Session outline:

 Accounting definition
 Conceptual Framework
 Accounting Entities
 Accounts Users

 Relevant ILO:
 1. Describe and apply key financial accounting
terms, concepts and ideas

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 What is accounting?
 EXTREMELY INTERESTING

 THE ONLY SCHOOL SUBJECT I COULD DO

 WHAT MY MUM/ DAD/ CAREERS ADVISOR/PARTNER/ HOROSCOPE

RECOMMENDED

 A WAY OF GETTING RICH

 SAFE AND SECURE

 DON'T KNOW

 DON'T CARE

2
Common Answers
 KEEPING THE BOOKS FOR A BUSINESS
 _______ CALCULATION & PLANNING
 BUDGETING
 PREPARING _________________
 HELPING RUN A BUSINESS
 RECEIVERSHIP
 CONSULTANCY
 _____________________

3
What about…
 UNEMPLOYMENT
 SOCIAL WELFARE
 ENVIRONMENTAL CRISIS
 And lots more….
 Accountancy creates an image
on which decisions are based.
 Definitely not just number
crunching!!!!
 Not exact science, as numbers
not set in stone – judgement
and estimation required.
 Accounting is the ___________
_________________
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Official definition
 In 1966 the American Accounting Association defined accounting as
"...the process of identifying, measuring and communicating
economic information to permit informed judgements and
decisions by the users of that information.”

 Effectively we have:
 ACCOUNTING _________________
The discrete individual units of society upon which accounting focuses
and with whose events accounting is concerned.
 ____________________ EVENTS
The type of events with which accounting is concerned (the
identifying activities).
 ____________________ DESCRIPTION
The way in which these events are described the (measuring
activities).
 ________________ OF ACCOUNTS
The people for whom this information is prepared (the 'processing' &
'communicating' activities). 5
What do we do now ?
 Think about how to make financial statements
useful for end users
 Who are the potential end users?
 What type of entity are we accounting for?

 But first …..

 Conceptual framework!

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Conceptual Framework – what is it all about?

1. Who are the _____________ of financial statements?

2. What are the information needs of ___________?
3. What types of financial statements will best satisfy
their needs?
4. What are the characteristics of financial statements
which meet these needs?
5. What are the principles for defining and recognising
items in financial statements?
6. What are the principles for _________________ items
in financial statements?

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Where are we with our CF?
 Different sets of accounting standards – each with their
own conceptual framework.

 UK Statement of Principles now embedded within UK accounting

standards.

 International Accounting Standards Board (IASB) Framework–

very similar, but NOT IDENTICAL
 Details on next slide on accessing this document

 Details in textbook

 Recommend reading international version as this will

inform what we do in class.
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Accessing the Conceptual Framework
 IASB Framework – access available from Library Website; follow
the instructions below:
 http://www.lib.gla.ac.uk/
 Click specific search: databases by name
 Click on G
 Click on GAAP Xtra (might say CCH online instead)
 Enter GUID (student number and password)
 If it is the first time you use the site you may be asked for your email
address. Enter this and accept
 Look at menu on the left hand side and click on:
 IFRS Reporting – standards and commentary
 International Accounting Standards
 Framework, Foundation and Process
 The Conceptual Framework for Financial Reporting 2010 (this is the
international conceptual framework)

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Conceptual Framework Update:
 The International Conceptual Framework is
currently being revised.
 Exposure draft published and comments
gathered.
 New Conceptual Framework expected
_________________________.

 Check IASB website for more information.

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Organisations
 Several different types of organisation:
PUBLIC PRIVATE
 Ultimately under  Owned and run by
_______________ individuals, groups,
control companies etc

Within these categories organisations can either be

commercial or non-commercial.

