The Characteristics Of Useful Financial Information Accounting Essay

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Accounting is an information science that is able to be utilized to collect, distinguish, and operate financial data for individuals and establishments. Accounting is quite useful within organizations as a means of deciding financial stability. Accounting users could be dividing into two types, which are internal users and external users, internals are meant the people within the organization who utilize accounts to derive financial information for their needs, external users are regarding to the people outside the organization who use accounts to record financial information for their needs.

A trial balance is an interior report that would stay in the accounting department. Furthermore, it is a listing of all of the accounts in the general ledger and their balances. However, the debit balances are set into one column as well as the credit balances are arranged into another column. Then, every single column is totting up to verify that the sum of the debit balances is equal to the entire of the credit balances.

A balance sheet is an important financial statement that not only distributes the external of the accounting department, but also frequently distributes outside of the company. Yet, the balance sheet can be arranged into classifications or sections, which are long- term investments, plant, equipment, current assets and so on. In additional, the balance sheet is also related to as the statement of financial condition or the statement of financial position.

2.0 Answer of Question 1:

As what I have mentioned above, there are two categories of users, which are internal users and external users. First of all, let me explain what the internal users are within the establishment, there are some of internal users are as follow:

Managers of the Company:

Those who are chosen by the owners of the company to supervise the schedule activities of the company; they suppose to have a good grasp of accounting information regarding to the company's financial situation as it is currently and it s expected to be in the future to make sure them to manage the business effectively and to take efficient control and planning decisions. Besides, as the management of organizations, there might be a little difference that occurs between the information needs of managers of business organizations. The management procedure might be estimated into three main functions: planning, organizing, and controlling the day-to-day activities of the organization. Planning are regarding to the creating goals for the organization, and setting strategies to achieve those aims. Furthermore, organizing is establishing the administrative structure for carrying out plans. Besides, controlling means the process of measuring and supervising accurate performance in order to ensure the required and planned performance can be implementing.

Employees of the company:

Basically, those who are hired by the company to implement business activities; they should understand the accounting information about the company's financial situation due to the size of their salaries and their future careers are relatively involved in it. Employees are people who employed by the company to run out the business activities. First of all, employees are interested in the financial stability of organization and the career opportunities that they may get in the future. Besides, employees are also concerned about whether the firm would provide the profit- sharing scheme, superannuation funds, comfortable working environment with a reasonable salary. Furthermore, the employees expect to have an equalization of treatment between management, shareholders and employees in respect of the accounting information that every group needs to receive and require.

Suppliers or Creditors:

Those who offer trading goods or services to the firm on credit; they have to understand accounting information regarding to the company's ability to pay its debts so that they can ensure their collection from company. Moreover, suppliers or creditors are playing the essential roles in financial statements; this is due to a great deal of organizations would borrow a large amount of money and get credit to finance their activities. Apart from that, these people are very concerned with the company's liquidity of the organization which is the capability of the organization to pay the debts; suppliers or creditors are also concerned about the amount of security that occurs to protect the advances which they have prepared for the organization.

Last but not lease, they are also interested in the financial stability and future perspectives of an organization.

Customers:

These are people who buy goods or services offered by the company. They suppose to know accounting information that is relevant of the company's financial stability to make sure that the company is a stable source of supply and no risk of having to wind up. Customers play an extremely important role on influencing in market, thus the markets try to fulfill customers' needs and wants as much as they can. However, as we know that customers are interested in information showing that whether the pricing policies is fair or not; they hope that they can get a good or service with good quality and reasonable price.

Sole trader of the company:

As we know that a sole trader can be regarded as sole proprietorship or simply proprietorship, it is basically a type of business entity that is owned and runs by an individual. Firstly, there is no legal difference between the owner and the business. Secondly, sole trader is regarded as the general manager who has to be a good decision maker and has a great grasp of knowledge at planning. Thirdly, sole trader should have to hire some professionals to solve the problems when they meet with hardships. As a general rule, these people have to relate to the internal and external information users in the business, which are could be investment experts, marketers, accountants and so forth.

As a sole trader, he has to determine whether it is beneficial to lease fixed assets or the business to purchase. Besides, for a sole trader, the certainly information is as an essential key to make decisions on monitoring of financial position and credit control of the business.

Characteristics of useful financial information:

Moving on, for possessing financial statements and account to offer essential financial information to the accounts users, company need to satisfy the standard preparation for its accounts; there are some characteristics of useful financial information that must be passed; which are comparability, timeliness, verifiability, understandability and reliability.

Comparability:

Comparability is to help users to distinguish the differences and similarities among the itemsï¼›it can easily to identify them between the dissimilar periods in a set of financial statements and across a variety of reporting entities. There are certain applications of methods to prepare financial statements assists to obtain comparability.

Verifiability:

In fact, verifiability is a new aspect in the revised structure. Financial information is verifiable when it is able to the independent and knowledgeable observers to arrive at an agreement on whether a certain description of transaction or an event can be considered as a true representation.

