CDA COLLEGE ACC101: INTRODUCTION TO ACCOUNTING Lecture 1 Lecture 1 Lecturer: Kleanthis Zisimos

Chapter Review In Today’s Lecture we Define the Concepts, Principles and the work of the accountant. Define the Concepts, Principles and the work of the accountant. Identify the purpose of accounting. Identify the purpose of accounting. List the main financial statements List the main financial statements Define the users of accounting information and the accounting cycle. Define the users of accounting information and the accounting cycle.

What is Accounting Accounting is an information system that provides reports to users about the economic activities and condition of a business. Accounting is an information system that provides reports to users about the economic activities and condition of a business. It is often called the language of business because accounting is the means by which business financial information is communicated to users. It is often called the language of business because accounting is the means by which business financial information is communicated to users. The Users are divided into internal users and external users The Users are divided into internal users and external users

What is the purpose of Accounting The purpose of Accounting is to provide relevant, timely information for user decision making. The purpose of Accounting is to provide relevant, timely information for user decision making. Financial accountants follow general accepted accounting principles for preparing financial statements. The accounting principles used in Cyprus adopt the IFRs (international accounting reporting standards) which are issued from IASB (International accounting standard board) Financial accountants follow general accepted accounting principles for preparing financial statements. The accounting principles used in Cyprus adopt the IFRs (international accounting reporting standards) which are issued from IASB (International accounting standard board)

Internal Users Internal Users are individuals directly involved in managing and operating an organization like the following people Internal Users are individuals directly involved in managing and operating an organization like the following people 1. Managers 2. Officers 3. Internal auditors 4. Sales staff 5. employees

External Users External Users are individuals not directly involved in managing and operating an organization like: External Users are individuals not directly involved in managing and operating an organization like: 1. Creditors 2. Shareholders 3. External auditors 4. Customers 5. Goverment

Forms of business organizations 1. Sole trader. The Business is owned by one person which has unlimited liability, that means he is responsible to pay the debts of the company by his personal belongings. 2. Partnership. The Business is owned by two or more persons. The business is not legally separated from its owners which means they have unlimited liability. One type of partnership though limits liability and that is LLC. 3. Corporation (ltd). The business is legally separated from its owners. The difference between Corporation and LLC is in the tax treatment of profit. LLC is not subject to business income tax.

Main Financial Statements The main financial statements are 1) the Balance Sheet and 2) the Profit and Loss account. The main financial statements are 1) the Balance Sheet and 2) the Profit and Loss account. The balance sheet is a list of all the assets owned by a business and all the liabilities owed by a business as at a particular date The balance sheet is a list of all the assets owned by a business and all the liabilities owed by a business as at a particular date A Profit and Loss Account is a record of income generated and expenditure incurred over a given period. The profit and loss account shows by the end of the year if a company has profit (more income than expenditure) or loss A Profit and Loss Account is a record of income generated and expenditure incurred over a given period. The profit and loss account shows by the end of the year if a company has profit (more income than expenditure) or loss

Assets Assets are resources owned or controlled by a company that provide expected future benefits to the company. Assets are of many types. A familiar asset is cash. Another is accounts receivable. An account receivable is an asset created by selling products or services on credit. It reflects" amounts owed to a company by its credit customers. These customers and other individuals and organizations who owe a company are called its debtors. Other common assets include merchandise held for sale, supplies, equipment, buildings, and land. Assets also can include intangible rights such as those granted by a patent, copyright, or license. Assets are resources owned or controlled by a company that provide expected future benefits to the company. Assets are of many types. A familiar asset is cash. Another is accounts receivable. An account receivable is an asset created by selling products or services on credit. It reflects" amounts owed to a company by its credit customers. These customers and other individuals and organizations who owe a company are called its debtors. Other common assets include merchandise held for sale, supplies, equipment, buildings, and land. Assets also can include intangible rights such as those granted by a patent, copyright, or license.

Liabilities Liabilities are obligations of a company that reflect the claims of others against assets. A common characteristic of liabilities is their potential for reducing future assets or requiring future services or products. Liabilities take many forms. An account payable is a liability created by buying products or services on credit. It reflects amounts owed to others. A note payable is a liability expressed by a written promise to make a future payment at a specific time. Other familiar liabilities are salaries and wages owed to employees and interest payable. Individuals and organizations that own the right to receive payments from a company are called its creditors. Liabilities are obligations of a company that reflect the claims of others against assets. A common characteristic of liabilities is their potential for reducing future assets or requiring future services or products. Liabilities take many forms. An account payable is a liability created by buying products or services on credit. It reflects amounts owed to others. A note payable is a liability expressed by a written promise to make a future payment at a specific time. Other familiar liabilities are salaries and wages owed to employees and interest payable. Individuals and organizations that own the right to receive payments from a company are called its creditors.

Capital or Equity Equity is the owner's claim on the assets of a business. It is the owner's residual interest in the assets of a business after deducting liabilities. Equity is also called net assets. Owner investments and revenues increase owner's equity. It is decreased by owner withdrawals and Equity is the owner's claim on the assets of a business. It is the owner's residual interest in the assets of a business after deducting liabilities. Equity is also called net assets. Owner investments and revenues increase owner's equity. It is decreased by owner withdrawals and by expenses. Owner investments are assets the owner puts into the business. Owner withdrawals are assets the owner takes from the business. These changes in equity are reported in the statement of changes in owner's equity. by expenses. Owner investments are assets the owner puts into the business. Owner withdrawals are assets the owner takes from the business. These changes in equity are reported in the statement of changes in owner's equity.

Discussion exercises Exercises solved in class Wood-page 15 Exercises solved in class Wood-page 15