ASSIGNMENT 1 FRONT SHEET

Qualification BTEC Level 4 HND Diploma in Business

Unit number and title Unit 5: Accounting Principles (5038)

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Student Name Nhieu Nhu Y Student ID BS00696

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Table of Contents
Introduction ............................................................................................................................................... 5

I. The purpose of the accounting function within an organisation ................................................... 5

1. Accounting and its general business role in business organization ....................................... 5

2. Different branches of accounting .............................................................................................. 5

3. Management accounting and financial accounting ................................................................. 6

4. Main users of accounting information ..................................................................................... 7

The role and importance of accounting as an information system ............................................................. 8

II. The accounting function within the organisation in the context of regulatory and ethical
constraints. ................................................................................................................................................. 8

1. IFRS and GAAP ......................................................................................................................... 8

2. Ethical assumptions and principles ........................................................................................ 10

Conclusion ............................................................................................................................................... 12

Reference list ........................................................................................................................................... 14

 Introduction
Accounting, which roles is recording and reporting a company's financial transactions, financial
performance, and cash flows is accounting's primary objective. Financial statements are more reliable
thanks to accounting standards. The income statement, balance sheet, cash flow statement, and statement
of retained earnings are all parts of the financial statements. All stakeholders and shareholders can evaluate
a company's success thanks to standardized reporting. Transparent, dependable, and accurate financial
reporting are requirements. Based on Scott Powell (n.d), accounting is crucial since it maintains a detailed
record of the financial data for the company. Users can compare current financial information to past data
with the use of up-to-date records. It allows consumers to evaluate a company's success over time with
complete, consistent, and accurate records.

I. The purpose of the accounting function within an organisation

1. Accounting and its general business role in business organization

According to Investopedia (n.d), accounting is the process of documenting a business's financial

transactions. These transactions are compiled, examined, and reported to oversight organizations,
regulatory bodies, and tax collection organizations as part of the accounting process. A company's
operations, financial condition, and cash flows are summarized in the financial statements that are
used in accounting. They provide a succinct summary of financial transactions across an accounting
period.

Based on Indeed (2023), the responsibility of accounting in a business is making sure the
statements and documentation a firm produce is correct and current. Businesses are required by law
to keep their internal accounting up to snuff, with different compliance standards to adhere to
depending on the sector. A skilled accountant uses their knowledge to manage the finances of a
company, provide reports, and identify and quickly fix any financial problems. The job of an
accountant may depend on the needs and size of a company. An accountant might separately handle
compliance, bookkeeping, tax reporting, and submissions in a small business, for instance. To handle
the greater number of financial data, this responsibility may be split among several professionals in a
larger organization. Although the requirements for accounting roles can alter.

2. Different branches of accounting

 As recorded by Freebooks (2023), there are twelve different categories of financial accounting, each
branch above was created because of industrial, economic, or technical advancements. Additionally, each
has a unique purpose. Accountants, on the other hand, frequently focus on a single branch. Below here
are twelve branches:

• Financial Accounting

• Cost Accounting

• Auditing

• Managerial Accounting

• Accounting Information Systems

• Tax Accounting

• Forensic Accounting

• Fiduciary Accounting

• Government Accounting

• International Accounting

• Fund Accounting

• Political Campaign Accounting

3. Management accounting and financial accounting

Managing accounting and Financing accounting are the main 2 types of accounting. Generally,
these types of accouting have different functions and useful roles in a business. It can be inferred in this
comparison chart below, which is mainly referenced from Diffen (n.d).

Financial Accounting Management Accounting

Objectives Disclosing the business's results and its Giving information that is utilized to plan, define, and
financial situation as of a specific date. evaluate goals can assist management.
Audience Information generated by financial accounting Managerial accounting generates data that is used by
is used by third parties, including lenders and managers and employees within a company.
shareholders.

Focus Financial accounting is history-based; it In managerial accounting, the present is the main focus,
provides information on the previous quarter along with future projections.
or year.

Format To make it simple to compare financial The format is informal and customized for each
accounts between different organizations, department or business.
financial accounts are reported in a specific
format.

Rules Standards like GAAP or IFRS, which are Since managerial accounting reports are solely utilized
guidelines for financial accounting, are set internally, they are exempt from the same legal
down. Companies are required by law to restrictions that apply to financial accounts.
adhere to financial accounting standards.
4. Main users of accounting information

The primary users of accounting information are internal and external users. Internal users include
management, owners, and employees who use it for budgeting, forecasting, analysis, and making
important financial decisions. Meanwhile, external users include investors, creditors, customers,
government agencies, and the public who use it to make informed decisions about the company.

