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ASM 1 AC Draft
ASM 1 AC Draft
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I certify that the assignment submission is entirely my own work and I fully understand the consequences of
plagiarism. I understand that making a false declaration is a form of malpractice.
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Grading grid
P1 P2 P3 M1 M2 D1
r Summative Feedback: r Resubmission Feedback:
1. Definition........................................................................................................................................................4
2. Importance of Accounting..............................................................................................................................4
3. Types of Accounting........................................................................................................................................6
III. The context and purpose of financial and management accounting. (P1,P2)...............................................11
3. Discussing about the organisational constraints and threats following the concepts of accounting
regulations (GAAP, IFRS from FASB) and principles as well asethics in accounting..........................................13
IV. Conclusion.........................................................................................................................................................16
V. References........................................................................................................................................................16
I. Introduction
You have most likely heard of accounting in many facets of your life; but have you ever truly
comprehended and know what accounting is, its relevance, and its professions? So, today's blog article will
answer all of your fundamental accounting questions. Accounting's meaning, purpose, and value in life, more
over is categorization, forms of accounting, and even job options, are all covered. As well as a more in-depth
overview of the world's accounting operational principles.
Accounting is always an important and necessary part of the management and operation of a business in
any nation and in any domestic or foreign enterprise.If there is no accounting information system, it is
impossible to make a socioeconomic choice or evaluate the success of company activities.
II. What is Accounting?
1. Definition.
Accounting is a term that describes the process of
consolidating financial information to make it clear and
understandable for all stakeholders and shareholders. The
main goal of accounting is to record and report a
company’s financial transactions, financial performance,
and cash flows.
Accounting standards increase the trustworthiness of
financial statements. The income statement, balance
sheet, cash flow statement, and statement of retained profits are all part of the financial statements.
Standardized reporting enables all stakeholders and shareholders to evaluate a company's performance.
Financial statements must be transparent, trustworthy, and accurate.
2. Importance of Accounting.
2.1 Maintains a record of all business transactions
Accounting is
significant because it
preserves a systematic
record of the financial
information of the
firm. Users can
compare current financial information to past data when records are kept up
to date. It allows consumers to measure a company's success over time by
keeping complete, consistent, and accurate information.The state has
management laws in place to govern the extraction of natural mineral water
sources for bottling into mineral water products for refreshment. The
features of the water source, the manufacturing and processing method,
and the variables in quality control, hygiene, and safety of bottled natural
mineral water must all be met. Mineral water sources that cannot guarantee
these factors will not be permitted to be exploited and circulated.
The creation of accurate financial statements is part of financial accounting. The goal of financial
accounting is to measure a company's performance as precisely as feasible. While financial statements are
intended for external consumption, they may also be used to assist internal management in making choices.
Accounting principles and standards that are extensively used in financial accounting include GAAP
(Generally Accepted Accounting Principles), IFRS (International Financial Reporting Standards), and ASPE
(Accounting Standards for Private Enterprises). Accounting standards are significant because they enable all
stakeholders and shareholders to readily comprehend and analyze the financial statements that are published
from year to year..
Using useful accounting information, management can plan, control, and make better decisions.
Managers must make economic decisions on a daily basis, such as how much supplies to purchase. Do we have
enough money? What did we earn last year? Did we fulfill our objectives? All of those inquiries and company
decisions need accounting knowledge. Accounting information is also required by management in order to
determine the organization's role and status. At the same time, required steps may be implemented by the
company to improve business results. Furthermore, managers are in charge of overseeing the organization's
output. As a result, accounting information may assist managers in improving their performance and doing their
duties more effectively.
Employess:
Employees provide credit to the organization via their efforts. Employees are interested in the
company's profitability, economic stability, financial situation, and ability to evaluate the company's expansion
and professional development chances. As a result, individuals have a right to be worried about the
organization's internal activities. Accounting information assists employees in determining the financial health
or profitability of a business in order to assess their employment stability, the chance of future reward,
retirement benefits, and employment opportunities.
