Business LAw

Business LAw

19 1.1 What is accounting?
19 1.2 What makes good information?
19 1.3 Financial and management accounting
20 1.4 Context of financial reporting
22 Summary
22 Possible answers

Topic 1
Introduction to the Course

Learning outcomes

In this first topic, you will be given an introduction
to the subject of accounting. The topic will define
what accounting is, why we need accounting, what
makes good accounting information and who uses accounting information. The topic will also explain that
accounting is split into two distinct areas: financial and
management accounting. In this course the first half is
dedicated to financial accounting and the second half
to management accounting.

By the end of this topic you should be able to:
„„ define what accounting is;
„„ explain what constitutes good accounting
information and why we need good quality accounting data;
„„ identify a number of different groups of people who require accounting information;
„„ explain why the different user groups require
different financial information needs;
„„ outline the difference between financial and
management accounting.

Topic 1 - Introduction to the Course

1.1 What is accounting?
It is always a good idea to start a topic with a definition. Let us look at the following one:
[Accounting] is the process of identifying, measuring and communicating economic information to permit informed judgements and decisions
by the user of the information. (American Accounting Association, 1966)
Note the three key words highlighted. This sums up accounting in general:

Accounting is all about identifying. What do you want to analyse? Do you
want to analyse a particular department, business unit, etc …?
Accounting is about measuring and recording business transactions. Where
have we spent our money? How much income have we generated?
And finally it is about communicating. Once we have recorded the data/...

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