INTRODUCTION TO

ACCOUNTING
dr M.Smoleń-Bojańczyk

1
l

• Books recomended:
• “Corporate Accounting in the unstable world” Mirosław Bojańczyk ABiF Vistula
/Warsaw 2017
• „Accounting for Business Studies” by Aneirin Sion Owen; Manchester
Metropolitan University
• „Accountig for Dummies” John A.Tracy,
• „Financial Accounting an International Introduction”, David Alexander,
Christopher Nodes
• Papers of F1 ACCA exam – Accountant in Business, F3 ACCA Financial Accounting

• M. Bojañczyk, Managers and owners on the capital market, crisis in company

management, Warsaw School of Economics, Warsaw 2010

2
ACCOUNTING: ITS NATURE AND FUNCTIONS
• Early forms of accounting were practiced in ancient societies such as
Babylonia and Assyria.

• The main role of Accounting is to help individuals manage their businesses

and also serve a broader social function by facilitating the development of
commerce.

• Today, accounting plays a central role in our day-to-day economic activities.

Wherever you decide to became a stockholder, a production manager, or
an advertising account executive, you will use accounting data.

3
ACCOUNTING: ITS NATURE AND FUNCTIONS
• Accounting can be defined as a system of providing quantitative
information, primarily financial in nature, about economic entities that is
intended to be useful in making economic decisions.

• Its primary functions are to record, classify, and summarize in a significant

manner and in monetary terms transactions that are of a financial
character.

• The accounting system is the set of principles, methods, and procedures

that is used to record, classify, and summarize the financial information to
be distributed to its users.

4
THE RECORD-KEEPING FUNCTION
• All organizations that engage in economic activities need a method of
keeping track of their transactions.

• Transactions are business events of a particular eneterprises,

measured in money and recorded in its financial records.

• In order to be recorded in the accounting records, the transaction

must be of a type that can be measured in money.

5
CLASYFING AND SUMMARIZING TRANSACTIONS
• In order to meaningfully summarize transactions, they must first be
classified into similar categories.

• We aggregate all of a firm’s sales during a certain period in order to

determine its total sales.

• We aggregate all of the transactions affecting cash in order to

determine the amount of cash on hand at any point of time, as well
as to analyze how the cash was obtained and used.

6
THE CONTRIBUTION OF THE ACCOUNTANT

• Management depends upon information in making decisions. The

accountant is expected to give financial information. It’s the
accountant responsibility to maintain the financial records and to
prepare the statement that present the financial position of the
business .
• The accountant is not only a service arm to management but is a part
of management. The controller of a company is responsible for the
management of accounting functions, thus selecting ways to process
accounting data and methods of presentation. In the accounting area
the principles of management are applied.
Types of accounting
Types and Purposes of Accounting
1. Financial - Record financial transactions (local/international)
2. Cost - Identify and control costs
3. Tax - Compute taxes due (local/international)
4. Auditing - Verify accounting data and procedures
(local/international)
5. Managerial - Make management decisions using financial and
accounting information

8
FINACIAL STATEMENTS
• Large firms enter into hundreds of thousands or even millions of transactions
each year.

• In order for decisions makers to meaningfully use this data, it must be

summarized in accounting reports that are presented in useful formats.

• These reports are called „financial statements”, and are the primary way in which
financial information about particular enterprise is communicated to users.

• Financial statements are concise reports that summarize specific transactions for
a particular period of time.

• They show the financial position of the firm as well the results of its operations.
9
ACCOUNTING AND DECISION MAKING
• The definitions and functions of accounting outlined above emphasize its
purpose in providing information about various entities that is relevant in
decision making

EXHIBIT 1. The Preparation and Dissemination of Accounting Information

The Firm's Management

The financial are recorded, classified and in the form of Present and Potential
activities of a firm summarized by accountants financial statements Investors and Creditors

Goverment Agencies

General Public

10
 Inflow of Financial Data

Accountant

Maintain Financial Records

Preperation of Special Financial Reports

Financial for Planning and Control Budgets
Statements Decisions
ACCOUNTING AND THE FORMS OF BUSINESS
ENTERPRISES
• Sole Proprietorship – is a business entity in which one person is the
owner. The business may employ few or many people, but there is
only one owner, who realizes either profits or losses.
The major advantage of a sole proprietorship is that a bussines may
began under this form of organization with little cost and legal work –
usually small businesses. The sole proprietor is legally responsible for
the debts or obligations of the business (without limits).

• A business entity – is a distinct economic unit whose transactions are

kept separate from those of its owners. As a result, the business has
an existence independent of its owner’s.
12
ACCOUNTING AND THE FORMS OF BUSINESS
ENTERPRISES
• A Partnership is a business entity that is owned by two or more individuals. Like a sole
proprietorship, a partnership may employ few or many people. There are different types
of partnership agreements. From an accounting perspective, a partnership is an
accounting entity distinct from its owners.

• A corporation is a business entity that is viewed legally as separate and distinct from its
owners, who are termed stockholders.
• The owners of the corporation have limited liability, which means that they are not
legally responsible, as individuals, for the debts incurred by the corporations. However,
the amount that they invested in the corporation is available to satisfy corporate debts.
• The limited liability features of corporations enables them to obtain funds from many
owners who merely want to invest for the opportunity of increasing the value of their
stock.
• Corporations, especially large ones, usually have a separation of ownership from
management. It increasing role of accounting. Owners require financial reports to
appraise the performance of management, as well to decide whether to retain, sell, or
add to their investment in the corporation.

13