BUS 224 INTERNATIONAL

CORPORATE REPORTING
Lecture 1
Introduction to Financial Accounting
and Reporting
Dr. Didem Gundogdu

*Lecture notes are mainly based on the content of Chapter 1 of Jennifer Maynard
(2017), Financial Accounting, Reporting and Analysis, Oxford University Press.
Some useful information before we start
 Lectures commence during the week starting on Monday 26th September
(seminars will begin in Week 2).
 Meet the module team: Dr. Zezeng Li & Mr. Guven Gebetas.
 You will have an hour-long lecture and an hour-long seminar every week.
 Please see the module page on QMPlus for the module outline and weekly
material.
 We expect you to attend all lectures and seminars regularly, do your weekly
reading and attempt practice and discussion questions in advance of the seminar
sessions.
 Office hours (by appointment):
Tuesday (2pm-3pm)
Thursday (4pm-5pm)

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Learning objectives
After today’s lecture you will be able to:
 Understand who the main users of financial information are and the type of
information they require to help them make decisions,
 Explain the characteristics of financial information which make it useful,
 Carry out double-entry bookkeeping for simple transactions,
 Understand the main period-end accounting adjustments required and account
for these.

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Financial reporting
 The reporting of financial information about an entity to external interested
parties.
 Separate business entity concept underpins reporting.
 Key driver – the decision-usefulness of financial information:
o Who are the external users?
o For what purposes do users want the information?
o What is the nature of the financial information required?

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External users of financial statements

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Fundamental qualitative characteristics

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Enhancing qualitative characteristics

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The financial accounting system

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The nominal ledger
 The heart of the financial accounting system – records every financial transaction
and item via double entry in the different accounts
 5 account types:

Asset – e.g. Liability – e.g. Capital – e.g.

property, plant and bank overdraft, Share capital, share
equipment, motor payables, loans premium, retained
vehicles, inventory, profits and losses,
receivables, bank dividends paid

Income – e.g. Expense – e.g.

Sales, rent receivable, interest Salaries, heat & light, telephone,
receivable insurance, motor expenses, interest
payable

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Double entry bookkeeping

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The trial balance
 A listing of balances on all nominal ledger accounts.
 A ‘half-way house’ in the preparation of the financial statements.
 Review of trial balance important to help ensure integrity of financial accounting
system.
 The total of all debit balances should be equal to the total of all credit balances.
 Balances should be reviewed for “reasonableness”.

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 The Trial Balance - example
Suraya and Daughters - Trial Balance at 31 December 20X8
£ £
Capital 101,177
Plant and machinery 56,152
Fixtures and fittings 35,040
Inventories 15,450
Receivables 43,415 St. of
Payables 29,327 profit or loss
St. of financial
position Bank 10,526 accounts
accounts Sales 296,483
Purchases 175,962
Rent 6,397
Heat and light 26,730
Wages and salaries 36,389
Insurance 11,978
Drawings 30,000
437,513 437,513

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Inventories at 31 December 20X8 were counted and valued at £16,070.
Recording year-end adjustments
 At year end, we need to make a number of adjustments to the accounts.
 Possible adjustments include:
 Adjustments for inventory
 Accruals and prepayments
 Depreciation
 Bad debts and allowances for receivables/debtors.

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Receivables, irrecoverable debts and
allowances for receivables
 Accounts receivable should represent the economic benefits which are
expected to flow to a business, i.e. the amount that will actually be received.
 Adjustments needed for amounts which won’t be received (irrecoverable
debts) or where there is doubt as to collectability (doubtful debts).
 Doubtful debts are usually specific, but may be considered in general (when a
proportion of accounts receivable is considered possibly uncollectable).
 Accounting must result in faithful representation and be neutral (not biased
by prudence).

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Receivables, irrecoverable debts and
allowances for receivables
 Irrecoverable debts – the debt is written off:
Debit Irrecoverable debts expense
Credit Accounts receivable
 Doubtful debts – an allowance is made which is set off against receivables
on the statement of financial position:
 To create or increase the allowance:
Debit Irrecoverable debts expense
Credit Allowance for receivables
 To reduce the allowance in subsequent accounting periods:
Debit Allowance for receivables
Credit Irrecoverable debts expense

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Irrecoverable debts and allowances for
receivables – example
 Barney starts trading on 1 January 20X2 and during the year ended 31
December 20X2, makes total credit sales of £110,000, and collects cash from
credit customers amounting to £95,900. The following debts are found to be
irrecoverable, and are written off on the dates shown:

30 April Customer A £220

31 August Customer B £130
31 October Customer C £50

On 31 December 20X2 the schedule of receivables, amounting to £13,700, is

examined and it is decided to make a general allowance for receivables of
£440.

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 Irrecoverable debts and allowances for
receivables – example
 20X2

On the dates the business identifies the above irrecoverable debts, it will record the
write-offs as follows:

£ £

Debit Irrecoverable debts expense 400 (in total)

Credit Accounts receivable 400

At 31 December 20X2, the business will create an allowance for receivables as follows:

£ £

Debit Irrecoverable debts expense 440

Credit Allowance for receivables 440
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Irrecoverable debts and allowances for
receivables – example
Statement of profit or loss

Irrecoverable debts written off (400)

Allowance for receivables (440)

Irrecoverable debts expense (840)

Statement of financial position (extract)

Current assets £ £

Inventory X

Accounts receivable 13,700

Less: Allowance for receivables (440)

13,260 18

Bank X
Further reading & study

 Chapter 1 from the key text book (Financial Accounting, Reporting and Analysis
by Jennifer Maynard, Oxford University Press, 2nd Edition).
 Homework: Complete Quick Test Questions 1 and 2 in your own time for a quick
revision of double-entry bookkeeping.
 Task for Seminar 1:
Attempt Question No. 4 at the end of Chapter 1.

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