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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.
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