COMMERCIAL NON-COMMERCIAL
Commercial objectives Not profit orientated, still
e.g. have specific objectives.
_______________________
, expand market share 11
 Examples
 Commercial Organisations
 Sole Trader (Private Sector)
 Partnership (Private Sector)
 Company (Private Sector)
 LTD: Limited i.e.private company so shares not publicly traded;
 plc: public limited company i.e. shares traded on stock exchange

 Nationalised industry (Public Sector)

 Non-commercial organisations
 Local Government (Public Sector)
 Charities (Private Sector)
 National Government (Public Sector)
 Others e.g. clubs, societies, religious organisations (not necessarily
charities)

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Decision making and judgement:
 One of the first decision a business needs to
make:

 What type of entity is it most appropriate to set

up as?

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More detail of Specific Entities
 Sole Trader:
 One person in business
 No formal set up – owner simply introduces some
money to start the business (proprietors capital)
 Separate accounting entity, but NOT separate
________________________
 ___________________ liability
 Personal Tax
 No need to publish accounts
 E.g. Suzanne’s Sweet Shop

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More details of specific entities
 Partnership:
 No formal set-up - Partnership Agreement advisable
(can be verbal or written).
 Partnership Act 1890 applies
 Maximum 20 partners except for specific exemptions
e.g. accountancy practice
 Not a separate _________________, but separate
accounting entity
 ______________________________________ liability
 Copies of accounts not made available to the public
 Can carry put any legal business activities agreed on
by the partners
 Audit not compulsory

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More details of specific entities
 Company:
 NOTE: A company does not need to be a large multi-national
business. It can be a small business.
 Formal legal set up (memorandum and articles of
association required)

 Separate legal entity

 ___________________ liability

 Subject to __________________________
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Company details ctd
 Management undertaken by _________________ (who
can also be shareholders)

 Accounts publicly available

 Activities restricted to those detailed in memo and articles

of association

 In public companies shares freely transferable

 Except for very small companies an audit is required

 Read the textbook for details of Limited Liability 17

Partnerships (LLP)
Who is interested in the accounts?
 Different groups interested for different reasons:

 Management – as they are internal to the organisation

they will have free access to all information. Details of the
type of information they receive covered by Management
Accounting.

 External users (or __________________) may only have

access to the financial statements (hence Financial
Accounting considers this area). Who are these
_____________________ and what information do they
require?

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Stakeholders
 existing and potential
 __________________ – buy/hold/sell shares
 __________________ - lending decisions and terms, monitor loan
decisions
 __________________ - lending decisions and terms

 Other creditors could include suppliers e.g. considering offering trade credit

 These are the groups identified by the conceptual framework (paragraph

OB2)

 Other groups may also be interested in accounts information e.g.

 Employees – job security; salary claims
 Customers – whether to buy; continuity of supply
 Government – tax; environmental; employment; industry policy;
statistics
 Public – assess economic, social and environmental impact
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Reconsider definition of accounting
 In 1966 the American Accounting Association defined accounting as
 "...the process of identifying, measuring and communicating
economic information to permit informed judgements and
decisions by the users of that information.”

Effectively we have:
 ACCOUNTING ENTITIES
The discrete individual units of society upon which accounting focuses
and with whose events accounting is concerned.
Decision: Most appropriate entity to use
 ECONOMIC EVENTS
The type of events with which accounting is concerned (the identifying
activities).
 FINANCIAL DESCRIPTION
The way in which these events are described the (measuring
activities).
 USERS OF ACCOUNTS
The people for whom this information is prepared (the 'processing' &
'communicating' activities). 20
Decision: Main groups to report to
What next?
 Economic Events
 Financial Descriptions

 How will we record transactions in our accounting system? More decisions to

make.

 Obtain a set of Greggs plc accounts for the year ended 31 December 2016 and
bring copies of the accounts section to lectures in future. To obtain a copy:

 Look at the company’s website www.greggs.co.uk

 Click on more on top menu and look for corporate
 A link to the annual report should appear here. If not look under investor
centre.

 Hard copies of other sets of accounts can be obtained free of charge on

the following website:
http://www.orderannualreports.com/v5/index.asp?cp_code=p241

 You should regularly consult copies of annual reports and relate the
lecture material to practical examples. 21