1. What do you learn from the session 1 (today). Summarize using your OWN word.

1.1. Nature and purpose of accounting

Accounting is a process of generating accounting information or financial
information. Financial information is financial statements that including financial
performance, assets, and liability. Financial performance is an activity that observe by
cash flow (inflow and outflow), debt and credit, profit and loss. Asset in accounting is
something that we have that can produce money, such as resource (human, capital, land,
and machine). Liability is an obligation that must pay, such as tax. The activity of
accounting is organized the data or information and categorized them, accounting also
analyzing “Transaction” then record that transaction, after recording they will report the
data transaction and communicate to solve some issue.
The purpose of study accounting are:
a. For financial management is to know about how much company debt, credit,
tax, profit, and loss (cash flow). So they can give some decision based on data.
b. For human resource management is to know about their employee income tax,
how much their cash flow for training.
c. To make data more accurate, organized, and structured, so it’s easier to make
decision.
d. To evaluate and analyze the cash flow so they can notice some black money.
e. That is obligated for management student to know about it, because accounting
is study about money.
1.2. Object study of accounting
The object of accounting is to make an accurate decision based on some organized
and structured data. The data was collected from financial performance, asset, and
liability, then we analyze, record, report, and communicating or discuss the best decision
to solve some issue. The example is what should we do when this product/services loss?

1.3. Branches of accounting

 Branches is concentration in accounting. The concentration are financial
management, bookkeeping (Financial accounting), taxation, auditing, insolvency, and
management accounting.
1.4. Public and private accounting
Public accounting is an independent accountant that have given by government
based on their certification. Their duty is to analyzing and auditing every people financial
information. They serve every people that come to them, and not tied with some
organization.
Private accounting is an accountant that employed to an organization or company.
Their duty is to analyzing and auditing financial information in the company that they
worked in. They tied with an organization or company.
2. Do the exercises on the book: a) ALL activities and b)ALL the exercises at the end of the
chapter.
a. Exercise 1
 Look up the definition of accounting in three different sources. Copy the
definitions into your notebook. then outline your ideas about how accounting
and accounting information, as defined in the sources you referred to, could be
helpful to you in the job or career you aspire to be in (in, say, 5 or 10 year
time). Maybe you plan to run your own business, or to be involved in product
design, or work in an advertising agency, or invest on the stock market while
working for a big bank? Whatever your dream is – explain how accounting and
accounting information might be used in your professional and personal life
and what benefits would that bring to you.
Answer:
 Based on Investopedia :
Accounting is the process of recording financial transactions pertaining to a
business. The accounting process includes summarizing, analyzing, and
reporting these transactions to oversight agencies, regulators, and tax collection
entities. The financial statements used in accounting are a concise summary of
financial transactions over an accounting period, summarizing a company's
operations, financial position, and cash flows. 
  Based on Merriam-Webster :
Accounting is the system of recording and summarizing business and
financial transactions and analyzing, verifying, and reporting the results.
 Based on Investopedia :
Accounting is the measurement, processing, and communication of financial
and non-financial information about economic entities such as businesses and
corporations.
I suppose to be a financial managers. So in my professional life, accounting
will help me about cash flow (inflow and outflow), accounting also make me
know about how much the product profit and loss, how much we should pay
for the tax, bank loans, liability, and so on. For my personal life, accounting
will help me to organize my financial resources, such as my pocket money, so I
can be more thrift.
b. Exercise 2
 A-a-a-a-h! Counting! Is that what accounting is all about?
So how many sheep do you count in this flock?
Answer:
 Accounting is about organize the data into more structured and organized so it
will make other people easier to read the data and faster to get the conclusion.
 Many answers are possible – 7 sheep; or 5 (alive) sheep and a ram; or 2 sheep,
1 ram and 3 lambs. The answer will depend on the arbitrary rules about
categories we choose to use when counting.
c. Exercise 3
 Imagine that you are thinking of setting up a t shirt printing venture – you will
be sourcing plain T- shirt from China and printing London images and slogan
on them before selling them on to tourists and visitors to the UK capital. Insert
in the following table one advantage and one disadvantage of operating your
business as: (a) a sole trader; (b) a partnership and (c) a limited
liability company. Discuss your ideas with others in your group. Are you able
to reach a consensus about which option is best?
Answer:
 Type of Entity Advantage Disadvantage
 All of the losses goes
to owner
 All of the profit goes
 No limit for the
to owner.
liabilities
 Easy to organizing the
 Limited financial
company
(a) a sole trader because of the money
 All of the control
just come from the
handed to owner.
owner
 Based on law, sole
 Limited skills, because
trader get lower taxes.
just the owner who
manage it all
 More additional
money, that means
 The control of the
more capital and asset
company is shared
 The impact of the
 The liabilities is still
(b) a partnership losses get shared
unlimited
 More specialization
 All of the profits get
because more people
shared.
in charge of the
company.
(c) a limited  Pass-through taxation  More expensive to
liability company  No restrictions on the form than sole
number of members proprietorships and
allowed partnership,
 Members have  Ownership is typically
flexibility in harder to transfer than
structuring the with a corporation
company  Limited life of the
management company
 Does not require as
much annual
 paperwork or have as
many formalities as
corporations.
 Owners are not
personally
responsible for
business debts and
liabilities

