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Summary study book Accounting Principles for Lawyers of Peter Holgate (CHAPTER 1 TO 8) - ISBN: 9781139447157 (THE BEST OR NOTHING)
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FAC1503 Assignment 6 (COMPLETE ANSWERS) Semester 2 2024 - DUE 24 October 2024; 100% TRUSTED Complete, trusted solutions and explanations.
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Learning unit 1/2021FINANCIAL ACCOUNTING PRINCIPLES FOR LAW PRACTITIONERS
LEARNING UNIT
1 THE NATURE AND FUNCTION OF ACCOUNTING
Contents
1. Introduction ............................................................................................................................. 2
1.1 What is accounting? ................................................................................................................ 2
1.2 The nature of accounting ......................................................................................................... 3
1.3 Forms of ownership and users of financial statements ............................................................ 3
1.4 Internal controls....................................................................................................................... 4
1.4.1 Built-in control measures ............................................................................................. 4
1.4.2 Internal control systems/procedures ............................................................................ 4
1.5 Financial frameworks .............................................................................................................. 5
1.5.1 The Conceptual Framework ........................................................................................ 5
1.5.2 Accounting standards and statements......................................................................... 6
1.5.3 Accounting policies ..................................................................................................... 6
1.5.4 Fundamental theoretical principles that all general financial statements must be based
on in terms of the IAS .................................................................................................. 7
1.6 Financial statements ............................................................................................................... 9
1.6.1 The statement of financial position ............................................................................ 10
1.6.2 The statement of profit or loss and other comprehensive income .............................. 12
1.7 The double-entry principle ..................................................................................................... 13
1.8 What is a contra account ....................................................................................................... 14
1.9 Word search.......................................................................................................................... 14
1.9.1 Find the accounting terms ......................................................................................... 14
1.9.2 Solution ..................................................................................................................... 15
1.10 Accounting crossword puzzle ................................................................................................ 16
1.10.1 Crossword puzzle .................................................................................................... 16
1.10.2 Crossword clues...................................................................................................... 16
1.10.3 Solution ................................................................................................................... 18
1.11 Flashcards ............................................................................................................................ 18
1
, Learning unit 1/2021
Acronyms
CF Conceptual Framework for Financial Reporting
IFRS International Financial Reporting Standards
IASB International Accounting Standards Board
FRSC Financial Reporting Standards Council (South African Body)
SAICA South African Institute of Chartered Accountants
The Rules Rules of the Attorneys’ Profession
IAS 1 Presentation of Financial Statements
1. Introduction
Accounting is the bookkeeping method, which generates a financial record of all the business
transactions entered into by a business (entity). An accounting system generates the financial
records of the business and produces a summary of the income and expenses (statement of
profit or loss) and assets and liabilities (statement of financial position). Therefore, the
accounting system generates financial information in the format of financial statements.
As the physical and digital worlds have integrated over time, today's accounting information
systems are typically computer-based methods with special accounting software. Whether the
accounting information is computerised or written up by hand the principles of the debits,
credits and the double-entry system are still relevant and form the basis for the accounting
system. This module deals with the financial accounting concepts and principles that are
relevant to law practitioners as well as the accounting and recording of transactions that are
specific to the practice of a law practitioner.
1.1 What is accounting?
Accounting is a process consisting of the following three activities:
The first activity involves identifying those events that are evidence of economic activity
(transactions) relevant to the particular business or entity.
and
The second relates to the recording of the monetary value of the economic events (transactions)
in order to provide a permanent history of the financial activities of the business. Recording
involves keeping a chronological diary of measured events in an orderly and systematic fashion.
This means that economic events are also classified and summarised.
and
The third activity encompasses the communication of the recorded information to interested users.
The information is communicated through the preparation and distribution of accounting reports,
the most common of which are known as financial statements.
2
, Learning unit 1/2021
1.2 The nature of accounting
Accounting is a means of communication used to convey Accounting uses words and figures to
specialised information about the finances of an entity. convey financial information to the users
of such information. These words and
If the recipient of this specialised information (the user of figures are known as the
financial information) does not understand it, the concepts,
information, which is conveyed, will have no value. principles, and
procedures of accounting.
This knowledge will ultimately result in an understanding of the message contained in financial
statements
Every person involved in an entity uses financial
information to a greater or lesser extent.
Accounting is a ‘‘language’’ used to
Financial resources are limited, or ‘‘scarce’’, and if convey financial information to
we are to spend them we must plan properly. interested parties, i.e. users of the
Each of us also needs to know something about information.
accounting to manage our personal financial affairs.
Knowledge of accounting is thus also useful in this area.
1.3 Forms of ownership and users of financial statements
The four main forms of ownership are: Many users, who analyse the information for various
sole traders, decision-making purposes, require financial information.
partnerships, The following are the most common users:
close corporations Investors
companies Creditors
Employees
Government
Management
Users of financial information – The fields of accounting –
Are divided into the following two Financial accounting is concerned with the provision of
categories: financial information to mainly external parties,
Internal users, such as Management accounting is concerned with the
management or employees provision of financial information to people within the
External users, such as investors, entity.
creditors, or government
Financial Accounting is concerned with the recording of transactions and the preparation of the
financial statements for the entity as a whole. International Financial Reporting Standards (IFRS)
govern financial accounting reporting, which consists of adhering to external international
standards. These standards ensure the comparability of financial statements between entities
and countries.
Management Accounting provides financial information for specific purposes. Managers use
this information in their decision-making, which leads to the attainment of the objectives of the
entity. Without this financial information, it would be difficult for management to manage the
business effectively.
3
, Learning unit 1/2021
In this module, we will be concentrating on financial accounting.
1.4 Internal controls
Rules 54.14.7.1 (54.14.7.1.1 to 54.14.7.1.4) for the Rules of the South African Legal Practice
Council (hereafter referred to as the Rules) require that internal controls are implemented to
ensure compliance with the rules and to ensure that trust funds are safeguarded.
Internal controls are the mechanisms, rules, and procedures put in place by an entity to ensure
the integrity of financial and accounting information, promote accountability and prevent fraud.
Internal control further ensures that the financial information provided by such a system is
complete, accurate and reliable, that the assets of the entity are protected against loss or fraud,
that management policies are implemented and that all parts of the system function properly.
The success of any accounting system depends on a good system of internal control. An
attorney’s practice is particularly dependent on such a system for its continued existence.
Internal control systems must be designed to suit the type of entity concerned, for example, a
sole proprietor, a partnership, or a personal liability company.
1.4.1 Built-in control measures
Built-in control measures include:
numbered source documents
dates on source documents
control accounts in respect of clients (also debtors or trade receivables) and trust creditors
(also known as trust payables)
separate bank accounts (business and trust bank accounts)
the keeping of petty cash according to the imprest1 system.
the accurate analysis of all income and expenses
a monthly trial balance which ensures that all accounts are properly balanced
the reconciliation of bank accounts with bank statements
the reconciliation of business creditors (also known as trade payables) with creditor
statements
a non-current asset register.
1.4.2 Internal control systems/procedures
Internal control procedures include separation of duties, access controls, physical audits,
standardised documentation, trial balances, periodic reconciliations, and approval authority.
1 The imprest system is a financial accounting method for paying out and subsequently replenishing a fund
such as petty cash. At any point in time the cash on hand plus the value of the petty cash vouchers for
expenses paid should be equal to the original fixed imprest petty cash amount.
4
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