Accounting is a way of recording, analyzing, and summarizing transactions of a
Transactions are recorded in books of prime entry, and then analyzed and posted to
the ledgers and finally they are summarized in the financial statements.
Yet, the term ‘Accounting’ not only refers to Financial Accounting, but moreover,
a) Management Accounting
b) Financial Management
The Purpose, of going through the process of preparing financial statements, may not
be required or needed by most companies, yet some must comply to do so by law.
Nonetheless, they are prepared so that owners, managers, lenders and other
interested parties can see how the business is doing. In other words, to provide
information about the financial position, performance and financial adaptability of an
enterprise that is useful to a wide range of users.
Depending on the users of financial statements, many may require access to different
information, but all share some basic needs. Some of the basic users of financial and
accounting information are:
c) Trade contacts
d) Providers of Finance
e) Governments and their Agencies, e.g. Inland Revenue and Registrar of
g) Financial Analysts and Advisors
h) Investors/ Public
As one may imagine, it may be very hard to satisfy all of the different users, yet, the
basic financial statements at the end of the day, are:
a) The Profit and Loss Account
b) The Balance Sheet
Furthermore, some companies may be required to produce annual reports, which
Non-Financial Statements, such as:
a) Director’s Report
b) Auditors’ Report
c) Chairman’s Report
Limited companies are required by law to prepare and publish accounts annually. The
form and content of the accounts are regulated primarily by the Companies Act 1985,
but must also comply with accounting standards. The Regulatory System
Basically the Company Law requires that all companies must comply with the
Companies Act. Of the many requirements and regulations, it must be brought to one’
s attention, that the Financial Statements are required to represent a True and Fair
view of the state of affairs and Profit and Loss.
The Accounting Standard’s Board, previously known as the Accounting Standard’s
Committee, has issued the Accounting Standards, such as FRS’s and SSAP’s. The
accounting standards were developed with the aim of narrowing the areas of
difference and variety in accounting practice.
The Urgent Issues task force is an important part of the ASB in that it is required to
tackle urgent matters not covered by existing standards. The review panel is
concerned with the examination and questioning of departures from accounting
standards by large companies.
Furthermore, the companies are required to follow the Accounting Policies, set out in
FRS 18 and the Companies’ Act. Those policie