d. Check Your Learning

 The answers to these questions can be found within the text.
1. What is accounting?
Accounting is a process of generating accounting information or financial
information
2. What is meant by the word ‘account’?
Account is a record or statement of financial expenditure and receipts
relating to a particular period or purpose.
3. What is meant by an ‘entity’?
Entity is a person, partnership, organization, or business that has a legal
and separately identifiable existence.
4. What name is given to the system that accountants use to record
information?
Accounting Information System (AIS)
5. What are the three basic questions that the owner of a business might ask?
 What profit has the business made?
 How much does the business owe?
 What does the business have and how much is owed to it?

6. What is an asset?
In accounting, an asset is regarded as being a resource acquired by an
entity
 as a result of a past event and that will result in a future economic benefit
for the entity. For example, the purchase of plant and machinery will
provide a benefit over very many years and thereby help the entity generate
income in those years.
7. What economic event happened in the United Kingdom during the
eighteenth century?
Industrial Revolution
8. What happened to the ownership and management of businesses during the
nineteenth century?
In nineteenth century, the owner was found to need more information in
financial purposes, but the management need information on costing
purposes. As a result of the different information needs of owners and
managers, separate accounting systems were developed. There are financial
accounting and cost accounting.
9. Why did managers in nineteenth-century industrial entities require more
detailed information?
Because wit the more detailed information on cost purposes, managers can
could work out the cost of making individual products and so that they can
price these products appropriately. The information required needed to be
in much more detail and prepared much more frequently.
10. List three user groups of accounting information.
Internal users, external users, and government
11. What are the six main branches of accounting?
 Financial accounting  Auditing
 Management accounting  Financial management
 Insolvency  Taxation
12. Of which main branch of accounting does cost accounting form a part?
Management accounting

13. What is the difference between ‘bookkeeping’ and ‘cost bookkeeping’?

 Bookkeeping
 The recording of monetary transactions, appropriately classified, in
the financial records of an entity.
 Cost bookkeeping
The recording of monetary transactions, appropriately classified, in
the financial records of an entity in order to ascertain the cost of a
specified thing or activity.
14. Explain the difference between ‘bankruptcy’ and ‘liquidation’.
 Bankruptcy
Bankruptcy is a formal legal procedure. The term is applied to
individuals when their financial affairs are so serious that they have to
be given some form of legal protection from their creditors.
 Liquidation
The term liquidation is usually applied to a company when it gets into
serious financial difficulties and its affairs have to be ‘wound up’, i.e.
arrangements made for it to go out of existence in an orderly fashion.
15. List the six major UK professional accountancy bodies.
 Institute of Chartered Accountants in England and Wales (ICAEW)
 Institute of Chartered Accountants in Ireland (ICAI)
 Institute of Chartered Accountants of Scotland (ICAS)
 Association of Chartered Certified Accountants (ACCA)
 Chartered Institute of Management Accountants (CIMA)
 Chartered Institute of Public Finance and Accountancy (CIPFA).
16. What function does the Association of Accounting Technicians fill?
They are assisting qualified accountants in preparing accounting
information. In order to become an accounting technician, it is necessary to
take (or be exempt from) the association’s examinations.
17. Name three subdivisions of the profit-making sector of the United
Kingdom.

