financial accounting, the information provided is primarily for which group of users?
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Which of the following is NOT typically a characteristic of management accounting?
Which of the following is NOT typically a characteristic of management accounting?
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Which of the following factors belongs to the economic environment affecting businesses?
Which of the following factors belongs to the economic environment affecting businesses?
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What is the main difference between internal and external accounting environments?
What is the main difference between internal and external accounting environments?
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Which group is most likely to have emerged before 2000 BC?
Which group is most likely to have emerged before 2000 BC?
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What is the primary objective of accounting?
What is the primary objective of accounting?
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Which Italian monk published the framework for modern accounting in the 1400s?
Which Italian monk published the framework for modern accounting in the 1400s?
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Which of the following best defines accounting based on the American Accounting Association?
Which of the following best defines accounting based on the American Accounting Association?
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Who are primarily interested parties in the context of accounting?
Who are primarily interested parties in the context of accounting?
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What significant technological advancement in accounting occurred in 1913?
What significant technological advancement in accounting occurred in 1913?
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Which of the following describes the general definition of accounting?
Which of the following describes the general definition of accounting?
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What type of information is primarily communicated through accounting?
What type of information is primarily communicated through accounting?
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When did the profession of accounting become formally recognized?
When did the profession of accounting become formally recognized?
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Study Notes
Introduction to Accounting
- The lecturer is Mr. JMN Wijekumara
- Qualifications include: M.Sc. (App. Fin - USJ), B.Sc. (Acc & Fin - RUSL), CTHE (RUSL), ACPM, АСМА, ААТ, ACCA (Str. Prof. Level), CA (Str. Level), DABF (IBSL)
- Works at the Department of Accountancy and Finance, Faculty of Management Studies, Rajarata University of Sri Lanka
Intended Learning Outcomes
- The chapter aims to identify the evolution of accounting.
- It aims to define and highlight the purpose of accounting.
- It aims to outline accounting functions and processes.
- It aims to identify users of accounting information.
- It aims to identify the accounting environment.
The Evolution of Accounting
- Earliest accounting evidence comes from Mesopotamian civilizations (8000-5000 BC).
- Bookkeepers likely emerged during a period where society was still under a barter system.
- Single-entry bookkeeping standards were established.
- Italian monk Luca Pacioli created a framework for modern accounting in 1494.
- The American Association of Public Accountants (AAPA) was formed in 1887.
- The accounting profession was formally recognized in 1896.
- The establishment of CPA also took place in 1896
- Income tax was used to fund the world war in 1913 which increased the need for accounts
- IBM released the first large computer in 1952, impacting how accountants worked.
Definition of Accounting
- Accounting is the process of communicating economic information to interested parties.
- American Accounting Association definition: Accounting is the process of identifying, measuring, and communicating economic information to enable informed judgments and decisions by users of the information.
- General definition of accounting: Accounting is a process of communicating economic information regarding financial entities to interested parties for decision-making purposes.
Objective of Accounting
- The main goal is to communicate economic information about the organization.
- This information is used by interested parties (both financial and non-financial parties) to make decisions.
- Examples of financial information include profit and total assets.
- Examples of non-financial information include the number of employees and public perception.
Process of Accounting
- The process begins with identifying and recording business transactions and events.
- This is followed by classifying, summarizing, analyzing, and interpreting the recorded data.
- The process concludes with communicating this information to users through financial statements.
Users of Accounting Information
- Accounting information is used by a variety of users, both internal and external to the organization.
- Internal users include owners, managers, and employees. - Examples for owners could include whether profit has been made, and whether they should make additional investments. - Examples for managers could include the appropriateness of implemented plans. - Examples for employees could include employment stability and wage increases.
- External users include investors, government, competitors, society, and researchers.
- Examples for investors could include whether the money lent is likely to be recovered. - Examples for creditors and lenders could include whether the money lent is likely to be recovered, and whether to provide more credit/loans. - Examples for governments could include whether taxes are received on due dates, and whether appropriate reports are submitted.
Type of Accounting
- Financial Accounting: Prepares information concerning the past transactions of an entity. These reports are meant to be informative to people outside the organization, who want to understand the organization in terms of economics.
- Management Accounting: Provides pertinent information for all levels within an organization, allowing managers to plan, make decisions, and meet their responsibilities.
Differences Between Financial and Management Accounting
- Financial accounting provides information for internal and external users, while management accounting provides information solely for internal users.
- Financial accounting mainly focuses on historical records, while management accounting can use historical and budgeted information.
- Financial information is typically provided for a set timeframe, while management accounting reports can be presented when needed.
- Financial accounting adheres to pre-defined concepts, rules, and regulations, unlike management accounting, where these are not as relevant.
Accounting Environment
- Internal Environment: The business's environment affected by factors within the organization's control (e.g., resources, policies, employee structure).
- External Environment: The business's environment affected by factors beyond the organization's control (e.g., economic conditions, political factors, the legal environment, technological factors, social and cultural factors).
External Environment Factors
- Economic and Political Environment: Changes in price levels, market conditions, exchange rates, government policies, economic structure, and domestic/foreign political changes affect businesses.
- Social and Cultural Environment: Changes in consumer lifestyles, population, migration, and customs impact production, distribution, sales, and consumption.
- Legal Environment: Each accounting unit must adhere to the legal framework and regulations of the specific country.
- Technical and Professional Environment: Accounting involves specific methods for quantitative and financial resource measurement (e.g., FIFO, WACC).
- Technological Environment: Technological progress (like computer systems and accounting software) substantially influences the way accounting is conducted.
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Description
This quiz covers the evolution, purpose, and functions of accounting as introduced in the chapter on Introduction to Accounting. You will explore historical aspects, key users of accounting information, and the overall accounting environment. Prepare to test your understanding of fundamental accounting principles.
