Accounting and Finance

For Non-Specialists
11th edition

Chapter 1
Introduction to accounting
and finance

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LEARNING OUTCOMES

You should be able to:

Explain the nature and roles of

accounting and finance

Identify the main users of financial

information and discuss their needs

Distinguish between financial accounting and

management accounting

Explain why an understanding of accounting

and finance is likely to be relevant to you

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Figure 1.1 Main users of financial information relating to
a business

Owners Customers Competitors

Employees
Managers and their
representatives
Business

Lenders Government

Investment Community
Suppliers
analysts representatives

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Figure 1.2 The qualities that influence the usefulness of accounting
information

COST
CONSTRAINT Qualities

Fundamental Enhancing

Faithful
Relevance
representation

Predictive Confirmatory Freedom

Completeness Neutrality
value value from error

Materiality
threshold

Understand-
Comparability Timeliness Verifiability
ability

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 Figure 1.3 The accounting information system

Information Information Information Information

identification recording analysis reporting

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Financial and management accounting

The major differences concern:

Nature of the reports produced

Level of detail

The existence of regulations

Reporting interval

Time orientation

Range and quality of information

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The changing business environment

Identified reasons include:

Increasing sophistication of customers

Development of global economy

Rapid changes in technology

Deregulation of domestic markets

Increasing pressure from owners

Increasing volatility of financial markets

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Figure 1.5 Relationship between risk and return

Return

0 Risk

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