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Introduction To Accounting

This document serves as an introduction to accounting, covering its history, users of financial information, accounting standards (GAAP and IFRS), and various business forms. It outlines the bookkeeping and accounting cycle, as well as differentiating between financial and management accounting. Additionally, it includes activities for reinforcing learning on key concepts.

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thandodlamini5556
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2 views16 pages

Introduction To Accounting

This document serves as an introduction to accounting, covering its history, users of financial information, accounting standards (GAAP and IFRS), and various business forms. It outlines the bookkeeping and accounting cycle, as well as differentiating between financial and management accounting. Additionally, it includes activities for reinforcing learning on key concepts.

Uploaded by

thandodlamini5556
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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INTRODUCTION TO

ACCOUNTING
LEARNING UNIT 1: AN INTRODUCTION TO BUSINESS, BOOKKEEPING AND ACCOUNTING
EMAIL: [email protected]
LEARNING OBJECTIVES

By the end of this learning unit, you will understand:


1. The history of accounting
2. Users and uses of financial information
3. Accounting standards (GAAP and IFRS)
4. Different business forms
5. Different fields within accounting
6. The bookkeeping and accounting cycle
THE HISTORY OF ACCOUNTING

• Accounting can be traced back to 5000 years ago.


• It was used when societies where being developed and people wanted
to account for their property to prove legal ownership.
• This is then where the development of writing took place.
• Accounting was the first form of primitive written language.
CONT…

• The DOUBLE ENTRY THEORY.


• This theory was developed by Luca Pacioli often referred to as “the
father of accounting”.
• This theory is known to be the first modern form of accounting and is
the base of the accounting system that we still implement today.
USERS AND USES OF FINANCIAL
INFORMATION
• Investors
• Employees and labour unions
• Lenders
• Suppliers and other trade creditors
• Customers
• Governments and their agencies
• General public
• Management
ACCOUNTING STANDARDS (GAAP AND IFRS)

• Generally Accepted Accounting Practice (GAAP) – commonly recognized


set of rules and procedures.
• They govern corporate accountants and financial reporting.
• They differ country to country (we have SA GAAP, US GAAP, US GAAP,
Indian GAAP).
CONT…

• International Financial Reporting Standards (IFRS) – principle-based


standards and interpretations.
• They represent the accounting framework to provide a global business
language.
• They improve the understandability and comparability of financial
reports across international boundaries.
QUALITATIVE CHARACTERISTICS OF USEFUL
INFORMATION
Fundamental Qualitative Enhancing Qualitative
Characteristics Characteristics
1. Relevance – does it influence the 1. Comparability – must be able to be
economic decisions of users? compared with other entities and from
previous years. Maintain consistency.
2. Faithful representation – financial 2. Understandability – must be
information must be complete, neutral understandable to users with economic
and free from error. and accounting knowledge as well as
analysts.
3. Timeliness – must be provided
withing the time period most likely to
influence the user’s decisions.
4. Verifiability – different independent
observers should be able to reproduce
the same financial results using the
same set of data and accounting
CLASS ACTIVITY 1
(MATCH COLUMN A AND B)
COLUMN A COLUMN B
i. Relevance A. Information that is understandable to users who
have reasonable knowledge of business.
ii. Faithful representation B. Information that is provided in the time period in
which it is most likely to influence the economic
decisions of users.
iii. Comparability C. Information that is able to influence the
economic decisions of users.
iv. Understandability D. Information that is comparable from one
financial period to the next.
v. Timeliness E. Information that is complete, neutral and free
from error.
vi. Verifiability Information through which different observers can
reach consensus on the faithful representation of
the financial records.
DIFFERENT BUSINESS FORMS

• This refers to the type of business you want to run i.e. sole proprietorship, corporations,
partnerships and limited liability companies.
• Factors that influence your decision:

-starting procedures (some are easy to start and some are expensive)
-obtaining capital (using cash or finding investors, depends on the nature and size of the
business)
-ownership and management (this depends on the owner’s involvement in the management
of the business and the controlling power they wish to retain)
-income tax (the way in which income tax is calculated – taxed as 1 legal person or 2
different legal people).
DIFFERENT FIELDS WITHIN ACCOUNTING

FINANCIAL ACCOUNTING MANAGEMENT ACCOUNTING


(MANAGERIAL)
Focuses on reporting the overall Focuses on internal decision-making
financial position and performance of and future planning.
an organization.
Reports to stakeholders outside and Reports to stakeholders inside the
inside the organization. organization.
Must follow IFRS. Does not need to follow any accounting
framework.
Reporting must be in the form of Reporting not mandatory and it can be
financial statements. done in the form of letters, reports,
emails and memo’s.
Emphasis is on summaries of financial Emphasis is on decisions affecting the
consequences of past events. future of the organization.
THE BOOKKEEPING AND ACCOUNTING CYCLE

2. Source documents 3. Journals


1. Transactions take
summarize the summarize the
place.
transactions. source documents.

6. The statement of
profit or loss and
comprehensive 5. The trial balance 4. The general ledger
income and the summarizes the summarizes the
statement of financial general ledger. journals.
position are
prepared.
TYPES OF BUSINESS TRANSACTIONS

• A transaction has to affect at least 2 accounts.


• ONE account is debited and ONE accounted is credited.
• REMEMBER: DOUBLE ENTRY RULE
TRANSACTIONS CAN BE GROUPED AS
FOLLOWS:
• Owner’s contributions of cash or other assets
• Owner’s withdrawals of cash or other assets
• Receipts for cash sales
• Receipts for services rendered
• Invoices to customers for credit sales or services rendered
• Receipts from customers for sales previously made on credit
• Payments to suppliers for cash purchases
• Invoices from suppliers for credit purchases
CLASS ACTIVITY 2
(CLASSIFY THE FOLLOWING AS EITHER FA OR
MA) Financial Manageme
Accountin nt
g Accounting
1. Provides information mainly for external users.
2. Generates 'general purpose' financial statements.
3. Makes more use of subjective data.
4. Future orientated reports.
5. Emphasises objective data.
6. Provides information mainly for internal users.
7. Must conform with standards that are externally
set.
8. Generates 'specific purpose' financial statements.
9. Reports on financial events of the past.
10. Not subject to externally set standards.

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