According to the IASB a liability is defined as: a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. The second list states where the assets are from – the monetary amounts of the sources from which the enterprise obtained its present stock of resourcesĬlaims from third parties (outsiders other than the owner) are called liabilities (debt holders). Examples are cash, accounts receivable, inventory, securities, office equipment, a car, real estate, and other property. The first list is a list of assets, showing how those sources have been spent at this point in time.Īssets: are resources controlled by the enterprise as a result of past events and from which future economic benefits are expected to flow to the enterprise.
Only when the accounting standards and accounting principles which were used are made known, can the figures be interpreted.Įconomic income in a given period is the maximum amount that can be consumed in that period while keeping real wealth unchanged (Haig, Simons, Hicks)Ī firm’s economic income over a given period of time is equal to the change in the real value of the firm.Īccounting income of the firm is determined on the basis of a set of rules: The income is determined by accounting principles and accounting standards.
Please notice: the use of accounting terms differs considerably between UK, US and IASB practice.Įconomic income: The Company’s economic income over a given period of time is equal to the change in the real value of the company. The objectives of IASB are listed on page 8 and 9 of “ Financial Accounting”. IASB (International Accounting Standards Board) is independent and has total autonomy in the setting of international standards. The purpose of IFAC is “to develop and enhance a coordinated worldwide accountancy profession with harmonized standards”. The coordinating organization for the accountancy profession around the world is IFAC (International Federation of Accountants). The European Union requires two types of organization: qualifying bodies (exams & technical rules) and regulatory bodies which are under government control. The accounting profession is organized in associations. Market forces, the 'state' and accountancy profession together determine accounting regulation. Therefore, financial accounting acts as the communicating process to those outside the enterprise. It is financial and management accounting that takes the raw data, chooses and presents it as appropriate. Records data and keeping records of money and financially related movements.
Financial management: the optimal means of spending it.Finance: looks at the optimal means of raising money.External checking is needed.Ī control mechanism made to provide both external and independent checks on the published financial statements and reports of organizations. According to IASB, financial reporting is largely designed to provide investors with useful information, concentrating on immediate past. It is concerned with the provision of information intended to be useful to management within the businessĪccounting for users outside of the business itself (examples are listed in the definition, excluding managers). Compared with financial reporting, it is more detailed, more frequent, and involving forecasting all the important figures for next year. No external checking is needed for the reporting. Managerial accounting targets at management within organizations, therefore no commercially confidential information needs to be kept secret. There are key words for accounting which are: Generally speaking, accounting exists to provide service for different types of people dealing with business entities, such as managers, investors, lenders, employees, suppliers, customers, governments, and the public. Because of this there is not one single definition for the word accounting. In different countries and in different environments accounting has developed in different ways. Introduction to Financial AccountingĪccounting has evolved over the years based on a response to different perceived needs in that field.
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