5. Career Opportunity

There are jobs in the accounting industry that record, forecast, or plan finances for a company or a
person. There are many different accounting positions available, all of which have tremendous income
potential and different expertise. While there are undoubtedly a variety of occupations available in banks,
insurance firms, and other financial organizations, some people choose to hunt for jobs on the accounting
team at a business that interests or inspires them. For instance:

• Bookkepper: Those who oversee a company's ongoing financial activities. They are responsible for
documenting and delivering financial reports and standings to management and other supervisors.
• Accounting clerk: The duties can include filing papers, keeping track of income and expenses,
producing reports, and preserving records. Accounting clerks assist accountants in managing the
financial health of a business.
• Credit analysts: Those who are in charge of gathering and examining information from a person's
financial history in order to evaluate their credit. They frequently assess a loan applicant's suitability
for banks or insurance organizations.
• Tax accountant: Depending on their position, tax accountants oversee preparing and filing tax returns
for either individuals or businesses. They annually gather all required data, submit it accurately, and
calculate the correct tax return result.
• Financial analyst: To provide advice and forecasts for businesses, financial analysts must keep track
of the performance of stocks, bonds, and other investments. They evaluate which financial decisions
would be most advantageous by considering both the company's and the individual's ambitions.

The role and importance of accounting as an information system

Keeping informed with AccountingEdu.org (2023), a structured procedure for identifiying

information, recording information, analyzing information and the last step is reporting it is known as an
information system. An accounting information system (AIS) is designed to gather, store, and process
accounting and financial data to generate informational reports that managers and other interested parties
can use to make business decisions. Many accounting information systems nowadays are computer-based,
although an AIS can also be a manual system. A business's transactions can be tracked using an accounting
information system. All business transactions are entered into the application by an accounting clerk, and
they are then automatically posted to the appropriate accounts. This is significant because organized
information can always be found on a computer.

II. The accounting function within the organisation in the context of regulatory and ethical
constraints.
1. IFRS and GAAP

Based on Diffen (n.d), the accounting standard used in the US is known as GAAP (US Generally
Accepted Accounting Principles), while IFRS (International Financial Reporting Standards) is the norm
used in more than 110 other nations. In comparison to IFRS, GAAP is seen as being more "principles
based" than "rules based." By 2015, the U.S. Securities and Exchange Commission hopes to adopt IFRS.
 The following is a comparison of the accounting frameworks utilized by GAAP and IFRS. This is
a broad framework; as it is updated, different accounting treatments for specific circumstances might
potentially be included.

GAAP IFRS

Stands for Generally Accepted Accounting International Financial Reporting

Principles Standards

Used in USA Over 110 countries

Performance Revenue or expenses, assets or Revenue or expenses, assets, or liabilities

elements liabilities, gains, losses, comprehensive
income

Required Balance sheet, income statement, Balance sheet, income statement, changes
documents in statement of comprehensive income, in equity, cash flow statement, footnotes
financial changes in equity, cash flow statement,
statements footnotes

Purpose of the US GAAP framework has no provision Under IFRS, company management is
framework that expressly requires management to expressly required to consider the
consider the framework in the absence framework if there is no standard or
of a standard or interpretation for an interpretation for an issue.
issue.

Objectives of broad focus to provide relevant In general, broad focus to provide

financial information to a wide range of relevant info to a wide range of
statements stakeholders. GAAP provides separate stakeholders. IFRS provides the same set
objectives for business and non- of objectives for business and non-
business entities. business entities.
 Qualitative Relevance, reliability, comparability Relevance, reliability, comparability, and
characteristics and understandability. GAAP understandability. The IASB framework
establishes a hierarchy of these (IFRS) states that its decision cannot be
characteristics. Relevance and based upon specific circumstances of
reliability are primary qualities. individual users.
Comparability is secondary.
Understandability is treated as a user-
specific quality.

Definition of The US GAAP framework defines an The IFRS framework defines an asset as a
an asset asset as a future economic benefit. resource from which future economic
benefit will flow to the company.

2. Ethical assumptions and principles

Based on indeed (2022), company's operating methods are governed by accounting assumptions, also
known as accounting principles, to comply with all applicable laws and regulations. The structural
assumptions offer can be used to decide how to accurately record transactions and arrange financial data.
If an assumption is incorrect, it may indicate that the company's records are not valid or compliant with
legal requirements. To conform to assumptions and generate correct statistics and reports, an organization
may need to modify its information, processes, or procedures.

