1. Introduction to Accounting IM51005B Lecture 1: Introduction
Dr Sarah Lauwo

2. Introduction to the module
Module aim and objectives
Assessment: 50% coursework assignment(s) and 50%final exam.
Readings: text, journals and websites,.
Essential: McLaney, E and. Atrill, P., Accounting an Introduction (8th edition), Prentice-Hall, 2015.
Recommended: Britton and Waterson’s Financial Accounting and Collins and Mckeith’s Financial Accounting & Reporting. You may also find Dyson’s Accounting for non-accounting students and Berry and Jarvis’s Accounting in a Business Context of some use.

3. Housekeeping / Intro 10 weeks module
2 hours session every week + Tutorials
Module Leader: Dr Sarah Lauwo
Office: Warmington Tower Room 11
Office Hours: Thursdays 14:00-16:00
Other staff:  Jamie Woodcock 
Office:
Office Hours:
Some additional material may appear on VLE. Please regularly check it
- Note amendments made to office hours!

4. Course Aims
The aim of the module is to introduce you to the important aspects of financial and managerial accounting.
It will give you an understanding of why and how  financial and management accounting information is used by managers in their planning and control activities.
The module focuses on two elements: financial accounting with a focus on understanding financial reporting, and management accounting with an emphasis on  how accounting is used internally for planning, control and decision making. 

5. Module Structure Lectures Introduction of key ideas and concepts
Module Delivery
Lectures
Introduction of key ideas and concepts
Explanation and brief discussion on issues
Mostly lecturer does the talking
Seminars/Tutorial
Extended discussion of issues presented in the lecture
Group discussions and presentations
YOU do the talking

6. How to do well on this course
Read, read and practice and practice some more!
Form a study group – discuss with others
Be analytical – how?
Get different viewpoints
Learn to evaluate arguments
Ask: Why do you think the way you do?
Learn to write well
Straight to the point; succinct
Maintain flow
Practice makes perfect
Reading materials provided in the lecture together with journals articles and books

7. Today’s Lecture Outline
Types of business entities
The need for accounting
Definition of accounting
Differences between financial and management accounting
Why do we need financial statements?
Users of financial information
Elements of Financial statements
Qualitative Characteristics of accounting information
Accounting Measurement Principles

8. Types of Business Sole traders where one person owns a business
Partnerships where two or more people form a business
Companies (legal entities separate from their members or owners)
Not-For-Profit Organisations (public sector, charities, clubs, social enterprises)

9. Companies Limited by Shares
Public limited companies (PLC)
minimum authorised share capital £ 50,000
shares are offered for sale to the general public
most, but not all, are listed
Private companies (Ltd)
not allowed to offer their shares for sale to the general public
List of all companies (PLC)on London Stock Exchange

10. The Need for Accounting
To provide information about the performance, position and Cashflows of organisations
To communicate that information to people inside and outside the organisation
People outside the organisation do not have direct access to information – this is the Agency problem

11. Agency Theory
Relationship between the owner (principal) and the manager (agent).
There is an inherent conflict between the interests of owners and managers.
This conflict is partly resolved by the managers being required to provide information on a regular basis to the owners so their decisions and behaviour can be monitored and assessed.

12. Agency Theory ……
The relationship between the shareholders, the directors and the auditors (Atrill & McLaney, 2014)
elect
report
review
account
Shareholders
Auditors
Directors
Shareholder wealth maximisation.

13. Two Branches of Accounting
Financial Accounting provides information to shareholders, creditors and others who are outside the organisation
Management Accounting provides information for managers of an organisation who direct and control its operations

14. Differences Between Financial and Management Accounting
Financial Accounting
Management Accounting
Main users
External users
Managers
Time focus
Historical perspective
Future emphasis
Verifiability versus relevance
Emphasis on verifiability
Emphasis on relevance for planning and control
Precision versus timeliness
Emphasis on precision
Emphasis on timeliness
Subject
Focus is on organisation as a whole
Focus is on segments or divisions of an organisation
Requirements
Must follow accounting standards and other regulatory requirements
No accounting standards or regulatory requirements to follow

15. Part 1
Financial Accounting

16. What is accounting?
Identifying, measuring, recording AND Communicating economic information to the users.
...‘‘[accounts] are always engaged in interpreting a complex reality, partially, and in a way that is heavily weighted in favour of what the accountant is able to measure and chooses to measure, through the particular scheme of accounting to be adopted” (Morgan 1988, p. 480).
Non-Economic events: for example, environmental events.

17. Why do we need accounting?
To provide information about the financial position, financial performance and cash flows of an entity that is useful to a wide range of users in making economic decisions (International Accounting Standards IAS1).

18. Users of financial information
Business
Competitors
Lenders
Managers
Suppliers
Investment analysts
Community representatives
Government
Employees and their representatives
Customers
Owners
Figure 1.1 Main users of financial information relating to a business (Atrill & McLaney, 2013, p. 2)

19. General purpose or specific purpose financial statements?
Each user group has its specific information needs.
But there is a view that a general purpose financial statement can be designed which is useful to more than one user group.
Owners and long-term lenders regarded as primary users but all potential users are interested in financial performance and financial position of the reporting entity.

20. Main Elements of Financial Statements
1. Assets – resources available to a business
2. Liabilities – amounts owed by a business
3. Capital – amount invested in a business by its owner(s)
Statement of financial position (balance sheet) : a list of resources (assets) and sources of these assets (capital and liabilities)
4. Revenue or income – what the business earns from the sale of goods or provision of services
5. Expenses – what it costs the business to earn the income
Statement of financial performance (income statement) :a report of income and expenses

21. Basic Format of Balance Sheet
Balance Sheet as at xxxx Assets: Property 125,000 Cash 175, ,000 Capital & Liability: Capital 200,000 Bank loan 100,000

22. Basic Format of Income Statement
Income Statement for year ended xxxx Revenue from sale of goods 8,000 Cost of sales (5,000) Gross profit 3,000 Expenses, such as rent & taxation (1000) Net profit 2000

23. Qualitative Characteristics of Accounting Information
Fundamental qualities
Relevance
Faithful representation
Threshold quality
Materiality
Enhancing qualitative characteristics
Comparability
Timeliness
Verifiability
Understandability

24. Relevance &Faithful Representation
Information that has the ability to influence decisions
Predictive value
Confirmatory value
Faithful Representation
Completeness
Neutrality
Freedom from material error

25. Measurement Principles
Going concern - Financial statements are prepared on the assumption that the company will continue in business in the foreseeable future .
For example : Asset cost £100
Market price if sold in crisis = £60
Record asset at £100
Accruals - Revenues related to the financial year are recorded in the income statement when realised whether the company received the revenue or not (e.g., credit sales) & Expenses related to the financial year are recorded in the income statement when incurred whether the company paid the expense or not
For example: Annual rent £120, company only paid £100
Recorded expense in income statement is £120
Consistency- Use similar policies from one year to another or explain reason for changes
Prudence - Inclusion of a degree of caution in accounting judgements under conditions of uncertainty . Avoid Over-statement of assets & Under-statement of liabilities

26. Reading Additional reading materials in the VLE Atrill & McLaney:
Chapter 1
Additional reading materials in the VLE

27. Practice Question
Attached on Moodle