23 Jan 2019
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Accounting Revision – Module 1-3
Who makes financial decisions?
Internal users and external users
Internal users are people who manage the business, they use information in managing a variety of
functions in the entity.
External users (stakeholders) are groups outside the entity, they use the accounting information to
make decision about the entity.
Financial Accounting is when all types of users practice accounts in order to make economic
decisions for the well-being of the entity.
Financial accounting recounts on the historical figures from the original transaction.
It involves financial statements, income statements, cash flows and balance sheets.
Management accounting provides economic information only for internal users
Management accounting functions include formulating plans and budgets; and providing
information to be used in parts of the entity.
The reports of this type of accounting can be prepared at any point in time.
Cost-Volume-Profit (CVP) is an analysis that determines how cost and volume impacts on the
business’s profit/income.
Types of Costs
Fixed costs: are costs that are constant no matter the amounts of goods produced. These costs are
not impacted by the business’s level of activity.
Eg. Shop rent $1,000 you sell 10 shirt, shop rent stays the same. You sell 100 shirts, shop rent still
stays the same.
Variable costs: changes in total as the level of activity changes.
Eg. Bricks needed to build a house.
Mixed costs: are costs that can be both fixed and variable.
Total costs = fixed costs + variable costs
Break-Even Analysis
Break-even occurs when the business’s revenue equals costs and the profit/loss is appeared to be
zero.
At break-even point, the total contribution margin is equal to the fixed costs.
Break-even steps for single product