I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

 

1

   The purpose of financial reporting 

1.1 What is financial reporting? 

Financial reporting is a way of recording, analysing and summarising financial data.  

Financial data is the name given to the actual transactions carried out by a business eg sales of goods, 

purchases of goods, payment of expenses. These transactions are recorded in books of prime entry. 

The transactions are analysed in the books of prime entry and the totals are posted to the ledger 

accounts. 

Finally, the transactions are summarised in the financial statements. 

BPP Tutor Toolkit Copy

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CHAPTER 1  

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  INTRODUCTION TO ACCOUNTING 

 

5 

QUESTION 

     

Financial reporting

 

Financial reporting is only carried out by large quoted companies. 

Is this statement correct? 

A Yes 

B No 

 

ANSWER 

The correct answer is B. Financial reporting is carried out by all businesses, no matter what their size or 

structure. 

 

 

2

   Types of business entity 

2.1 What is a business? 

Businesses of whatever size or nature exist to make a profit.  

There are a number of different ways of looking at a business. Some ideas are listed below. 

 

A business is a commercial or industrial concern which exists to deal in the manufacture, resale 

or supply of goods and services. 

 

A business is an organisation which uses economic resources to create goods or services which 

customers will buy. 

 

A business is an organisation providing jobs for people. 

 

A business invests money in resources (for example buildings, machinery, employees) in order to 

make even more money for its owners. 

This last definition introduces the important idea of profit. Businesses vary from very small businesses (the 

local shopkeeper or plumber) to very large ones (Vodafone, IKEA, Google). However, all of them want to 

earn profits. 

Profit

 is the excess of income over expenditure. When expenditure exceeds revenue, the business is 

running at a loss. 

 

One of the jobs of an accountant is to measure income and expenditure, and so profit. It is not as 

straightforward a task as it may seem. 

2.2 Types of business entity 

There are three main types of business entity.  

Sole traders

. A sole tradership is a business owned and run by one individual, perhaps employing one 

or two assistants and controlling their work. The individual's business and personal affairs are, for legal 

and tax purposes, identical. 

Limited liability companies

. Limited liability status means that the business's debts and the personal 

debts of the business's owners (shareholders) are legally separate. The shareholders cannot be sued for 

the debts of the business unless they have given some personal guarantee. This is called limited liability.