btec level 4 hnd diploma in business unit 5 accounting principles

In summary, accounting is the process of recording, classifying and summarizing financial transactions to provide financial information that useful in making business decisions.. They re

ASSIGNMENT 01 FRONT SHEETQualificationBTEC Level 4 HND Diploma in Business

Unit number and titleUnit 5: Accounting Principles

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I.Introduction

Accounting is the process of recording, classifying, and summarizing commercial activities It is a process for identifying, quantifying, and communicating economic data Financial statements contain information about an organization's financial situation and performance, such as assets, liabilities, equity, revenue, expenses, and cash flow Accounting information is required by users to make investment, credit, and operational choices Users can be internal or external, and accounting data is associated with a variety of entities and persons, including the government, suppliers, and workers of the firm, as well as the general public Accounting is now viewed as a service role performed by organizations and society as a whole.

II.The accounting function in an organisation 1 The definition of accounting

Atrill and McLaney (2021) argue that accounting focuses on gathering, analysing, and disseminating financial data Helping those who use this knowledge to make more informed decisions is the ultimate goal There would be no purpose in producing the financial information if it could not enhance the calibre of the decisions made.

Meanwhile, Carnegie, Parker and Tsahuridu (2020) assume that accounting is essential to the core functions of governance, planning, management, and accountability in all industries, including the corporate/for-profit, non-profit, and governmental sectors It includes both financial and non-financial aspects of accountability concerns It displays conversations and interaction between numerous stakeholders

And, according to Hoàng (2021), accounting is the function of recording, receiving, processing and providing information regarding the economic and financial performance of an organization,firm, agency, etc In further detail, accounting is the performing branch the process of gathering,processing and presenting information about all assets, the sources of asset development and the

information for decision making socio-economic decisions and evaluate the efficiency of actionsin firms

In summary, accounting is the process of recording, classifying and summarizing financial transactions to provide financial information that useful in making business decisions This involves tracking, analysing and interpreting financial data to help individuals, businesses and organisations make informed financial resolution

2 The purposes of accounting functiona Identifying

important to an organization's financial statements is known as the identifying function in accounting The identifying function entails identifying the type and value of each transaction byanalysing transaction documents like bank statements, invoices, and receipts, and then making journal entries to log these transactions in the company's accounting system In order for the organization to prepare accurate financial reports and to comply with legal and regulatory requirements, it is crucial that all financial transactions are accurately and fully documented.

b Recording

The systematic and precise documentation of a business's financial activities is part of the recording function of accounting Usually, accounting software is used for this, or it can be done directly in a ledger To make a record of all financial activities that can be used for financial reporting, performance analysis, and decision-making, financial transactions must be recorded Identifying the accounts engaged in a transaction, the amount involved, and the date of the transaction are all part of the recording function The relevant accounts are then properly and methodically updated with this information.

c Communicating

The communication function of accounting entails providing plain and understandable financial information to the pertinent organization stakeholders Financial statements, reports, or other papers that paint a picture of the organization's financial success and health may contain this information Among the important parties who might rely on this knowledge are creditors, employees, regulatory agencies, and clients Decision-making, strategic planning, and performance evaluation within a company all depend critically on the efficient communication ofaccounting information.

3 The main users of accounting informationa External users

Lenders

exchange for interest revenue They require accounting information in order to evaluate the business's financial performance and financial situation, as well as to have a reasonable assurance that the entity to which they are lending money will be able to repay both the principaland interest on the loan

In other words, longer-term financing is offered by loan debtors They will want to evaluate the borrower's fiscal security and vulnerability The risk of default and its effects are of special concern to them They may impose terms (known as loan covenants) requiring the company to maintain its total borrowing within allowable bounds The financial statements might show that the debt covenant requirements are being fulfilled.

In addition to the usual financial statements, some lenders may request special reports.Banks in particular will request cash flow projections that demonstrate how the company intendsto pay back the money it has acquired with interest (Weetman, 2016, p 15).

The distribution of resources and, consequently, the actions of entities are of interest to governments and their agencies They also need information to assess taxes, control entity activity, and serve as a foundation for economic and national income data.

General public

The populace is impacted by businesses in many different ways For instance, businesses that hire locals and use their suppliers can significantly boost the local economy The public may

entity's prosperity and the scope of its activities.

b Internal usersManagement

Insofar as the management is concerned, the material required to fulfill this obligation must be ofhigh quality and presented in a manner that is easy for management to comprehend If that is the case, it would not be unreasonable to assume that those stakeholders who do not have the same access as management should have access to information of a comparable quality (though not necessarily amount) Some business managers might view such an idea as somewhat revolutionary, but more and more are starting to realize that disclosing information to investors and other stakeholders boosts the general sense of trust in the company (Weetman, 2016, p 13).To handle financial data more effectively, managers might be interested in using accounting software or other tools This might entail putting in place automated systems to handle bookkeeping duties like tax reporting, managing accounts payable and receivable, and handling payroll.

