Introduction to Accounting and Finance

• After going through this lesson, you

will be able to-
• Understand the meaning of
accounting and finance
• Accounting Information system
• Who uses accounting information
• Differentiate between various types of
accounting
• Basic accounting and finance
concepts
A. Recording transactions
– E.g. sales, purchases, payment of salaries.
– This means we enter the details into journals and ledgers.
– Accounting data

B. Prepare reports
Three main reports
1. Income statement
2. Balance sheet (cima term – SOFP – statement of
financial position)
3. Cashlfow statement
• C. Provide advice to the owner and managers on how to
improve the business.
Accounting
Accounting refers to the process of:
• Recording
• Classifying (e.g. sales, expenses
• Summarizing (calculate sub totals
• Interpreting (explain the reports to
the owner and mangers)
Numerical data to the users who are
interested in such information.
Bookkeeping
Bookkeeping refers to the
process of:
• Recording
• Classifying
• Summarizing
It is the detailed recording of
all the financial transactions.
Accounting and bookkeeping
Types of Accounting
Finance
Finance is the process of raising funds or
capital for any kind of expenditure.

The management of large amounts of

money, especially by governments or large
companies. "the firm's finance department"

It is the process of channeling various funds

in the form of credit, loans, or invested
capital to those economic entities that most
need them or can put them to the most
productive use.
What is the difference between?
Accounting Information system

• First two stages deals

with preparation of
information
• Last two stages deals
with the use of
information.
Who uses accounting information?
ivity
There are 3 main reports in Financial Accounting

1. Income statement (Profit and Loss statement)

2. Balance Sheet (Statement of financial position –
SOFP)
3. Cashflow statement

Public companies (PLC) = Annual Report

Internal and external users
Types of accounting and users
 Sole proprietorship

Run your own business Self-assessment tax

independently. return.
prietorship
Sole proprietorship

Advantages
• Simple to set up.
• Low level of administration responsibility. Your only requirement is to submit a
self-assessment tax return.
• No registration fees.
• Keep all business profits (after tax deductions).
Disadvantages
• You are held personally liable for business losses, debts and negligence as you
and your business are viewed as one entity (unlimited liability).
• Increased personal risk.
 Partnership

Have a partner(s) support Signed agreement detailing

you to run your business. the partnership.

All partners register as self-employed

and submit a self-assessment tax return.
ership
Partnership
Advantages
• Easy to set up.
• You can have more than one business owner for
support running your business.
Disadvantages
• Increased liability on all parties. Each partner is held
liable for any business or individual partners’ negligence
(unlimited liability)
liability Limited Liability Company (LLC)
1. Private LL company (Pvt Ltd)
2. Public LLC (PLC)

Owners have limited Business are viewed Register on Pay corporation tax. Submit annual reports
liability for business as separate entities.(a Companies House with Companies
debts and claims. legal person) (registrar of House and HMRC.
company).
liability
Limited Liability Break till
9.45
• Advantages
• You are provided with limited liability, so you are only liable for what you have
invested into the company.
• Registering your business on Companies House appears more legitimate to your
customers and stakeholders. (company has a legal person = sue and be sued)
• Paying corporation tax can be more tax efficient that paying income tax in the
higher tax bracket.
• Disadvantages
• Fees involved to register business.
• Increased administration responsibility that it likely to warrant the support of an
accountant.
 Basic term of accounting and finance

• Capital (Share Capital = Equity) (CSE) is the total resources provided by

the owner in the business.
• Assets represent anything owned by the business.
• Liabilities represent anything owed by the business.
• Account Payables (creditors)money that company owed to others (credit
purchase)
• Account receivables (debtors)money that is owed to the company (credit
sale)
• Debtor A person who owes money to the business
• Creditors A person to whom money is payable
 ssets
wned by the business
divided into 2
hich will be used in one year
h (Bank)
(inventory)
ceivable/trade receivable)
money to the business. 30 days
.
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deo

Introduction to accounting records and accounts|

HSTalks (staffs.ac.uk)