Introduction to Accounting Lecture Notes

Introduction to Accounting
Lecture 1: Accounting & Financial Statements
Define accounting & explain the purpose of accounting
 Accounting:
o Identification,
o Recording, and
o Communication
 Of the economic events of an organization to interested users.
 The purpose of accounting:
o Provide useful accounting information
o Users make informed decisions

Identify the users of accounting information and explain their respective
information needs
 Internal Users:
o Marketing
o Management
o Finance
o Human Resources
 External Users:
o Creditors
o Investors
 Usefulness of Accounting Information
o Relevance
 Influence user’s decision
 Predict and or confirm
 Material (significant)
o Faithful representation
 Accounting information should represent what it is supposed to represent
 Complete
 Neutral
 Error free
o Comparability
o Verifiability
o Timeliness
o Understand ability
 Two Branches of Accounting
o Management Accounting
 Management accounting provides information for managers of an
organisation who direct and control its operations.
o Financial Accounting
 Financial accounting provides information
to shareholders, creditors and others who are outside the organisation.

,Identify the main financial statements
 Statement of Profit and Loss (SPL)
o Revenues
o Expenses
o Measures financial performance
 Statement of financial position (SOFP)
o Assets
o Liabilities
o Stakeholders Equity
o Measures financial position
 Statement of Cash flows
o CF Out
o CF In
o CF Forecast
o Shows cash receipts & cash payments
 Statement of financial position
o One of key financial statements
o Reports the assets, liabilities, and equity
o Snapshot of the company’s financial condition at a specific moment in time (usually
the month-end or year-end - BF1120 plc. as at September 30, 2017)
o Accounting equation is Assets= Liabilities + Equity (underlying framework for SOFP).
 Assets=Liabilities+Equity
 Assets
o Resources held by the company
 Controlled
 Provide future benefits or services
 Benefit arise from past transactions/events
 Measurable in monetary terms
o Assets: non-current and current
o Non-current assets + current assets = total assets
o Non-Current Assets
 Fixed assets
 Long term in nature
 Useful for more than one year
 Non-current may be tangible or intangible
 Tangible: physical substance (land, building, plant, equipment, computer,
desk, chairs – property, plant & equipment (PPE))
 Intangible: no physical substance(goodwill, trademark, copyright

, o Current Assets
 Short term in nature
 Expected to sold within the year
 Held mainly for trading
 Examples: inventory, accounts receivable/trade receivable (debtors), cash,
near cash like short term investments.
 Non-current assets + current assets=total assets
 Liabilities
o Obligations of the business/claims by outsiders on business
o Arise through past transactions/events
o Two types: current and non-current
o Normally settled with cash
o Non-Current Liabilities
 Long term in nature
 Once not classified as current
o Current Liabilities
 Short term
 Settlements due in the short term
 Settled within the normal business cycle
 Settled within a year or so
 Cannot put off beyond a year
 Equity
o Ownership claim on total assets.
o Share Capital and Retained Earnings (Reserves)
 SOFP
o To improve understanding, companies group similar assets and similar liabilities
together