SEM1 Accounting and Finance
Week 1 Lecture
Accounting and finance form the backbone of decision-making within businesses and
other organizations. Accounting focuses on collecting, analyzing, and communicating
financial information to support decision-making. Finance involves raising, managing,
and investing funds efficiently. Together, they enable individuals, businesses, and
organizations to assess performance, manage risks, and ensure sustainability.
- Accounting: Accounting is the process of collecting, recording, analyzing, and
communicating financial information to users. The primary purpose is to aid
decision-making by providing insights into financial performance and position.
- Finance: Finance involves raising and managing funds. It focuses on decisions
related to investments (e.g., purchasing equipment) and financing (e.g.,
securing loans or issuing shares).
While accounting is concerned with recording past and current financial data, finance
focuses on using this information to make decisions about the future.
Accounting information serves diverse user groups who rely on it to make informed
decisions. These users include both internal and external stakeholders.
User Group Purpose of Information
Managers To evaluate business performance, set targets, and allocate
resources effectively.
Owners (Investors) To assess profitability, risks, and potential returns on
investments.
Lenders To determine whether the business can repay loans and
interest.
Employees To evaluate job security, wages, and growth prospects.
Suppliers To decide whether to extend credit or continue supply.
Customers To ensure the business is financially stable and capable of
delivering products/services.
Competitors To benchmark their own performance against the business.
Government To collect taxes, enforce regulations, and monitor the
economy.
Community/
Environmental To ensure businesses operate ethically and sustainably.
These groups require information that is relevant and faithfully represented.
For accounting information to be effective, it must meet certain qualitative
characteristics:
Fundamentals:
