ACCT2010

Principles of
Accounting I
Financial statements as business
information to make business
decisions

1
Reading
I. Chapter 1 – whole chapter
II. Overview of 4 basic financial statements (pp.6 – 17)
III. Exhibit 1.7 (p.18)
IV. Ethical conduct and Need for Internal Controls (pp. 21 – 22)
V. Demonstration Case (p.22 – 23)

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Content
I. Aims, structure and administration of the course
II. Functions and value of financial accounting
III. Financial statements – the “What”, “Why”, “Who”, “Whom”
IV. Difference between financial accounting and managerial
accounting
V. Review key concepts
VI. Conclusions and summary

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ACCT2010
Principles of
Accounting I
I. Aims, structure & administration
of the course

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Aims, structure & admin of the course
1. Aims (refer to ACCT 2010 course syllabus)

a. Relationship between commercial transaction and financial

accounting
b. Financial statements and their components
c. Assets = Liabilities + Owners’ equity
d. Prepare financial statements
e. Read, interpret & analyze a set of financial statements

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Aims, structure & admin of the course
2. Structure (refer to ACCT 2010 course syllabus)

a. Continuous assessment
b. Primarily activity-based tasks in class
c. Mid-term exam
d. Final exam
e. Take home written assignment (the best 4 questions, individual
base)

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Aims, structure & admin of the course
3. How ACCT 2010 is administered (refer to ACCT 2010 course
syllabus)

a. Always bring writing line pads with you during class

b. It requires students’ preparation before coming to class
c. Please stick to the class/session you registered

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ACCT2010
Principles of
Accounting I
II. Functions & values of financial
accounting

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Functions & values of financial accounting
1. Functions of financial accounting (What does it do?)

a. Record transactions
i. What is a transaction in general sense?
ii. What is a transaction in accounting?
iii. It summarizes, analyses and reports business transactions

b. Basis for decision making

i. Decision made by parties external to the entity
ii. What are the usual/common decisions here?
iii. Hint: Who are the stakeholders?
iv. Readers would know the operations, financial positions and cash flows of
reporting entities

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Functions & values of financial accounting
2. Values of financial accounting (Why is it needed?)

a. Know how the business is doing financially

• Know your resources ($$$) – how they were generated, spent and
saved & how much
b. Tools for communicating financial information
• Imagine you’d like to set up your own company …
c. Discharge legal & statutory obligations
• Company law requirements
• Tax law requirements
• Some other rules & regulations if it is a listed entity

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ACCT2010
Principles of
Accounting I
III. Financial Statements – What,
Why, Who & Whom

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Financial statements – What, Why, Who &
Whom
1. What are they?
a. Income statement
i. Indicates financial performance (Profit or Loss)
ii. For the reporting period (usually a 12-month period)

b. Balance sheet
i. Shows financial position (“net” asset value or balance sheet value)
ii. As at the reporting date (the year end date)

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Financial statements – What, Why, Who &
Whom
1. What are they?
c. Statement of cash flows
i. Shows the movement of cash & cash equivalent under operating,
investing & financing activities of a reporting entity
ii. For the reporting period (usually a 12-month period)

d. Statement of stockholders’ equity

i. Primarily keeps track of retained earnings movement, i.e., yearly profit
ii. e.g., net income (+), dividends paid (-)

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Financial statements – What, Why, Who &
Whom
2. Why are they needed?

a. Practical reasons
i. Record and report business transactions
ii. Comply with relevant legislation and regulation

b. Theoretical reasons
i. Communicate financial information to stakeholders external to the entity
ii. Signaling – quality financial statements, i.e., measured by transparency
and disclosure qualities
iii. Market reacts to it through stock returns

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Financial statements – What, Why, Who &
Whom
3. Who prepares them?

a. Theoretically/Legally: Board of Directors

b. Practically: Accounting & Finance people, the CPAs

4. Whom do they address to?

a. Stewardship viewpoint: shareholders
b. Decision making functions: all other stakeholders, e.g., [ESG] investors,
creditors, government agents, CSR activists etc.

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ACCT2010
Principles of
Accounting I
IV. Difference between financial
accounting and managerial
accounting

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Difference between financial accounting &
managerial accounting
1. Objective (reporting)
a. FA: external reporting
b. MA: internal reporting

2. Users (decision makers)

a. FA: shareholders, [ESG] investors, government agents, CSR activists
etc.
b. MA: managers to make decisions, e.g., budgeting and costs control,
equipment replacement decision, drop or retain a segment, make or
buy decision, utilization of constrained resources etc.

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Difference between financial accounting &
managerial accounting
3. Standards (report format)
a. FA: Generally Accepted Accounting Principles (financial reporting
standards (FRS), company law requirements & listing rules)
b. MA: None, but must be clearly presented and logical

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ACCT2010
Principles of
Accounting I
V. Class activity:
Review key concepts

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Review key concepts
1. Qualtrics survey
2. There are 14 questions
3. The WHY is way more important than the WHAT
4. URL: https://ust.az1.qualtrics.com/jfe/form/SV_byjrztMwMOi9iSO
5. QR Code for mobile device

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ACCT2010
Principles of
Accounting I
VI. Conclusions & summary

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Conclusions & summary
1. The What, Why, Who and Whom of financial statements
2. Financial statements are essential tools to communicate
information among stakeholders
3. Fundamental differences between financial accounting and
managerial accounting

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