The manufacturing sector, the trading sector and the service sector.
18. Name real businesses which belong to these different subdivisions
 The manufacturing sector
Examples of manufacturing enterprises include Rolls-Royce, Shell,
Airbus and any other well-known UK companies in the chemicals,
glass, iron and steel and textile industries.
 The trading sector
The sector includes entities such as builders’ merchants, shops and
supermarkets, for example, Tesco, Marks & Spencer and Amazon.
 The service sector
The example, Channel 4 (a TV channel), WPP (one of the biggest
advertising agencies) or Deloitte (an accountancy and professional
services firm). There are some exceptions: the hotel and restaurant
trade
(such as Hilton or Pizza Hut), for example, is normally classed as part
of the service sector even though it provides major tangible services
such as accommodation, food and drink.
19. What is meant by ‘limited liability’?
The term ‘limited liability’ means that the owners of such companies are
required to finance the business only up to an agreed amount. Once they
have contributed that amount, they cannot be called on to contribute any
more, even if the company gets into financial difficulties.
20. Name one quasi-governmental body.
The British Broadcasting Corporation (BBC)
21. Complete the following sentences:
a. The word account in everyday language means an explanation or a
report.
b. Traders in the fifteenth century began to adopt a system of double-entry
bookkeeping to record information.
c. The owners of a business want to know how much profit a business has
made.
d. An entity is a term used to describe any type of organization.
 22. State whether each of the following statements is true or false:
a. An auditor’s job is to find out whether a fraud has taken place. False
b. Management accounts are required by law. False
c. Tax avoidance is lawful. True
d. A statement of financial position is a list of assets and liabilities. True
e. Companies have to go into liquidation if they get into financial
difficulties. False.
e. News Story Quiz
 Remember the news story at the beginning of this chapter? Go back to that
story and re-read it before answering the following questions.
Questions
1. Are you surprised by the findings of the report into the background of
Britain’s top companies CEOs (Chief Executive Officers)? What do you
expect is the required experience and background of a CEO of a big
business?
I’m not surprised so much. Because finance is the most important in a
company, especially for CEO (Chief Executive Officer), who manage all of
the company duties. The CEO must know about cash flow, their tax,
investation, and so on.
2. Why do you think it is important for a CEO of a big business to have a
sound understanding of finance and accounting?
The CEO must know the data and consider the potential consequences of
their management decisions on profits, cash flow and on the financial
condition of the company. The activities of every aspect of a business have
an impact on the company's financial performance and must be evaluated
and controlled by the business owner.
3. Do you think the same applies for those CEO’s who work for small-and
medium-sized businesses?
Of course yes, because the difference between small, medium-sized and
big business are about size and scope, but how to run business is still same.
f. Tutorial Quiz
 The answers to questions marked with an asterisk can be found in Appendix 4.
1. ‘Accountants stifle managerial initiative and enterprise.’ Discuss.
 No, because of accountant performs financial functions related to the
collection, accuracy, recording, analysis and presentation of a business,
organization or company's financial operations. In some conditions,
accountant also can take part in some decision but can’t stifle
managerial initiative and enterprise.
2. Do you think that auditors should be responsible for detecting fraud?
 No. The public often believe that the job of an auditor is to discover
whether any fraud has taken place. This is not so.
3. The following statement was made by a student: ‘I cannot understand why
accountants have such a high status and why they have so much influence.’
How would you respond to such assertions?
 Because they have important role in the company. Their job isn’t just
write down the data but also review are this business run smoothly or
not.
4. ‘It is necessary for non-accountants to know about accounting.’ Discuss.
 The information that is collected can help non-accountants to do their
job more effectively because it provides them with better guidance on
which to make decisions. Any eventual decision is theirs and it would
often be based on accounting information presented to them by the
accountants. Furthermore, all managers must be aware of the statutory
accounting obligations to which their organization has to adhere if they
are to avoid committing unlawful acts.
5. Describe two main purposes of accounting.
 Answer

a. To collect and store detailed information about an entity’s activities.

 b. To abstract and summarize information in the most effective way for
the
requirements of a specified user or group of users.

6. What statutory obligations require a public limited company to prepare

management accounts?
 No. The preparation of management accounts is for the entity to decide
whether they serve a useful purpose.
7. State briefly the main reasons why a company may employ a team of
accountants.
 To organize their financial data
8. What statutory obligations require limited liability companies to prepare
financial accounts?
 Statutory obligations are contained in the Companies Act 2006. In
addition, listed companies have to abide by certain mandatory
professional requirements.
9. Why does a limited liability company have to engage a firm of external
auditors?
 Because they come from outside the entity, they are not employees of it
and they do not answer to its managers. Using external auditors is more
objective and accurate than using internal auditors. So, the company can
avoid some dirty play between manager, employee or the others.
10. What is the difference between tax avoidance and tax evasion? Are either
of these activities justified?
 Tax avoidance
Perfectly legitimate to search out all the legal means of minimizing the
amount of tax that might be demanded by the government.
 Tax evasion
The non-declaration of sources of income on which tax might be
payable.
 Of course not, because tax is undeniable, cannot be determined and it is
certain.
11. Assume that you are a personnel officer in a manufacturing company and
that one of your employees is a young engineering manager called Joseph
Sykes. Joseph has been chosen to attend the local university’s business
school to study for a diploma in management. Joseph is reluctant to attend
the course because he will have to study accounting. As an engineer he
thinks that it will be a waste of time for him to study such a subject.
Required:
Draft an internal memorandum addressed to Joseph explaining why it
would be of benefit to him to study accounting.
 Answer:
It’s better to Joseph to study accounting. Because accounting take very
crucial part of business. If we learn accounting, it’s easier to know cash
flow, taxation, and bookkeeping. Also, accounting can lays the valuable
groundwork for developing broader monetary theories. Accountants can
hone their craft through the application of known methodologies.
12. Clare Wong spends a lot of her time working for a large local charity. The
charity has grown enormously in recent years and the trustees have been
advised to overhaul their accounting procedures. This would involve its
workers (most of whom are volunteers) in more bookkeeping and there is a
great deal of resistance to this move. The staff have said that they are there
to help the needy and not to get involved in bookkeeping.
Required:
As the financial consultant to the charity, prepare some notes that you
could use in speaking to the voluntary workers in order to try to persuade
them to accept the new proposals.
 Answer:
It’s better to involve bookkeeping in their job. It will make them know
about where the money comes, from whom the money comes, and
where the money should go. Their job will be more accurate, more
structured, and avoid some dirty plays between employees.