INTRODUCTION TO ACCOUNTING

Robert Kaunda Siame

 Introduction to Business and Accounting

Business and accounting

are two interconnected
fields that are crucial to
the success of any
organization.

Business refers to the process

of creating, managing, and
operating a company or
organization to achieve
specific objectives. It involves
different aspects such as:
 Introduction to Business and Accounting

•Identifying opportunities,
•Assessing risks,
Business is •Developing strategies, and
all about •executing plans to achieve
business goals.
 Introduction to Business and Accounting

Accounting, on the other hand, is the process of recording, analyzing, and reporting financial transactions of an organization.

It provides information on the financial health of a business and helps in making informed decisions.

Accounting is important for both internal and external stakeholders of a business, including management, investors, creditors,
and regulators.

Business and accounting go hand in hand to ensure the success and growth of a company.

While business focuses on the overall management of the organization, accounting provides the financial information necessary
for making informed decisions.
 Types of Business

There are several

types of businesses, •Sole proprietorship: A business owned and operated by one
individual who has complete control over the operations and
and the structure of a profits of the business.
business can vary •Partnership: A business owned by two or more individuals
who share profits and losses. Partnerships can be general
depending on its partnerships, where all partners have equal responsibility and
size, industry, and liability, or limited partnerships, where some partners have
limited liability.
ownership structure. •Limited liability Company (LLC): A business structure that
Here are some combines the benefits of a partnership and a corporation. The
owners of an LLC have limited liability for the company's
common types of debts and obligations.
businesses:
 Types of Business

There are several

types of businesses, •Corporation: A business owned by shareholders who have
limited liability for the company's debts and obligations.
and the structure of Corporations can issue stocks and can have a board of directors
and officers who manage the business.
a business can vary •Franchise: A business model in which a franchisor grants the
depending on its right to use its trademark, products, and business model to a
franchisee in exchange for a fee.
size, industry, and •Cooperative: A business owned and operated by its members,
ownership structure. who share profits and make decisions collectively.
•Non-profit organization: A business that is not operated for the
Here are some purpose of making a profit. Non-profit organizations can be
charities, educational institutions, or social welfare
common types of organizations.
businesses:
 A Business Entity

A business entity is a legal structure that is used to conduct business activities.

It can be a sole proprietorship, partnership, limited liability company (LLC), corporation, or any other legal structure
recognized by law.

A business entity is important because it provides a legal framework for conducting business and protects the owners from
personal liability for the company's debts and obligations.

It also allows the business to enter into contracts, hire employees, and own assets in its own name.
 A Business Entity

Choosing the right business entity depends on various factors such as the size of the business, the industry, the number of
owners, and the level of personal liability protection required.

For example, a sole proprietorship may be suitable for a small business with one owner, while a corporation may be more
appropriate for a larger business with multiple owners.

Creating a business entity typically involves registering with the appropriate state or local government agency and obtaining
any necessary licenses and permits.

It is important to consult with a legal and tax professional to ensure compliance with all relevant laws and regulations.
 Characteristics of Business

Here are •Exchange of goods or services: Business involves the exchange

some of
of goods or services for money. The goods or services may be
produced by the business itself or acquired from other businesses.
•Profit motive: The primary objective of most businesses is to

the key
make a profit. This involves generating revenue that exceeds the
cost of producing goods or services.
•Risk and uncertainty: Business involves risk and uncertainty, as it

characterist
is subject to factors such as economic conditions, competition,
and changing consumer preferences. Businesses must be able to
manage and mitigate risks to remain successful.

ics of
•Competition: Competition is a fundamental characteristic of
business, as businesses compete with each other for customers,
market share, and profits.

business:
 Characteristics of Business

Here are •Legal entities: Businesses are typically organized as legal entities,
such as sole proprietorships, partnerships, corporations, or LLCs.
some of the This provides protection for owners and allows the business to enter
into contracts and own assets in its own name.
•Entrepreneurship: Business often involves entrepreneurship, as
key individuals identify opportunities and create new businesses to meet
market demand.
•Innovation: Businesses must be innovative and adaptable in order to
characterist remain competitive and meet changing consumer needs and
preferences.
•Customer focus: Business must be customer-focused, as satisfying
ics of customer needs and preferences is essential for long-term success.
This requires understanding customer needs and providing products

business:
or services that meet those needs effectively.
 Characteristics of Business

Here are •Division of labor: Business often involves division of labor, as employees specialize

some of the
in different roles and responsibilities to increase efficiency and productivity.
•Financial management: Business requires effective financial management, as
businesses must manage their finances carefully to ensure profitability and financial
stability.

key •Marketing: Business involves marketing, which is the process of identifying

customer needs and developing products and services to meet those needs. Effective
marketing is essential for reaching target customers and generating revenue.

characteristi
•Regulation: Business is subject to regulation at the local, state, and federal levels,
and must comply with relevant laws and regulations related to areas such as
employment, taxes, and environmental protection.
•Social responsibility: Business has a social responsibility to act in an ethical and

cs of responsible manner, which may involve minimizing negative impacts on the

environment and society, as well as promoting positive social and environmental
outcomes.

business:
 Point to Note

These characteristics highlight the complex nature of business and the multiple factors that must be considered to operate a
successful business.

Overall, business is a dynamic and constantly evolving activity that requires careful planning, management, and execution to
be successful.
 Sole Proprietor or Sole Trader

A sole proprietor or sole trader is an individual who owns and operates a business as an individual without any partners or
legal entities involved. In other words, it is a type of business ownership in which one person is solely responsible for all the
business's operations, finances, and legal liabilities.

