ACCA F1- Business & Technology | Ms. Vishah Hussain
Part C: Accounting and reporting systems,
controls and compliance
Chapter 8: The role of accounting
1 The purpose of accounting information
Accounting is a way of recording, analysing and summarising transactions of a business
1.1 What is accounting?
• The transactions are recorded in 'books of prime entry'.
• The transactions are then analysed and posted to the ledgers.
• Finally the transactions are summarised in the financial statements.
Factors effecting accounting system of an organisation:
• Size
• Type of organisation
• Organisational Structure
1.2 The need for accounts
Renaissance scholar Luca Pacioli wrote the first printed explanation of double entry bookkeeping
in 1494. Double entry bookkeeping involves entering every transaction as a debit in one account
and a corresponding credit in another account, and ensuring that they 'balance'.
Reasons why business need accounts:
A business should produce information about its activities because there are various groups of
people who want or need to know that information.
1.3 Users of financial statements and accounting information
• Managers of the company: They need information about the company's financial
situation as it is currently and as it is expected to be in the future. This is to enable them
to manage the business efficiently and to take effective control and planning decisions.
• Shareholders of the company: They will want to know how profitably management is
running the company's operations and how much profit they can afford to withdraw from
the business for their own use.
• Trade contacts: Suppliers will want to know about the company's ability to pay its debts;
customers need to know that the company is a secure source of supply and is in no danger
of having to close down.
, ACCA F1- Business & Technology | Ms. Vishah Hussain
• Providers of finance to the company: These might include a bank which permits the
company to operate an overdraft, or provides longer-term finance by granting a loan
• Employees of the company: These should have a right to information about the
company's financial situation, because their future careers and the size of their wages and
salaries depend on it.
• Financial analysts and advisers
• Governments and their agencies: They also require information in order to provide a
basis for national statistics.
• The public: Enterprises affect members of the public in a variety of ways.
1.4 Qualities of good information
• Relevance
• Comprehensibility
• Reliability
• Completeness
• Objectivity
• Timeliness
• Comparability
1.5 The structure of the accounting function
, ACCA F1- Business & Technology | Ms. Vishah Hussain
2 Nature, principles and scope of accounting
2.1 Financial accounting and management accounting
Financial accounting is mainly a method of reporting the results and financial position of a
business. Accounting Standards (and company law) prescribe that a company should produce
accounts to be presented to the shareholders.
Management (or cost) accounting is a management information system, which analyses data to
provide information as a basis for managerial action. The concern of a management accountant
is to present accounting information in the form most helpful to management.
2.2 The application of information
Financial reporting is not an optional extra. The published accounts are an important source of
communication with outsiders. Reported levels of profit determine the return that investors can
receive. They also indirectly affect the company's cost of capital by affecting the share price.
The management accountant is even nearer the policy-making and management process. This is
because the management accountant is not primarily interested in reporting to interested parties
external to the organisation.
2.3 Financial management
Financial management is a separate discipline from both management accounting and financial
accounting; although in a small organisation, the three roles may be carried out by the same
person.
The financial manager is responsible for raising finance and controlling financial resources,
including the following decisions.
• Should the firm borrow from a bank or raise funds by issuing shares?
• How much should be paid as a dividend?
• Should the firm spend money on new machinery?
• How much credit should be given to customers?
• How much discount should be given to customers who pay early?
2.4 Auditing
A person independent of the company must generally audit the annual accounts of a limited
company above a certain size (in terms of revenue). The members of the company usually
appoint a firm of registered auditors to investigate the financial statements and report as to
whether or not they show a true and fair view.
In simple cases they will be able to report that they have carried out their work in accordance
with the Auditing Standards and that, in their opinion, the accounts show a true and fair view
Part C: Accounting and reporting systems,
controls and compliance
Chapter 8: The role of accounting
1 The purpose of accounting information
Accounting is a way of recording, analysing and summarising transactions of a business
1.1 What is accounting?
• The transactions are recorded in 'books of prime entry'.
• The transactions are then analysed and posted to the ledgers.
• Finally the transactions are summarised in the financial statements.
Factors effecting accounting system of an organisation:
• Size
• Type of organisation
• Organisational Structure
1.2 The need for accounts
Renaissance scholar Luca Pacioli wrote the first printed explanation of double entry bookkeeping
in 1494. Double entry bookkeeping involves entering every transaction as a debit in one account
and a corresponding credit in another account, and ensuring that they 'balance'.
Reasons why business need accounts:
A business should produce information about its activities because there are various groups of
people who want or need to know that information.
1.3 Users of financial statements and accounting information
• Managers of the company: They need information about the company's financial
situation as it is currently and as it is expected to be in the future. This is to enable them
to manage the business efficiently and to take effective control and planning decisions.
• Shareholders of the company: They will want to know how profitably management is
running the company's operations and how much profit they can afford to withdraw from
the business for their own use.
• Trade contacts: Suppliers will want to know about the company's ability to pay its debts;
customers need to know that the company is a secure source of supply and is in no danger
of having to close down.
, ACCA F1- Business & Technology | Ms. Vishah Hussain
• Providers of finance to the company: These might include a bank which permits the
company to operate an overdraft, or provides longer-term finance by granting a loan
• Employees of the company: These should have a right to information about the
company's financial situation, because their future careers and the size of their wages and
salaries depend on it.
• Financial analysts and advisers
• Governments and their agencies: They also require information in order to provide a
basis for national statistics.
• The public: Enterprises affect members of the public in a variety of ways.
1.4 Qualities of good information
• Relevance
• Comprehensibility
• Reliability
• Completeness
• Objectivity
• Timeliness
• Comparability
1.5 The structure of the accounting function
, ACCA F1- Business & Technology | Ms. Vishah Hussain
2 Nature, principles and scope of accounting
2.1 Financial accounting and management accounting
Financial accounting is mainly a method of reporting the results and financial position of a
business. Accounting Standards (and company law) prescribe that a company should produce
accounts to be presented to the shareholders.
Management (or cost) accounting is a management information system, which analyses data to
provide information as a basis for managerial action. The concern of a management accountant
is to present accounting information in the form most helpful to management.
2.2 The application of information
Financial reporting is not an optional extra. The published accounts are an important source of
communication with outsiders. Reported levels of profit determine the return that investors can
receive. They also indirectly affect the company's cost of capital by affecting the share price.
The management accountant is even nearer the policy-making and management process. This is
because the management accountant is not primarily interested in reporting to interested parties
external to the organisation.
2.3 Financial management
Financial management is a separate discipline from both management accounting and financial
accounting; although in a small organisation, the three roles may be carried out by the same
person.
The financial manager is responsible for raising finance and controlling financial resources,
including the following decisions.
• Should the firm borrow from a bank or raise funds by issuing shares?
• How much should be paid as a dividend?
• Should the firm spend money on new machinery?
• How much credit should be given to customers?
• How much discount should be given to customers who pay early?
2.4 Auditing
A person independent of the company must generally audit the annual accounts of a limited
company above a certain size (in terms of revenue). The members of the company usually
appoint a firm of registered auditors to investigate the financial statements and report as to
whether or not they show a true and fair view.
In simple cases they will be able to report that they have carried out their work in accordance
with the Auditing Standards and that, in their opinion, the accounts show a true and fair view
