From the outside, accounting can appear to be a purely practical subject. It
would be very easy to focus on just the applications of techniques and
procedures. But accounting is more than just a set of calculations; unless
we can understand and interpret the figures we produce, the calculations
are pointless!
Accounting provides information for a wide variety of different users and
purposes, and its practices can only be properly understood and assessed in
relation to the economic and social environment in which they are applied.
Therefore there are four aspects to this subject:
1. Techniques for recording, calculation, classification and reporting of
accounting information.
2. The legal and institutional background associated with accounting
information.
3. The economic and administrative problems which the information
is required to solve.
4. The interpretation of reports prepared using 1 in the light of 2 and 3.
The accounting information referred to in 1 need not be financial, although
for our purposes in this unit it will almost always be.
The problems referred to in 3 are largely concerned with the planning of,
and control over, the use of economic resources. They are also concerned
with the measurement of income and of various kinds of value changes.
In order to properly interpret accounting information as in 4, and apply it
to the problems in 3, we need to understand the theory and principles
which underlie the techniques in 1.
The study of accounting is traditionally divided into two parts according to
the types of users of the accounting information. Financial accounting is
primarily concerned with the needs of users outside the business (or other
organisation). Therefore it relates to the external control and management
of resources (for example, by shareholders of the company in which they
have invested their funds, or by banks making loans). A key part of
financial accounting is reporting the performance and position of the
business to these external users, via the financial statements. The form
and content of financial statements is usually highly regulated. In contrast,
management accounting is concerned with the needs of users inside the
business. Therefore it relates to the internal control and management of
resources (for example, by the directors, management or employees of a
company). Management accounting statements may be more detailed than
those prepared for external users, and do not normally need to meet any
legal requirements.
Accounting abbrevation
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