Timeliness:

Timeliness is regarding to whether the financial accounts information is related to or not to the determination making of users, it is involved in whether the financial accounts are set to indicate information on time or not once it is necessary for decision making. Furthermore, in case of the accounts are decided to offer needed information on schedule without postpone. In additional, it is related to the decision making of the user. Besides, if the accounts are not decided to provide information on schedule due to postpone, it is not involved in the user's decision making.

Understandability:

The preparations of financial accounts are depended on accounting concepts; the users should a good grasp of knowledge of business, economic activities and accounting.

Accounting Equation:

Accounting Equation shows the formula that representing the relationship is among assets, liabilities and net worth. Accounting is including of two aspects; which is either represents business owner's equity (capital) plus the liabilities or represents business assets , it is also known as Dual Aspect Concept states. However, the accounting equation is calculated as follow:

Assets = Business owner's equity or capital + Liabilities

Once there's an accounting equation, we should comprehend that accounting equation is extremely important to maintain a balance sheet in a double-entry bookkeeping system which both debits and credits must be equal. Besides, double entry appears when a pair of debit entry and credit entry set together within two accounts for recording a business transaction. Therefore, business transaction's record with double entry would relatively arise from the changing in the accounting equation as follow:

Assets

Owner's Equity or Capital

Liabilities

Increased by debit relevant assets account

Increased by credit capital or Profit/ loss account

Unchanged

Increased by debit relevant assets account

Unchanged

Increased by credit relevant liability account

Decreased by credit relevant liability account

Decreased by debit Capital/ Drawing account

Unchanged

Decreased by credit relevant liability account

Unchanged

Decreased by debit relevant liability account

Unchanged

Decreased by debit Profit/ loss account

Increased by credit relevant liability account

Unchanged

Increased by credit capital account

Decreased by debit relevant liability account

Assets:

Cash

Bank

Debtors

Premises

Office Equipment

Less Liabilities:

Creditors

Mortgage Loan

Fixed Deposit

Capital

RM2,100

RM9,000

RM3,600

RM80,000

RM14,680

RM36,000

RM54,000

RM15,000

RM109,380

(RM105,000)

RM4,380

Answer of Question 2:

Purchases Account

2012

30 June Balance b/d

Creditor

1July Balance b/d

$

151,200

2,800

154,000

154,000

2012

30 June Balance c/d

$

154,000

154,000

Creditors Account

2012

30 June Return Outwards

Balance c/d

$

600

62,680

63,280

2012

30 June Balance b/d

Purchase

1July Balance b/d

$

60,480

2,800

63,280

62,680

Return Outwards Account

2012

30 June Balance c/d

$

9,000

9000

2012

30 June Balance b/d

Creditor

1July Balance b/d

$

8,400

600

9000

9000

Sales Account

2012

30 June Balance c/d

$

222,000

222,000

2012

30 June Balance b/d

Debtor

1July Balance b/d

$

218,400

3,600

222,000

222,000

Cash in hand Account

2012

30 June Balance b/d

1July Balance b/d

$

25,200

25,200

24,980

2012

30 June Electricity and water

Balance c/d

$

220

24,980

25,200

Debtors Account

2012

30 June Balance b/d

Sales

1July Balance b/d

$

50,400

3,600

54,000

52,800

2012

30 June Return Inwards

Balance c/d

$

1,200

52,800

54,000

Return Inwards Account

2012

30 June Balance b/d

Debtor

1July Balance b/d

$

16,800

1,200

18,000

18,000

2012

30 June Balance c/d

$

18,000

18,000

Bank Account

2012

30 June Balance b/d

1July Balance b/d

$

42,000

42,000

39,600

2012

30 June Salary

Balance c/d

$

2,400

39,600

42,000

Wages and Salaries Account

2012

30 June Balance b/d

Bank

1July Balance b/d

$

151,200

2,400

17,520

17,520

2012

30 June Balance c/d

$

17,520

17,520

Electricity and water Account

2012

30 June Balance b/d

Cash in hand

1July Balance b/d

$

1,680

220

1,900

1,900

2012

30 June Balance c/d

$

1,900

1,900

Trial Balance as at 30th June 2012

DEBIT

CREDIT

Opening stock at 1st July 2012

Purchases

Sales

Return inwards

Return outwards

Wages and salaries

Rent paid

Electricity and water

Discount allowed

Discount received

Rent received

Land & building

Vehicles

Debtors

Bank

Cash in hand

Creditors

Loan

Drawings

Opening capital 1 July 2011

$

42,000

154,000

-

18,000

-

17,520

3,360

1,900

5,040

-

-

168,000

117,600

52,800

39,600

24,980

-

13,440

-

$

-

-

222,000

-

9,000

-

-

-

-

3,360

5,040

-

-

-

-

62,680

36,960

-

319,200

658,240

658,240

Conclusion:

After gone through this assignment, I have comprehended the means of accounting; accounting can be regarded as an information system which can be used to accumulate, classify, and manipulate financial data for individuals and organizations. Besides, I have understood the means of accounting users; they contain internal users and external users, which are playing their own roles in influencing the operation of business. For a business, those users must be considered, if the markets hope to run their business successfully. Moreover, after accomplished this assignment, I have known how to use accounting to record the financial statement and how to understand the trail balance, balance sheet as well.

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