Course Content
INTRODUCTION TO ACCOUNTING
Nature and Purpose of Accounting The objective of Financial Accounting The Elements of Financial Statements The Accounting Equation The Users of Accounting Information
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THE ACCOUNTING PROCESS AND SYSTEMS
The Source documents such as receipts and invoices The Books of Prime entry/Original Entry from the journals, cashbooks, Petty cash books and registers The Ledger and the concept of double entry The Trial Balance The Financial Statements
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REGULATIONS AND OTHER PRINCIPLES GUIDING THE ACCOUNTING PROFESSION
The legal sources of regulation The professional sources of regulation (local and international bodies) and ethical requirements Accounting Standards Common accounting principles/concepts Qualities of useful financial information
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CPA 001: Financial Accounting
About Lesson

Internal Users of Accounting

  • Internal users are the primary users of accounting. 

The three types of internal users and their information requirements are as follows:-

Owners

  1. Owners must evaluate how well their company is doing. 
  2. Financial statements inform shareholders about the overall profitability of the company as well as the profitability of various products and geographic areas. 
  3. Owners also want to know how risky their business is. 
  4. Accounting data assists business owners in determining the amount of business stability over time and how changes in economic circumstances have impacted the company’s bottom line. 
  5. This information aids owner in determining whether they should continue to invest in the business or divert their financial resources to more viable initiatives. 

Managers

  1. Accounting data is required by managers to plan, monitor, and make company decisions. 
  2. Managers must allocate financial, human, and capital resources to competing business needs through the budgeting process. 
  3. Budgeting and budgeting efficiently necessitate accurate accounting data about the business’s numerous operations, procedures, goods, services, segments, and departments. 
  4. Accounting data is needed by management to monitor corporate performance by comparing it to previous performance, competition analysis, key performance indicators, and industry benchmarks. 
  5. Managers use accounting data to make business choices such as investing, financing, and pricing; for example, they would need a proposed project’s return on investment calculation backed up by solid cost and revenue forecasts when making investment decisions. 

Employees

  1. Using accounting data is frequently part of the job description for finance department professionals. 
  2. Preparing and reviewing various financial reports, such as financial statements, is one example. 
  3. Employees are interested in learning how well a company is doing because it could affect their job security and pay. 
  4. Many employees read the annual report for accounting information to better grasp the company’s operations. 
  5. In recent years, employees’ interest in accounting data has grown thanks to the number of shares and share option plans available to them, notably in startups. 
  6. Furthermore, potential employees want to know about the company’s financial health they want to work for in the future. 

External Users of Accounting

  • Accounting’s secondary consumers are external users. 

Investors

  1. Investors must be aware of their investment’s performance. 
  2. To analyze the profitability, valuation, and risk of their investment, investors generally rely on financial statements produced by corporations. 
  3. Investors use accounting data to decide whether a certain investment is a good fit for their portfolio and whether they should keep, increase, or decrease their holdings. 

Lenders

  1. Lenders utilize borrowers’ accounting information to determine their creditworthiness or their capacity to repay any loan. 
  2. Lenders provide loans and other credit based on a credit assessment of the borrowers’ financial health. 
  3. The borrower’s capacity to pay its liabilities on schedule, strong profitability, considerable securable assets, and liquidity are all indicators of good financial health.

Suppliers

  1. Before supplying goods and services on credit, suppliers require accounting information to determine the creditworthiness of their consumers. 
  2. Suppliers require accounting information from their important customers to determine whether their firm is in good shape, e.g., prompt payment, necessary for long-term growth. 

Customers

  1. Industrial customers require accounting information about their suppliers to determine whether they have the resources needed to provide a consistent supply of goods or services in the future. 
  2. Any firm requires a steady supply of high-quality inputs. 

Tax Authorities

  1. This is to determine whether a company declared the correct amount of tax on its tax returns. 
  2. Tax authorities occasionally conduct audits of business tax returns to compare the information to the underlying accounting records. 
  3. To identify possible tax evaders, tax officials cross-reference accounting information from suppliers and consumers. 

Government

  1. The government guarantees that a company’s accounting information disclosure complies with legislation designed to protect the interests of numerous stakeholders who rely on such data to make choices. 
  2. To identify the size of each organization and ensure compliance with the relevant employee, consumer, and safety requirements, the government establishes and oversees accounting benchmarks such as sales revenue and net profit. 

Auditors

  1. To generate an audit opinion, external auditors evaluate financial statements and the underlying accounting record of organizations. 
  2. External auditors’ independent judgment on the correctness of financial accounts is relied upon by investors and other stakeholders. 

Public

  1. Accounting information about a corporation may also be of interest to the general public. 
  2. Journalists, analysts, researchers, activists, and others interested in economic issues could be among them. 
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