Accounting information can be classified broadly between financial accounting and management accounting. Financial accounting is the day-to-day recording of an organisation's financial transactions and the summarising of those transactions to satisfy the information needs of the user groups listed above. It is sometimes referred to as meeting the external accounting needs of the organisation, and as such is subject to many rules and regulations (a regulatory framework) imposed by company legislation and accounting standards.
Accounting procedures and practices have evolved over many centuries and are now known by the acronym GAAP (Generally Accepted Accounting Principles) . The lASE's Framework for the Preparation and Presentation of Fmanczal Statements refers to two underlying assumptions when preparing financial statements:
The Accruals basis
Then preparing financial statements, the effects of transactions are recognized when they occur and are recorded in the accounting records and reported in the financial statements of the periods to which they relate. In practice, this means that (other than for cash flow information) we not only consider money paid and received in a particular time period, but also money owed to and by the business.
This means that, for example, if a summary of revenue and expenditure for a year is
drawn up under financial accounting principles, all relevant revenues and expenses
must be included, not just the money paid or received. Consider a company which
always summarises its finances according to calendar years. If, by the end of 2008,
electricity bills had been received for the period up to 31 October only, the summary
must include an estimate of electricity used in November and December. Conversely, if
in January 2008 rent had been paid in advance for the 18 months to 30 June 2009
the summary would include only the rent for the 12 months to 31 December 2008.
Elmer Tamayo is the author of myaccountinginfo.net who took-up his degree of "BS in Accountancy" major in accounting. A Web designer and blogger, His passion is Reading books, searching new tech update on the world wide web. Read More...