Owners:
Owners of the company require financial information to assist them in making decisions in order to
minimize the risk of their investments. They analyze the feasibility and profitability of their investments using
accounting information because accounting information allows the owners to evaluate the potential of the
company organization to pay dividends. It also influences their decision-making process in the future. Small
business owners, for example, require accounting information to assess if the firm is successful and should be
sustained, improved, or discontinued.
Creditors are interested in accounting information because it allows them to determine a company's
creditworthiness. Credit terms and criteria are determined by an organization's financial condition. As a result, it
aids them in their analysis by providing precise financial data. Suppliers and lenders of funds, such as banks, are
examples of creditors. For a shorter amount of time, trade creditors are more interested in accounting
information than lenders. For example, the organization's financial accounts allow lenders to determine if the
organization has the ability to satisfy its loan obligations based on its current cash flow. At the same time, it can
assist lenders in risk-hedging.
Investors:
Accounting information can assist prospective investors in determining the organization's likelihood of
success and profitability. They require the information because they are worried about the risks and returns
associated with investing. Because it is critical to determine the viability of making investments in the firm, they
must do an analysis before providing any financial resources to the organization.
Customers:
Although it may appear unusual, many buyers examine an organization's financial statements before
making big purchases since they may wish to uphold product warranties and expand its product ranges.
Customers become interested in accounting information when they have a long-term relationship or contract
with the firm. They utilize the data to evaluate a company's financial status. They are concerned with the
organization's capacity to continue to exist and sustain operational stability. Accounting information assists
organizations to maintain a consistent stream of revenue.
Regulatory Authorities:
Accounting information is required for them to verify that it complies with the laws and regulations and
protects the interests of the investors or owners who rely on it. For example, regulatory authorities check to see
if the organization is following the regulations.
Labor unions:
Accounting information allows labor unions to determine if the organization's owners can afford to pay
higher wages and benefits to their members.
Government:
The government, particularly tax authorities, is interested in financial data for taxes and regulatory
purposes. They want to know the earnings or sales for a specific time period for tax purposes. Furthermore,
information from companies in the form of financial reports will assist the government in properly developing
the strategic plan. For example, a tax authority will utilize accounting information to determine a company's
complicated tax shortfall.
General Public:
The general public may or may not be directly interested in the organization. However, members of the
general public, such as researchers, students, and analysts, will occasionally require information regarding an
organization's finances in order to safeguard their interests or for other legitimate reasons. Students, for
example, require knowledge about the organization in order to make judgments concerning bursary demand.
Competitor:
Competitors are companies or persons who offer similar products or provide similar services. They are
interested in the business's financial facts in order to determine how well an organization can compete. They
can know the development and modifications of the product or service by using financial information from
rivals' firms, allowing them to better their products and alter their strategy.
1. Public accounting:
Public accounting services include compiling and releasing public financial reports for a corporation,
offering business consulting or personal financial planning services, and preparing tax returns.
2. Management accounting:
3. Government accounting:
Government accounting is any accounting used to preserve and analyze the financial records of
government agencies, as well as audit private firms and people that engage in activities regulated or taxed by
the government. As a result, governmental accounting may employ financial accounting, tax accounting, and
other forms of accounting. Fund accounting is a way of categorizing resources in order to track the source and
usage of funds by government agencies. Pay accounting is a means for a government agency or division to
publicly and properly manage the tax dollars used to fund the agency or division.
4. Internal auditing:
Internal auditors provide unbiased and impartial examinations of an organization's finances. Internal
auditors are largely in charge of discovering financial mismanagement or fraud as well as identifying strategies
to improve financial management and waste reduction.
III. The context and purpose of financial and management accounting. (P1,P2)
1. Clarifying the roles and importance of accounting as an information system
Other economic areas must expand quickly in
order to keep up with a constantly evolving society.
