Read the summary and the most important questions on Accounting and Finance An Introduction | 9781292204482 | E. J. McLaney; Peter Atrill

• 1 Introduction to accounting and finance

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• RQ 1.1: What, in economic principle, should determine what accounting information is produced? Should economics be the only issue here? (Consider who the users of accounting information are)

  The economic cost of providing accounting information should be less than the expected economic benefit from having the information available. So, there should be an economic benefit from producing the information. If this not the case, the accounting information should not be produced. However, it is difficult to determine the value of the benefit. And also determining the costs that are involved. So, not so straightforward. 
  Other issues to consider are for instance social factors. For instance, that society has a right to certain information about a large business (for financial accounting).

• Management accounting has been described as "the eyes and ears of management". What does this expression mean?

  Many businesses are too large and complex for managers to see and assess everything that is happening within the areas that they are responsible for by observation. Nevertheless, managers need information on all matters within their control. Management accounting information can help provide much information, these reports can therefor act as the eyes and ears of the managers, by bringing matters to their attention.  

• Financial accounting statements tend to reflect past events. How can they be of help in making decisions, when decisions by nature are about future actions?

  We can never be sure what is going to happen in the future. The best what we can do is make judgements based on past experience. So, information on performance in the recent past can be a useful source to make judgements about possible future performance.

• 1.1 What are accounting and finance?

• What are differences between accounting and finance?

  1) accounting is concerned with collecting, analysing and communicating financial information
  2) finance is concerned with the ways in which funds for a business are raised and invested

• What are similarites for accounting and finance?

  1) both aim to help to make informed decisions
  2) both are concerned with the financial aspects of decision making

• 1.2 Who are the users of accounting information?

• Name 10 main users of financial information relating to a business

  1) owners
  2) managers
  3) lenders
  4) suppliers
  5 ) customers
  6) employees and representatives
  7) competitors
  8) investment analysis
  9) government
  10) community representatives

• 1.3 The conflicting interests of users

• Name 4 examples in how users of financial information can use this information to monitor and report how various groups benefit from the business, in case of conflicting interests of the users.

  1) owners can rely on accounting information to see wether pay and benefits received by managers are appropriate and accord with agreed policies
  2) lenders can rely on accounting information to see whether the owners have kept to the terms of the loan agreement
  3) employees can check whether they receive a fair share of the wealth created and that managers comply with the agreed profit-sharing schemes
  4) governments can check that the owners of a monopoly do not benefit form exsessive profits and that pricing rules are not broken.

• 1.4 How useful is accounting information

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• Why is accounting information useful?

  It helps users to make decisions related to the business, by reducing uncertainty about the financial position and performance of the business.

• 1.4.1 Evidence on the usefulness of accounting

• It is normally very difficult to asses the impact of accounting on decision making. Describe one situation where the impact of accounting information can be observed and measured.

  Trading of shares on a stock exchange. When a business makes an announcement on accounting profits, prices at which shares are traded and the volume of shares traded can change significantly.

• 1.5 Providing a service

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• Accounting can be viewed of a form of service. What are the fundamental qualities of accounting information to be useful? Mention both and why they are important.

  1) Relevance. Accounting information should be capable of influencing user decisions, by help predicting future events and confirming past events, or both. 
  2) Faithful representation. The accounting information must reflect the substance of what has occured rather than its legal form.