ACCO 240 Lecture Notes - Income Statement, Cash Flow Statement, Statistical Classification
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Although there is a difference in the type of information presented in financial and management
accounts, the underlying objective is the same - to satisfy the information needs of the user.
These needs can be described in terms of the following overall information objectives:
Collection in money terms of information relating to transactions that
have resulted from business operations
Recording and classifying data into a permanent and logical form. This
is usually referred to as "Book-keeping"
Summarising data to produce statements and reports that will be useful
to the various users of accounting information - both external and
Interpreting and communicating the performance of the business to the
management and its owners
Forecasting and planning for future operation of the business by
providing management with evaluations of the viability of proposed
operations. The key forecasting and planning tool is the "Budget"
The process by which accounting information is collected, reported, interpreted and actioned is
called "Financial Management". Taking a commercial business as the most common
organisational structure, the key objectives of financial management would be to:
(1) Create wealth for the business
(2) Generate cash, and
(3) Provide an adequate return on investment bearing in mind the risks that the business is taking
and the resources invested
In preparing accounting information, care should be taken to ensure that the information presents
an accurate and true view of the business performance and position. To impose some order on
what is a subjective task, accounting has adopted certain conventions and concepts which should
be applied in preparing accounts.
For financial accounts, the regulation or control of what kind of information is prepared and
presented goes much further. UK and international companies are required to comply with a
wide range of Accounting Standards which define the way in which business transactions are
disclosed and reported. These are applied by businesses through their Accounting Policies.
The main financial accounting statements
The purpose of financial accounting statements is mainly to show the financial position of a
business at a particular point in time and to show how that business has performed over a