Firms also have substantial challenges in storing and
managing financial and accounting data. The role of
the system will then be maximized. The accounting
information system will store and process data in
order to make the most accurate and beneficial
business choices possible.
Accounting information systems are intended
to connect an organization's management system
and operating system. In addition to its core purpose
of storing and processing data, the system also conducts general statistics to offer accurate accounting reports
from which organizations may quickly resolve accounting concerns.
Accounting information systems assist businesses considerably since they help them save money and
time. By utilizing the technology, managers will avoid wasteful information storage errors. As a result, possible
damages are minimized, allowing businesses to avoid substantial financial losses.
Finally, the accounting information system has helped to address three major difficulties that private
enterprises confront today. To begin, support and increase business competitiveness; second, support business
decision-making; and third, support professional and business activities to help enterprises flourish
prosperously.
2. Distinguishing between financial accounting and management accounting
Points of
Financial Accounting Management Accouting
Difference
Aim The primary goal is to convey information In general, management accounting
to third parties so that they may make
educated judgments. Creditors, investors, information is intended to help management
clients, and other third parties are make sound company choices.
examples of outside parties.
The disclosure of financial statements is an
obligation imposed by the government on It is entirely up to management. Although
Regulatory all public organizations. As a result, they there is no statutory necessity for its upkeep,
Requirements are controlled by accounting standard institutes such as CIMA, ICWAI, and others give
boards, company law, and the certain structure and forms.
government.
Financial accounting statements are
There is no standardized methodology for
prepared in accordance with 'Generally
Governing creating management accounting statements.
Accepted Accounting Principles (GAAP).'
Principles As a result, they are created in accordance with
This GAAP differs for nations with similar
the needs of the management team.
characteristics.
Financial accounting has a temporal It does not have a specific time horizon, but its
Time Horizon horizon of 'past.' In most cases, it is one primary focus is on estimating the future using
fiscal year. past data.
It is ready for external or external
Internal parties such as the CEO, directors,
Reporting partners. Shareholders, suppliers,
promoters, higher-level managers, and so on
Beneficiaries customers, the government, banks, and so
will benefit from the reports provided here.
forth.
Management accounting reports analyze
Profit and loss statements, balance sheets,
goods, regions, functions, and so on on a
and cash flow statements are all
Outputs monthly, weekly, or yearly basis.
components of financial accounting
reports.
3. Discussing about the organisational constraints and threats following the concepts of accounting
regulations (GAAP, IFRS from FASB) and principles as well asethics in accounting.
3.1 GAAP and IFRS definitions
GAAP stands for widely recognized accounting rules and procedures used in the
preparation of financial accounts. The Financial Accounting Standards Board (FASB), a self-regulatory
organization, is the principal source of accounting principles used by auditors and accountants. GAAP
aims to improve the clarity, standardization, and comparability of financial data. The overarching goal of
GAAP is to guarantee that a company's financial statements are accurate, comparable, and
comprehensive. In the United States, GAAP is widely utilized.
IFRS stands for International Financial Reporting Standards, which are also known as
international financial reporting standards. This is an accounting standard developed by the IFRS
Foundation and the International Accounting Standards Board (IASB) in London that addresses
recordkeeping, account reporting, and other elements of accounting. Other sections of the financial
statements The basic goal of developing IFRSs is to provide common standards for business problems.
IFRS is developed in over 120 nations, including the European Union (EU).
3.2 Compare the standards governing the recognition of transactions in accounting
The accounting approach for inventory expenses is one of the fundamental distinctions
between these two accounting standards. The LIFO (Last in First Out) method of computing inventory
is not permitted under IFRS. Inventory can be estimated using either the LIFO or FIFO (First in First
Out) approach under GAAP.
The rationale for not employing LIFO in accordance with the IFRS accounting standard is that
it does not depict an accurate inventory flow and may reflect lower levels of income than is actually
the case. The ability to employ either FIFO or LIFO under GAAP, on the other hand, allows businesses
to pick the most convenient technique for valuing inventories.
