Financial Accounting - Concentrates on assets, profits and levels of cash within the business.
Management Accounting - Concentrates on the internal financial accounts
Principles:
- Constituency - All accounts should be recorded in the same way within a business.
- Going concern - Assume the business is operating as normal.
- Matching(accruals) - Use dates of when a transaction occurs over the date of when the payment is made.
- Materiality - No calculating small assets that don't really affect the value of a business
- Objectivity - Accounts should be based on facts not opinions or guesses
- Prudence - Must not overstate the financial position
- Realisation - Similar to matching, the goods sold change hands the day of the purchase and not the day of payment
Generally Accepted Accountancy Practice (GAAP) - A framework of accountancy rules and principles.
- Economic entity assumption: separate records for the each business entity
- Accrual basis accounting: Use dates of when a transaction occurs over the date of when the payment is made.
- Monetary unit assumption: to include only quantifiable transactions
- Full disclosure assumption: disclosure of all relevant information
- Time Period Assumption: using a set period of time
- Revenue recognition assumption: revenue recorded when earned
- Matching principle: Use dates of when a transaction occurs over the date of when the payment is made.
- Cost principle: assets to be recorded at cost of acquisition
- Going concern principle: Assume the business is operating as normal.
- Relevance, reliability and consistency: See principles above
- Conservatism: a less optimistic approach to be adopted
- Materiality: No calculating small assets that don't really affect the value of a business
Why Comply? - Makes a business look more credible to any stakeholders looking at them.