Sales staff

Budget officers

Internal auditors

III.The context and purpose of financial and management accounting 1 The roles and importance of accounting as an information system

2 Difference between financial accounting and management accounting

Financial accounting is responsible for the preparation of an organization's financial statements,which include the income statement, statement of owner's equity, balance sheet, and statement ofcash flows These statements summarize a company's past performance and assess its current financial condition Financial accountants prepare financial statements in accordance with a uniform set of regulations known as generally accepted accounting principles (GAAP) - the fundamental principles of financial reporting promulgated by an independent organization known as the Financial Accounting Standards Board (FASB) Users want to know that financial statements were prepared in accordance with GAAP in order to ensure that the information included within them is correct Additionally, they understand that they can compare the financial statements issued by one company to those issued by another in the same industry While businesses with their headquarters in the United States adhere to US GAAP, many businesses situated outside the United States adhere to a distinct set of accounting rules known asInternational Financial Reporting Standards (IFRS) The International Accounting

Standards Board (IASB) sets these transnational standards, which differ significantly from US GAAP in a number of respects For example, IFRS is a little more restrictive in terms of the methods for calculating inventory costs, but we're not going to dwell needlessly on such subtle distinctions Bear in mind, however, that most experts believe that a single set of global accounting standards will eventually develop to control the accounting processes of both domestic and international businesses

Accounting for management is critical in assisting managers in carrying out their obligations Because the information it offers is intended for use by a diverse range of job functions, the format for reporting data is adaptable Reports are tailored to the specific needs of particular managers, and their objective is to provide managers with relevant, accurate, and timely information in a format that facilitates decision-making Accountants collaborate with personnel

finance—to prepare, analyze, and communicate such information

Between finance and managerial accounting, there are two fundamental distinctions The first distinction is that management accounting is directed at the internal community of a business, whereas financial accounting is directed at an external audience While financial accounting is critical for existing and prospective investors, managers require management accounting in orderto make current and future financial decisions for their business The second distinction is that financial accounting is precise and must comply to Generally Accepted Accounting Principles (GAAP), whereas management accounting might be based on a guess or estimate, as most managers lack the time necessary to obtain precise data before making a decision

3 Ethics, Accounting assumption, principles and constraint Ethics in accounting

In accounting, ethics is primarily referred to as applied ethics, which places a high emphasis on human and corporate ethics, judgments, and moral principles, as well as their application in accounting

Generally, the key ethical determinants in accounting are acceptable practice and a high professional level Ethical responsibility in business does not exist in a vacuum, but rather exists within the framework of ethical behavior The majority of the world's firms have included ethicalconsiderations into their accounting processes, which increases the likelihood of conflict of interest Breach of ethical standards in corporate finance, whether by financial misstatements or other means, typically harms an organization's reputation, customer satisfaction levels, and investor trust in the company (International Ethics Standards Board for Accountants HandbookTM

of the Code of Ethics for Professional Accountants 2013 Edition, n.d.) Integrity

An accountant's behaviour in all professional, business, and financial dealings should be based on integrity Integrity entails more than just honesty; it entails fair dealing and sincerity Integrityis a critical component of the accounting profession Integrity demands accountants to be upfront, forthright, and honest with their clients and financial information (International Ethics Standards Board for Accountants Handbook of the Code of Ethics for Professional TM

Accountants 2013 Edition, n.d.) Objectives

Objectivity is the state of mind in which one considers just those factors pertinent to the work at hand; objectivity is required of any expert exercising professional judgment This requires accountants to avoid allowing personal prejudice, conflicts of interest, or undue influence from

independence' (International Ethics Standards Board for Accountants Handbook of the Code ofTM

Ethics for Professional Accountants 2013 Edition, n.d.) Professional competence and due care

Due care refers to the degree of caution that an average and reasonable person would typically use, and it is used to determine negligent responsibility The notion has been incorporated into the AICPA's Code of Professional Conduct and entails the need to adhere to the profession's technical and ethical standards, to continuously improve one's competence, and to perform one's responsibilities to the best of one's abilities A person exercising due care should always prioritize the client's best interests, commensurate with the profession's responsibility to the public at large

engagement, ensuring that services are rendered promptly to a client, activities are planned and supervised adequately, and work is completed carefully and thoroughly, all while adhering to applicable technical and ethical standards (International Ethics Standards Board for

Accountants Handbook of the Code of Ethics for Professional Accountants 2013 Edition, n.d.).TM

Confidentially

Confidentiality is the principle that requires an accountant to respect the confidentiality of information acquired as a result of professional and business relationships Professional accountants should be alert to the possibility of inadvertent disclosure, including to a close business associate or an immediate or a close family member There is a professional duty or right to disclose, when not prohibited by law Disclosure can include production of documents orother provision of evidence in the course of legal proceedings A professional accountant shall continue to comply with the principle of confidentiality even after the end of a professional relationship (International Ethics Standards Board for Accountants Handbook of the Code of TM

Ethics for Professional Accountants 2013 Edition, n.d.) Professional behaviour

A professional accountant must adhere to the principle of professional behaviour, which requires an accountant to follow applicable rules and regulations and abstain from any conduct that could jeopardise the profession A professional accountant shall not knowingly engage in any business, vocation, or activity that jeopardises or threatens to jeopardise the profession's integrity, objectivity, or good reputation and is thus incompatible with the essential principles Action that has the potential to discredit the profession includes behaviour that a reasonable and

knowledgeable third party would decide has a detrimental effect on the profession's good reputation (International Ethics Standards Board for Accountants Handbook of the Code of TM