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CHAPTER 1
Information
Consists of
Nonquantitative Information
Quantitative Information
Consists of
Accounting
Information
Nonaccounting
Information
Consists of
Operating
Information
Financial
Accounting
Management
Accounting
identical for every entrepreneur (it is needed for comparison among firms and sectors
of industry) and users will not understand them without knowing the ground rules of
their preparation.
Management accounting information is shaped from summaries of operating and
other information. This information is used by persons who have to carry out their
management responsibilities and it is used in three management functions
planning, implementation and control.
Definition of accounting
Accounting is the process of identifying, measuring, and communicating economic
information to permit informed judgments and decisions by users of the information.1
Accounting history
Accounting has existed for many centuries. Symbols recording transactions between
tribes have been found to date back to 5000 BC. The Sumerian civilization in
Mesopotamia kept such records on clay tablets beginning about 3200 BC and more
than 3000 years ago scribes in Babylonia and Egypt actually received what was in
effect formal accounting training in schools. Persia about 500 BC had government
scribes who performed surprise audits of the accounts of the provinces, and similar
audits were made in the Hebrew civilization, in which the chief scribe was the second
highest position in government.
Accounting later became more prestigious in Greece. Here records of construction
costs of government buildings were carved on the structures. In the Roman Empire in
about 200 BC, quaestors in the territories were responsible for supervising the local
government accountants. The quaestors reports to Rome were given in person and
American Accounting Association, A Statement of Basic Accounting Theory. Sarasota, Fla.: 1966
heard by an examiner (today auditor). In the Byzantine Empire (4th century AD) a
public administration school was founded here accounting was taught.
The double-entry bookkeeping system of data records as we know it today was
depicted by Lucas Pacioli in 1494 (first author of an accounting text2). He wrote about
the system of transaction records used by Merchant of Venice.
Accounting framework
Accounting has evolved over a period of many centuries, and during this time certain
terminology, rules, and conventions have come to be accepted as useful. If readers
are to understand accounting reports the end products of an accounting system
they must be familiar with the rules and conventions lying behind these reports.
Accounting is called the language of business.
Accounting ethics
Ethics in accounting is a complex issue. Ethics is a topical subject given the collapse
of Enron in USA and HIH Insurance in Australia in late 2001 and 2002 respectively.
Virtues considered essential to ethical behaviour are:
CONNELL, D. A case for ethics. National Accountant, vol. 18, No. 5, October/November 2002.
Owners
Managers
Shareholders
Investors
Government
Enterprise
Employees
Competitors
Creditors
Suppliers
Customers
Public
The majority of user groups are outside the business but, nevertheless, they have a
stake in it. The groups above identified are normally the most important.
EXERCISE 1.1
Devise an example of existing firm; taking the user groups identified below, suggest
what sort of decision each group is likely to make about this firm.
Name of the firm: .
Characterization: ............
Owners
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Managers
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Shareholders
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Creditors-lenders
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Suppliers
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Customers
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6
Competitors
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Government
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Employees and their representatives
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Investors and their analysts
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Public
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Others:
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