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CL3800 2013S1 L 03A Introduction to Accounting 1

The document outlines the essentials of business management, focusing on the nature of business and the role of accounting. It distinguishes between different types of businesses (service, trading, manufacturing) and explains various business entities. Additionally, it covers the types of accounting, users of accounting information, and Generally Accepted Accounting Principles (GAAP).

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Prabu Dev
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8 views

CL3800 2013S1 L 03A Introduction to Accounting 1

The document outlines the essentials of business management, focusing on the nature of business and the role of accounting. It distinguishes between different types of businesses (service, trading, manufacturing) and explains various business entities. Additionally, it covers the types of accounting, users of accounting information, and Generally Accepted Accounting Principles (GAAP).

Uploaded by

Prabu Dev
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 PDF, TXT or read online on Scribd
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CL3800

ESSENTIALS OF BUSINESS MANAGEMENT

Lecture:
Introduction to Accounting (1)

1
Outline

1. Nature of a Business

2. The Role of Accounting in


Business

3. Generally Accepted Accounting


Principles (GAAP)

2
What is Accounting?
• Accounting is the system that measures
business activities, processes that information
into reports, and communicates these
findings to .

• Accounts are the records in which financial


data is recorded. Keeping "accounts " helps
to of the flow of business
transactions (often expressed in money
terms, by showing where it came from and
how it has been spent).
3
• is the mechanical task
involving the collection of basic financial
data. It ends when he basic data have
been entered in the books of account

• encompasses summarizing,
interpreting and communicating the
financial information.

4
Different Nature of Business
Service Trading Manufacturing

doctors, manufactures
lawyers, supermarkets products &
consultants (buys & sells to
(providing a resells) customers
service)

5
Different Nature of Business
Service organization
- renders/provides services to customers,
e.g. doctors, lawyers, consultants

Trading organization
- buys in product/s and resells to customers,
e.g. supermarkets

Manufacturing organization
- manufactures product/s and sells to
customers (usually corporate customers like
distributors/wholesalers)
6
A business can be organised in various
forms:

Companies Government

Quasi-
Partnerships governmental
bodies
Sole
Proprietorship Voluntary
Organisations

7
Types of Business Entities

- single owner.
- each proprietorship is distinct from its proprietor.

- joins two or more individuals together as co-owners.


- distinct and separate from the personal affairs of
each partner.

- owned by shareholders.
- is a legal entity.
- conducts its business in its own name
- distinct and separate from its owners
8
Accounting — An Information Process

Identification
of Users

User
Information
Needs

Economic Data Accounting


and Activities System

Reports User
Decisions

9
Types of Accounting
• Primarily concerned
with producing
output for external
users.
Financial Accounting
• Must follow
EXTERNAL USERS externally imposed
rules, such as
reporting standards

• Internally focused.
Managerial Accounting
• No mandatory rules
INTERNAL USERS
• Emphasis on the
future
10
Users of Accounting Information

• investors
Financial Accounting • creditors
• regulators
EXTERNAL USERS
• customers
• competitors

Managerial Accounting
INTERNAL USERS • owners
• managers
• employees
11
Users of Accounting Information
Owners
- furnish the capital
- interested in the profitability and financial stability

Managers
- help them in evaluating current operations
- help them in planning future operations

Employees
- interested in the stability and the profitability
- employees desire an assurance of steady
employment. They are interested in the earning
capacity, particularly in a company where 12
employee profit-sharing is in existence
Users of Accounting Information
Creditors
- interested in financial stability and liquidity
- potential creditors need to appraise the financial soundness
of a business organization and assess the risks involved
before making loans or granting credit

Government
- for purposes of taxation and regulation, policy formulation

Investors
- interested in the business' performance
- evaluate how efficiently and profitably management has
used the resources entrusted to them
- potential investors use accounting information in deciding
whether or not to invest in the business
13
Generally Accepted Accounting
Principles

1. Accounting / Business Entity


* regards the biz as an entity
separate from its owners and other
biz
* only transactions relating to the biz
are recorded

14
Generally Accepted Accounting
Principles

2. Historical Cost Concept


* assumes biz transactions are
recorded at cost at the point of
transaction
* transactions are supported
objectively by evidence (invoices,
receipts etc)

15
Generally Accepted Accounting
Principles

3. Money measurement concept


* assumes all transactions are
recorded in the common monetary
unit
* facilitates recording
* grouping of unlike terms (eg cars,
cash)

16
Quiz
Match each of the following statements with its proper term. Some
terms may not be used.
Managerial accounting Historical cost concept Business Transaction
Financial accounting Business entity concept Company

1 A specialised field of accounting concerned mainly with the recording


and reporting of financial data and activities to stakeholders outside the
business
2 An economic event or condition that directly changes an entity’s
assets, liabilities or owners’ equity
3 A specialised field of accounting that uses estimated data to help
management in running day-to-day operations and in planning future
operations
4 A concept of accounting that limits the financial data in accounting
system to data related directly to the activities of the business.
5 A business organised under the laws of the company as a separate
17
legal entity

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