Accounting and Financial Management

Accounting and Financial Management

Week 1

Users of Accounting Include: 

• Managers
• Investors
• Bankers
• Financial analysts & many more

Financial Accounting 

Accounting: 
Accounting is the process of identifying, measuring, recording and communicating economic information to assist users to make informed decisions.

There are two types of accounting systems/ways accounting systems are described as:

1. Financial Accounting System – these are period financial statements that are used by external decision-makers, such as investors, creditors, suppliers, shareholders and customers.

Reporting standard:
AASB standards (GAAP)

1. Management/Managerial Accounting System –used by internal decision-makers, such as managers throughout an organization, as it includes information for planning and performance reports.

Reporting standard:
N/A

Financial Accounting – 
Financial accounting focuses on the provision of information to users external to the enterprise, such as stockholders, lenders, financial analysts, and others outside the company. It focuses on reporting financial position and financial performance through periodic financial statements.

Management Accounting – 
Management accounting focuses on providing information to users within the company (internal users), so that its management can operate the company more effectively. They provide information for planning and performance reports.

Financial Accounting System:
The Financial Accounting System measures an enterprise’s financial performance over time and its financial position (status) at a point in time.

Financial performance: 
Financial performance is the generation of new resources from day-to-day operations over a period of time.

Financial position: 
Financial position is the enterprise’s set of financial resources and obligations at a point in time.

Financial statements:
Financial statements are the reports describing financial performance and position (eg: the balance sheet and the income statement)

Who Uses Financial Accounting Information? 

Financial Accounting used by/helps:

• Stock market investors decide whether to buy, sell, or hold shares of companies
• Banks and other lenders decide whether to lend or not
• Governments in monitoring the actions of enterprises and assessing taxes, such as income tax and GST.
• Boards in rewarding and removing executives
• Management and unions in wage negotiations

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People Involved in Financial Accounting 

The main participants in financial accounting include:

• The information users (decision-maker) – a user or decision-maker is someone who makes decisions on the basis of the financial statements on his or her own behalf, or on behalf of a company, bank or organization.

A user’s main demand is for the credible periodic reporting of an enterprise’s financial position and performance.