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Chapter 1

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ACCT 301
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CHAPTER 1 Accounting is a way of recording, analyzing, and summarizing transactions of a business. 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 c) Auditing 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: a) Managers b) Shareholders c) Trade contacts d) Providers of Finance e) Governments and their Agencies, e.g. Inland Revenue and Registrar of Companies f) Employees 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 contain : 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
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