Financial Accounting

A Concepts-Based Introduction

David Kolitz

• Publisher: Routledge
• Year: 2016
• Print ISBN: 9781138844964
• eBook ISBN: 9781317542933
• Topic: Business
• Subtopic: Accounting
• Index: Business

Financial accounting is the branch of accounting thought and practice concerned with preparing and providing information for external users of financial statements. This textbook helps students to understand the concepts that underpin the application of accounting theory to solve accounting problems.

This international edition includes extracts from financial statements, definitions of key terms and exam examples. Unlike other textbooks, the author provides analysis of why accountants do what they do, and not just how. With such a wealth of accounting models and diagrams intertwined with this analysis, this book guides the reader through all the practicalities and concepts of financial accounting. Additional online questions, exercises and problems provide an opportunity to put this new-found knowledge into practice along the way.

This book is an essential guide for students new to accountancy, and an equally useful tool for more experienced students and researchers.

PART I
A conceptual overview

1 The accounting environment

Business focus

In a speech delivered in Japan in November 2014, the chairman of the IFRS Foundation trustees, Michel Prada, said that the IFRS Foundation and the International Accounting Standards Board (IASB) had evolved into a global accounting standard setter. International Financial Reporting Standards (IFRS) are the predominant basis on which companies’ financial statements are prepared because ‘investors have a clear bias for the familiar’ and that IFRS have become the means to provide that familiarity to international investors.

He said that companies or jurisdictions that decide not to apply IFRS would need to be aware of becoming increasingly isolated and that the ‘costs of being outside the familiarity of the IFRS system’ would rise in the future.

He commented that the option of voluntary adoption of IFRS was being watched carefully by jurisdictions around the world as it would allow larger, multinational companies to benefit from IFRS without obliging smaller domestic companies to adopt IFRS. However, he was hesitant when it came to modified IFRS as he believed that investor familiarity can only come from the full use of IFRS.

You will be introduced to the role of the IASB and IFRS in this chapter and learn about some of the IFRS in later chapters.

In this chapter

While you may not be certain about your future career, what is certain is that accounting will play an important role in your life. Even the most seemingly simple tasks like managing your bank account, reading your own payslip or buying a car are going to require some level of financial literacy. It should therefore come as no surprise that, directly or indirectly, you are going to be exposed to financial information as part of day-to-day business activities, and you need to be in a position to interpret that information correctly.

This chapter introduces you to accounting and allows you to become familiar with some basic concepts of business as well as accounting terminology before moving on to the rest of the book.

Dashboard

• Look at the Learning outcomes so that you know what you should be able to do after studying this chapter.

• Read the Business focus to place this chapter’s contents in a real-world context.

• Preview In this chapter to focus your mind on its contents.

• Read the text in detail.

• Apply your mind to the Pause and reflect scenarios.

You will be introduced to a lot of new words and terms in this chapter, and you are advised to pay attention to their meaning, as you will encounter them frequently throughout the book.

Learning outcomes

After studying this chapter, you should be able to do the following:

1 Describe how a business works.

2 Describe the value of information in the commercial decision-making process.

3 Recall the various forms of ownership of business entities and the different types of business.

4 Describe the role of financial information in the accounting information system.

5 Recall and explain the objective of financial reporting, and describe how it relates to the users of financial information and the qualitative characteristics.

6 Discuss the role of accounting standards and the IASB.

7 Identify the four main fields of accounting activity.

8 Explain the importance of internal control in a business entity.

The accounting environment

1.1 How a business works

1.2 Decision making and information

1.3 Introduction to business entities

1.3.1 Forms of business ownership

1.3.2 Types of business entities

1.4 The nature of accounting

1.4.1 The accounting information system

1.4.2 Financial reporting and financial statements

1.5 The Conceptual Framework and the objective of financial reporting

1.5.1 Users and their information needs

1.5.2 Qualitative characteristics of financial statements

1.6 Accounting standards

1.6.1 Background

1.6.2 The IASB and IFRS

1.6.3 Use of IFRS around the world

1.6.4 Structure of IFRS

1.6.5 Development of IFRS

1.7 Fields of accounting activity

1.7.1 Financial accounting

1.7.2 Management accounting

1.7.3 Auditing

1.7.4 Taxation

1.8 Internal control

1.1 How a business works

Accounting is often described as the language of business. Before beginning your journey of ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Preface
• Outline
• Supplements
• Part I A conceptual overview
• Part II The accounting process
• Part III The accounting process expanded
• Part IV Recognition and measurement of the elements of financial statements
• Part V Entity forms
• Part VI Sundry topics
• Index