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ZICA T1 - Financial Accounting

ZICA T1 - Financial Accounting

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Published by Mongu Rice
The ZICA Technician Manual for Financial Accounting
The ZICA Technician Manual for Financial Accounting

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Published by: Mongu Rice on Jul 20, 2010
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07/22/2015

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CHAPTER 1
INTRODUCTION TO FINANCIAL ACCOUNTING
This chapter introduces the nature and objectives of financial accounting.Before you learn how to process transactions and eventual preparation of financial statements, itis important that you understand why accounting information is necessary and the assumptionson which it is based. This is because accounting has limitations on the scope and use of accounting information. It is equally important to know the type of business entities that operatein communities from which accounting information is derived.
TOPICS
1.What is financial accounting?2.Types of business entities.3.Description of users of financial accounting information.4.What makes accounting information to be useful?5.The scope and objectives of financial accounting
LEARNING OUTCOMES
At the end of this chapter you should be able to:-Explain the need and objectives of financial accounting.-Identify the users of financial accounting information as prepared by different types o business units.-Describe qualities of good accounting information.1
WHAT IS ACCOUNTING?
1.1Accounting is the process of identifying, measuring, recording, summarizingeconomic information and finally communicating it to interested parties (users)
1.2ANALYSIS OF DEFINITION
(a)Process mean accounting has steps and procedures of doing things.(b)Identifying means accounting is only concerned with activities otransactions relating to the business.(c)Measuring means that all activities related to the business should be statedin monetary terms.1
 
(d)Recording is the aspect of writing down business transactions inaccounting books. This is called BOOK KEEPING.(e)Summarising means analyzing all recorded information in categories and preparing financial statements.Financial statements include:(i)Income statement, which is a summary of trading activities toestablish profit or loss achieved during a trading period.(ii)Balance sheet which is a summary of what the business owns or owes at a given time.(f)Financial statements should be provided to any body interested for assessment and decision making (communication).
ACTIVITY 1.1
In communities we live in people work in different organizations. Some work as accountants.Can you describe who an accountant is?2.
TYPES OF BUSINESSES
2.1
WHAT IS A BUSINESS?
A business is defined variously to suit one’s requirements. In our studies we shalldefine a business as: “a person, firm, company or other organisation which makesor produces some kind of service usually for the purpose of making profits.”-Profit is excess of Income over Expenditure-Loss is excess of Expenditure over IncomeBusiness can be organised at different levels with a major limiting factor beingresources (capital). Businesses range from basic simple business to a more complex one.2.2
SOLE TRADER 
This is the type of business owned and operated by one person. However, the person running this business can have employees.The sole trader, as an individual will provide the resources and skills to operatethe business.Maintaining accounting records in a sole trader may vary from basic to complexas some sole trader may grow very big.2
 
2.3
PARTNERSHIP
This is a type of business where two or more persons put their resources together to carry on business for the purpose of making profits. There is a limit as to thenumber of partners depending on the type of business to be carried on.2.4
COMPANY
This is a formal association of persons for business purposes. A company islegally incorporated under company law.Members of a company are called shareholders.Companies are usually limited (Ltd) meaning that if the company goes intoliquidation because of debts, each member will only lose the cost of his shares i.e.amount contributed in the business and no more.
2.5TYPES OF LIMITED COMPANIES
(a)
PRIVATE COMPANIES
They are private in the sense that membership is restricted to well knownindividuals and members are few in numbers. Private companies usually have the word “LIMITED” at the end of thename. Other countries use the word “PRIVATE”.They do not invite members of the public to subscribe for shares andmembers are not allowed to transfer their shares without agreement of theother shareholders.(b)
PUBLIC COMPANIES
They offer shares to the public and there is no limit to membership.Shareholders can transfer shares without restrictions. Such a companymust include the words PUBLIC LIMITED COMPANY (Abbr. PLC)after its name.
ACTIVITY 1.2
Distinguish the following terms: enterprise, business, company and firm.3

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