Lecture 1. Introduction to Accounting

Lecture Outline What is Accounting? Why non-accounting students should study accounting? Users of accounting information

Teaching Week Topic 1 Introduction to Accounting 2 Accounting Concepts and Policies 3 Accounting Cycle: categories of accounts; double-entry rules 4 Accounting Cycle: journals, ledgers, trial balance 5 End of year adjustments: Inventory and Depreciation 6 End of year adjustments: Accruals and Prepayments, Provision for Bad and Doubtful Debt 7 Preparation of Profit and Loss Account 8 Balance Sheet Part I 9 Balance Sheet Part II 10 (IN-CLASS TEST) 11 Preparation of Cash-Flow Statement 12 Interpretation of Financial Statements: Ratio Analysis Teaching schedule

Accounting?

Luca Pacioli ( ) Why has the system lasted for so long?

Accounting? The systematic recording, reporting, and analysis of financial transactions of a business Communicates financial information to those who make decisions and control the implementation of those decisions

Why Should I Study Accounting?

Accounting career path FA CAP CIPA CFO FA Financial Analyst CFA Investment manager FA Big 4 Audit Corporate Auditor State Auditor

Branches of Accounting Financial Accounting Managerial Accounting Auditing Tax Accounting

“The classification and recording of the monetary transactions of an entity in accordance with established concepts, principles, accounting standards and legal requirements; and their presentation, by means of the profit and loss accounts, balance sheets, cash-flow statements, during and at the end of an accounting period.” Financial Accounting

FA highlights The way in which company funds have been invested (the balance sheet); The return made on those investments (the income statement); New funds invested in the business by the shareholders, and funds paid back out to the shareholders as dividends (the statement of changes in equity); The uses and sources of cash (cash flow statement)

Management Accounting Provides information that supports strategic and operating management decisions A Control tool that provides information to management about performance of the organization

Auditing  An examination of assessment of the activities, controls, records and systems that underpin accounting information External audit The independent examination of, and expression of opinion on, the financial statements of an enterprise. Internal audit An appraisal activity established within an entity as a service to the entity. Its functions include, amongst other things, examining, evaluating and monitoring the adequacy and effectiveness of the accounting’s internal control systems.

Stage 1 Stage 2 The Scope of FA Collect information regarding financial transactions Express in monetary terms Record in accounting journals Summarize and present such financial information in financial statements Balance Sheet Profit and Loss Account Cash flow statement Notes** Notes** Analyze and interpret financial statements Stage 3

Financial Statements Management Report (Operational and Financial Report) Balance Sheets Income Statements (Profit and Loss Account) Statements of Cash Flows Statement of Changes in Equity **

Users of FA Equity investors (present and potential) Creditors (short-term and long-term) Government Agencies Company managers and employees Public Competitors/ Customers/Suppliers

Terminology UKUSAIASC StockInventory SharesStockShares Own sharesTreasury stockTreasury shares DebtorsReceivables CreditorsPayables Finance leaseCapital leaseFinance lease TurnoverSales (or revenue) AcquisitionPurchaseAcquisition MergerPooling of interestUniting of interest Fixed assetsNon-current assets Profit and loss accountIncome statement

Summary Accounting and the main branches of accounting Users of financial information Benefits of studying accounting

Reading material 1.Woods, F. & Sangster, A.(2005) Business Accounting 1, 10 th ed. 2.Horngren, Ch. et al. (2006) Introduction to Financial Accounting, 9 th ed. 3.Dyson, J.R (2004) Accounting for Non-Accounting Students