3.2.2 Intangibles
When comparing IFRS and US GAAP standards, the handling of intangible assets such as
research and goodwill is also taken into account. Intangible assets are only recorded under IFRS if
they will provide a future economic benefit. In this manner, the asset may be evaluated and
assigned a monetary value. Intangible assets, on the other hand, are recognized under GAAP at
their present fair market value, with no further (future) considerations.
Another contrast between IFRS and GAAP is how they evaluate accounting procedures –
that is, whether they are based on rigid rules or principles that allow for some interpretation. GAAP
prescribes very explicit rules and procedures for the accounting process, leaving minimal
opportunity for interpretation. The safeguards are designed to prevent opportunistic entities from
making exceptions in order to maximize their revenues.
On the contrary, IFRS establishes principles that firms must observe and interpret to the best
of their abilities. Companies have some latitude in interpreting the same scenario in different ways.
In terms of how revenue is recorded, IFRS is more broad than GAAP. The latter begins by
establishing whether income has been realized or earned, and it includes unique standards for
recognizing revenue across diverse sectors.
Revenue is not recognized until the exchange of an item or service has been completed,
according to the guiding principle. Once a good has been transferred and the transaction has been
acknowledged and documented, the accountant must evaluate the industry norms in which the
firm works.
IFRS, on the other hand, is founded on the notion that revenue is recognized when value is
supplied. It categorizes all income transactions into four categories: the sale of things, construction
contracts, service offering, and usage of another entity's assets. Companies that adopt IFRS
accounting rules use one of two techniques to recognize revenue:
Revenue is defined as the cost that may be recovered within the reporting period.
In the case of contracts, revenue is recognized based on the proportion of the whole contract
fulfilled, the expected total cost, and the contract value. The amount of revenue recognized
should be proportional to the percentage of work accomplished.
3.2.5 Classification of liabilities
When comparing IFRS and US GAAP standards, the handling of intangible assets such as
research and goodwill is also taken into account. Intangible assets are only recorded under IFRS if
they will provide a future economic benefit. In this manner, the asset may be evaluated and
assigned a monetary value. Intangible assets, on the other hand, are recognized under GAAP at
their present fair market value, with no further (future) considerations.
When generating financial accounts in accordance with GAAP accounting rules, liabilities are
categorised as either current or non-current, based on the time period given for the firm to settle the
loans.
Obligations that the firm plans to repay within the next 12 months are classed as current
liabilities, whereas debts that have a payback period longer than 12 months are classified as long-term
liabilities.
However, because IFRS does not provide a clear difference between liabilities, short-term and
long-term obligations are combined together.
IV. Conclusion
Generally speaking Accounting or accounting information is an essential aspect of the development of
any organization or corporation; it plays a key function and serves as the foundation for all transactions in the
world. Furthermore, the job opportunities and development environment of interdisciplinary accounting are
quite vast, so knowing it is useful knowledge for everyone of us in our future professions.
In this blog article, I have outlined what accounting is, how important it is, as well as the different types,
users, and career options that might arise from this profession. Not only that, but it also demonstrates the
significance and role of the accounting information system. Along with comprehending the distinctions between
the two major categories, as well as the concepts and norms that are commonly used across the world. I hope
this blog article adds value and is helpful
in the process of expanding your
knowledge. I'm hoping for a P for this blog
entry.
V. References
Lim, C., 2022. ACC Main users of accounting information. [online] Academia.edu. Available at:
<https://www.academia.edu/32337287/ACC_Main_users_of_accounting_information> [Accessed 1 March
2022].
CPA 2022 Requirements by State | CPA Exam and Accountant Education. 2022. Types of Jobs with
Accounting Degrees | Accountant Careers. [online] Available at: <https://www.accountingedu.org/career-
resources/> [Accessed 1 March 2022].