Financial Accounting for Decision Makers

Real World 1.8
Can you think of at least four types of organisation that are not primarily concerned
with making profits?
We thought of the following:
■ 
charities
■ 
clubs and associations
■ 
universities
■ 
local government authorities
■ 
national government departments
■ 
churches
■ 
trade unions.
Activity 1.17
Nevertheless, certain types of not-for-profit organisation, such as charities, often suffer 
from inadequate accounting systems and a lack of financial skills among its managers. This 
can have disastrous consequences. 
Real World 1.8
describes how one high-profile UK char-
ity collapsed amid claims of weak accounting controls and financial mismanagement.
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CHAPTER 1
INTRODUCTION TO ACCOUNTING
The main points of this chapter may be summarised as follows:
What is accounting?
■ 
Accounting provides financial information to help various user groups make better 
judgements and decisions.
Accounting and user needs
■ 
For accounting to be useful, it must be clear 
for whom
and 
for what purpose
the infor-
mation will be used.
■ 
Owners, managers and lenders are important user groups, but there are several 
others.
■ 
Conflicts of interest between users may arise over the ways in which business wealth 
is generated or distributed.
■ 
The evidence suggests that accounting is both used and useful for decision-making 
purposes.
Providing a service
■ 
Accounting can be viewed as a form of service as it involves providing financial infor-
mation to various users.
■ 
To provide a useful service, accounting information must possess certain qualities, or 
characteristics. The fundamental qualities are relevance and faithful representation. 
Other qualities that enhance the usefulness of accounting information are comparabil-
ity, verifiability, timeliness and understandability.
■ 
Providing a service to users can be costly and financial information should be pro-
duced only if the cost of providing the information is less than the benefits gained.