ADDIS ABABAUNIVERSITY COLLEGE OF BUSINESS AND ECONOMICS

INTRODUCTION TO ACCOUNTING

BEZAWIT ABRHAM (GSE

DECEMBER, 2022
 1. Accounting is a system meant for measuring business activities,
processing of information into reports and making the findings available
to decision-makers. The main functions of accounting are:

 To keep financial records

 To monitor financial transactions
 To prepare financial reports
 For performance review
2. Accounting information is a means to an end but not and end cause it helps to find out the
financial result and position of an entity thus the users can use the result (the end of
accounting is here) to make their own decision (the end is the decision which is helped
by the information provided by accounting) .
3. Accounting is said a language of business for the reason that it serves as a mode of
communication that is used to pass on information in the business world. It
communicates much of the information to owners, managers and investors for the reason
that they need to appraise a company's financial performance.
4. Financial accounting is presented to internal users on the other hand managerial
accounting is prepared for external users
Financial accounting is exact and must adhere to GAAP while managerial accounting is
based off presumption or estimation .
5. Accounting matters for a business for the reason that it helps stakeholders to make a
better business decision by providing them with accurate and timely financial
information. And also it keeps a business's record legal, accurate and organized.
6. Different forms of business organizations are
 Limited liability company- is a hybrid business structure that provides legal
liability of a corporation and the operational flexibility of a partnership or sole
proprietorship.
According to Ethiopian commercial law business organizations are described as below
 General partnership - is business organization consisting of partners who are each
jointly and severally liable with the partners who are each jointly and severally
liable with the partnership itself for the obligation of the partnership.
  Limited partnership - consists of partners with different types of liability in which
general partners who are in full liable jointly and severally with the partnership
and limited partners who are liable for the obligation of the partnership only to the
extent of their pledged contribution.
 Limited liability partnership - is a business formed by two or more persons to
render professional services in which the liability of partners is limited to the
amount of their contribution.
 Joint venture - is a business established by an agreement among two or more
persons.
 Share company - is a company whose capital is fixed in advance and divided into
shares and whose liabilities are met only by the assets of the company.
 Private limited company - is a business organization whose capital is fully paid in
advance, divided into shares and whose members are not liable for the debts of
the company provided that they have paid up their contribution.
 One member private limited company- is a business organization incorporated by
the unilateral declaration of a single person.
7. There are two categories of accounting information users:
 the first categories are internal users
 Internal management
 partners
 employees
 the second categories are external users
 investors
 lenders
 legal bodies
 customers
 suppliers
 government
 researchers