Here is the list of 4 basic acounting assumptions, below each title of those assumptions are also conclude
the details describing them clearly, which are based on Ashish Kumar Srivastav, a professional content
editor.

• Going-concern assumption

“Going Concern is also termed a continuity assumption. Per this assumption, a company will
continue to deliver its business operations and continue to exist for an unforeseeable future. This
assumption is based on the fact that a company will never go bankrupt, and it shall be able to perform its
business operations for a more extended period.” (Ashish Kumar Srivastav, n.d)

• Monetory Unit Assumption

 “Money Measurement concept states that every worth transaction recording must be recorded and
expressed in monetary terms. The money measurement assumption enhances the understanding of a
business concern’s financial state of affairs.” (Ashish Kumar Srivastav, n.d)

• Business Entity Assumption

“This assumption separates the owner of the company from the company itself. It means that the
economic entity assumption separates the company’s financial records from that of the personal financial
records of the company’s owner. In all probabilities, the commercial business transactions must not mix
with the individual transactions of the company’s owner. This assumption is also known as the business
entity assumption.” (Ashish Kumar Srivastav, n.d)

• Time Period Assumption

“This assumption states that the accounting practices and methods used by an entity must be
reported and maintained for a particular period. The companies must ensure that these periods remain
consistent for each year. It becomes easy for the readers of the financial statements to compare the same
for different periods. This assumption is also known as periodic or accounting period assumption.”
(Ashish Kumar Srivastav, n.d)

Not only four fundamental assumptions are engaged to accurately record transactions and arrange
financial data, four fundamental principles are also set down in a framework known as the Generally
Accepted Accounting Principles. The four fundamental GAAP principles are concerned with how cash
flows into and out of the business as well as how this flow is recorded. Those principles are thoroughly
described below.

• Revenue Recognition Principle

Based on Jack Gerard 92017), the revenue principle suggested that income should be reported when it is
earned rather than when it is paid. This avoids accounting problems brought on by late payments because
any money still owed to the business is visible in the accounting ledger. The revenue principle is also the
cornerstone of accrual accounting, which is why it's also referred to as the "accrual principle."

• Cost Principle
 According to Jack Gerard (2017), costs should be documented based on actual costs rather than
market values or inflation adjustments. This makes sure that the accounting ledger accurately reflects the
documented cost of inventory and other acquisitions. The concept is frequently referred to as the
"historical cost principle" since costs are recorded based on the actual cost at the time of purchase rather
than a projected or modified cost reported later.

• Matching Principle

Also, by Mr. Jack Garard (2017), costs should be equal to the revenue they are associated with.
Instead of being recognized when they are incurred, expenses are instead recorded when they contribute
to revenue. Since items and services are matched up with the revenue they produce, this makes it simple
to assess the profitability of goods and services and shows how expenses and income are related. Of
course, there are some costs that cannot be precisely correlated with revenue, such as administrative fees
and staff wages; in these cases, the costs are simply recorded as expenses for the current period.

• Full Disclosured Principle

The disclosure principle stipulates that all financial information revealed by a company should be
made available in an easily understandable format, and that this disclosure should be weighed against the
expense of gathering and making the data available. The body of the financial statements, the footnotes,
or any additional papers that are presented with the statements should all contain the information that is
necessary to understand them. Corporate leaders should have access to enough information to make
choices about the company, and extraneous material should be reduced to reduce the cost of creating the
statements, as recorded by Jack Garard (2017).

Conclusion

After discussing and overseeing some general perspectives of accounting, things can be inferred
that accouting has always been playing a significant role in businesses for hundred years ago, and none of
any business in the world can operate itsefl without involving the activities of accounting. Moreover, if a
business has a good accounting operation, which means it can handle and solve many financial tasks
proficiently with less pressure, less monetory losses, less mistake procedures, therefore, the company can
substantially work and expand its scale in the market with the amount of trivial fearness. On the other
hand, if a business engages an inoperative accounting and there isn’t any tendency to improve it, the
business may face a lot of financial crises, which even drive the company to the edge of collapse.
Reference list

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May 2023].

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Indeed Career Guide. (n.d.). 16 Accounting Jobs That Pay Well. [online] Available at:
https://www.indeed.com/career-advice/finding-a-job/accounting-jobs-that-pay-well [Accessed 17 May
2023].

Tuovila, A. (2021). Accounting Principles. [online] Investopedia. Available at:

https://www.investopedia.com/terms/a/accounting-principles.asp.