CHAPTER 1: INTRODUCTION TO ACCOUNTING

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CHAPTER 1: INTRODUCTION TO ACCOUNTING by Mind Map: CHAPTER 1: INTRODUCTION TO ACCOUNTING

1. 6. Accounting concepts and conventions

2. 5. Qualitative characteristics of useful accounting informatio

3. 7. Ethical considerations

4. 1. The purpose of accounting information

4.1. 1.1 What is accounting ?

4.1.1. a way of "recording, analysing and summarising" the transactions of an entity

4.2. 1.2 Types of business entity

4.2.1. Sole traders

4.2.1.1. Owed/ Managed by 1 person

4.2.1.2. May have employees

4.2.2. Partnerships

4.2.2.1. Two or more owner

4.2.2.1.1. General partnership (like two or more sole traders)

4.2.2.1.2. Limited Partnership LLP (more like a company)

4.2.3. Limited liability companies

4.2.3.1. Business owned by shareholders

4.3. 1.3 The objective of financial statements

4.3.1. Provide information about

4.3.1.1. financial position

4.3.1.2. financial performance

4.3.1.3. cashflow statement

4.3.1.4. changes in financial position of an enterprise

4.3.2. users make decisions relating to providing resources to the entity.

4.4. 1.4 Users of financial information and their information needs

4.4.1. Managers/directors

4.4.2. Owners of the company (shareholders)

4.4.3. Lenders

4.4.4. Other creditors

4.4.5. Trade contacts

4.4.6. HM Revenue and Customs (HMRC)

4.4.7. Employees

4.4.8. Financial analysts and advisers

4.4.9. Government agencies

4.4.10. The public

4.4.11. Bodies

5. 2. The regulation of accounting

5.1. 2.1 Generally Accepted Accounting Practice (GAAP)

5.1.1. is a term used to cover all the rules

5.1.1.1. is relevant, reliable, comparable and understandable is common to both IFRS Standards and GAAP

5.2. 2.2 Legislation

5.2.1. are regulated by legislation but must comply with accepted accounting and financial reporting standards

5.3. 2.3 Accounting standards

5.3.1. deal with some of this subjectivity, and to achieve comparability between different organisations, accounting standards were developed.

5.4. 2.4 International Financial Reporting Standards (IFRS Standards)

5.4.1. set out in the Conceptual Framework

5.4.1.1. provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity.

5.5. 2.5 UK GAAP

5.5.1. the Companies Act 2006

5.5.2. UK and international accounting and financial reporting standards

5.6. 2.6 True and fair view/faithful representation

5.6.1. The Conceptual Framework

5.6.2. The Companies Act (2006)

5.6.3. In terms of IAS 1, Presentation of Financial Statements

6. 3. The main financial statements

6.1. 3.1 Statement of financial position (SFP)

6.1.1. A list of all the assets controlled and all the liabilities owed by a business as at a particular date:

6.1.1.1. it is a snapshot of the financial position of the business at a particular moment

6.1.2. Monetary amounts

6.1.2.1. are attributed to assets and liabilities

6.1.2.2. It also quantifies the amount of the owners' interest in the company: equity.

6.1.3. Equity

6.1.3.1. The amount invested in a business by the owners

6.2. 3.2 Statement of profit or loss (SOPL)

6.2.1. A statement displaying items of income and expense in a reporting period

6.2.2. had more income than expense (a profit for the period) or vice versa (a loss for the period).

6.3. 3.3. Statement of cash flows

6.3.1. The link between SFP & SOPL

6.4. 3.4 Statement of changes in equity

6.4.1. The link between SFP & SOPL

6.5. 3.5 Notes to financial statements

7. 4. Capital and revenue items

7.1. 4.1 Capital expenditure

7.1.1. Capital expenditure

7.1.1.1. results in the acquisition of non-current assets or an improvement or enhancement of their earning capacity.

7.1.1.2. Capital expenditure on non-current assets is presented in the statement of financial position.

7.1.2. Non-current assets

7.1.2.1. kept in the entity for more than one year.

7.1.3. Revenue expenditure

7.1.3.1. Expenditure which is incurred either:

7.1.3.1.1. for trade purposes

7.1.3.1.2. to maintain the existing earning capacity of non-current assets.

7.2. 4.2 Capital income and revenue income

7.2.1. Capital income

7.2.1.1. Proceeds from the sale of non-current assets.

7.2.2. Revenue income

7.2.2.1. Income derived from:

7.2.2.1.1. the sale of trading assets, such as goods held in inventory

7.2.2.1.2. the provision of services

7.2.2.1.3. interest and dividends received from business investments

7.3. 4.3 Capital transactions

7.4. 4.4 Why is the distinction between capital and revenue items important?

7.4.1. the correct and consistent classification of revenue or capital items.