Aim and purpose
The aim of this unit is to enable learners to understand the importance of and reasons for recording transactions and statements accurately year on year, and of complying with all relevant legislation, regulations and accounting frameworks.
Unit introduction
The role of financial accounting is to record the financial transactions of an organisation accurately and to prepare appropriate financial statements from these records. Net profit or loss is calculated and the financial position of the organisation is established. If the financial statements are going to provide an accurate and meaningful comparison with previous accounting periods then the same rules and conventions must be followed each year. It is not always appropriate for very different organisations to be treated in the same way so there is some flexibility to accommodate this.
Results shown in financial statements are subject to tax, and inconsistent accounting can have huge tax implications. Accountants must uphold the law and apply accounting regulations. A framework of accounting concepts, conventions and standards has been developed and fine-tuned and the development process is continuing with international accounting standards. Legislation is another part of the accounting regulatory framework and accountants in the UK need to understand the implications of the Partnership Act and the Companies Acts.
This unit aims to give learners a sound understanding of why financial statements are prepared in the way they are. It covers the final accounts of sole traders, partnerships, clubs, charities and limited companies both public and private. Learners will gain a greater appreciation of cash flow statements, which enable users of financial statements to understand why a large profit does not necessarily result in an abundance of cash. Whatever an employee’s role, an understanding of the financial statements of the business organisation gives an insight into its strength and worth.
Learning outcomes
On completion of this unit a learner should:
- Know the impact of accounting legislation and concepts on organisations’ accounting policies and procedures
- Understand the impact of the regulatory framework on a limited company’s accounting policies and procedures
- Be able to make appropriate adjustments to accounting information
- Understand a cash flow statement for a limited company.