Sole proprietorships are the simplest form of business ownership and are often used by individuals who want to start a small
business with low start-up costs. Some common examples of sole proprietorships include freelance writers, photographers,
and consultants.
 Characteristics

Here are •Single ownership: A sole proprietorship is owned and operated by a

some of the single individual. The owner is solely responsible for all aspects of the
business, including decision-making, finances, and legal liabilities.
•Simple and easy to set up: A sole proprietorship is the simplest form of

key business ownership and is relatively easy and inexpensive to set up. The
owner typically does not need to file any paperwork or obtain any
special licenses or permits.
characteristic •Unlimited liability: The owner of a sole proprietorship has unlimited
personal liability for all the business's debts and obligations. This means

s of a sole that the owner's personal assets may be at risk if the business incurs
significant debt or is sued.
•Taxation: A sole proprietorship is not taxed as a separate entity. Instead,

proprietorshi the owner reports business income and expenses on their personal
income tax return.

p:
 Characteristics

Here are •Flexibility: A sole proprietorship offers a high degree of flexibility, as the

some of the owner has complete control over the business and can make decisions
quickly and easily without any partners or shareholders to consult with.
•Limited growth potential: A sole proprietorship may have limited growth
key potential due to the owner's limited financial resources and expertise. It
may be difficult to raise capital or expand the business without taking on

characteristic
partners or incorporating.
•Personal control: A sole proprietor has complete control over the business
and can make decisions quickly and easily without any partners or

s of a sole shareholders to consult with. This allows the owner to respond quickly to
changes in the market and customer needs.
•Privacy: A sole proprietorship offers a high degree of privacy, as the

proprietorship owner is not required to file any public financial statements or disclose
any proprietary information.

:
 Characteristics

Here are •Limited access to financing: A sole proprietor may have limited access to

some of the financing, as lenders may be hesitant to provide loans to businesses with a
single owner and limited financial resources.
•Limited life: A sole proprietorship has a limited life, as it is dependent on
key the owner's continued involvement in the business. The business may need
to be dissolved or transferred to a new owner in the event of the owner's

characteristics
death or retirement.
•Limited expertise: A sole proprietor may have limited expertise in certain
areas of business, such as accounting or marketing, which can limit the

of a sole business's growth potential.

•Unlimited potential for income: A sole proprietor has the potential to earn
unlimited income, as there is no limit to the amount of revenue the business

proprietorship can generate. However, the owner's personal income may be limited by the
amount of time and resources they are able to devote to the business.

:
 Advantages of a Sole Proprietorship
Simple and easy to set up: A sole proprietorship is easy and inexpensive to set up. The owner typically does not need to file any
paperwork or obtain any special licenses or permits.

Complete control: The owner has complete control over the business and can make decisions quickly and easily without any
partners or shareholders to consult with.

Flexibility: A sole proprietorship offers a high degree of flexibility, as the owner can change direction quickly if market
conditions change.

Privacy: A sole proprietorship offers a high degree of privacy, as the owner is not required to file any public financial statements
or disclose any proprietary information.

Tax advantages: A sole proprietorship is not taxed as a separate entity. Instead, the owner reports business income and expenses
on their personal income tax return, which may result in tax savings.
 Disadvantages of a Sole Proprietorship

Unlimited personal liability: The owner of a sole proprietorship has unlimited personal liability for all the business's debts and
obligations. This means that the owner's personal assets may be at risk if the business incurs significant debt or is sued.

Limited financial resources: A sole proprietor may have limited financial resources, which can make it difficult to grow the
business or take advantage of new opportunities.

Limited expertise: A sole proprietor may have limited expertise in certain areas of business, such as accounting or marketing,
which can limit the business's growth potential.

Limited access to financing: A sole proprietor may have limited access to financing, as lenders may be hesitant to provide
loans to businesses with a single owner and limited financial resources.

Limited life: A sole proprietorship has a limited life, as it is dependent on the owner's continued involvement in the business.
The business may need to be dissolved or transferred to a new owner in the event of the owner's death or retirement.
Partnership

A partnership is a business structure in

which two or more individuals, called
partners, share ownership and
management of a business.
Partnerships can be formed for a
specific project or for an ongoing
business.
 Characteristics of a Partnership

Shared ownership: A partnership involves shared ownership of the business among the partners.

Shared profits and losses: The profits and losses of the business are shared among the partners according to their agreed-upon
percentages.

Joint decision-making: The partners make joint decisions about the management of the business.

Unlimited liability: Partners have unlimited personal liability for the debts and obligations of the business.

Mutual agency: Each partner is an agent of the partnership and can enter into contracts and agreements on behalf of the
business.

Dissolves on death or departure of a partner: The partnership may be dissolved if a partner dies or leaves the partnership.
 Advantages of a Partnership

Shared workload: Partners can share the workload and responsibilities of the business, which can reduce the burden on any
one individual.

Shared expertise: Partners can bring different skills and expertise to the business, which can help it to grow and succeed.

Shared financial resources: Partners can pool their financial resources to start or expand the business.

Tax advantages: Partnerships are not taxed as a separate entity. Instead, the partners report their share of the business's profits
and losses on their personal income tax returns, which may result in tax savings.
 Disadvantages of a Partnership

Unlimited personal liability: Partners have unlimited personal liability for the debts and obligations of the business.

Shared decision-making: Partners must make joint decisions about the management of the business, which can lead to
disagreements or conflicts.

Potential for unequal contributions: Partners may not contribute equally to the business in terms of time, effort, or
resources, which can lead to resentment or tension.

Limited life: A partnership has a limited life, as it may be dissolved if a partner dies or leaves the partnership.
Limited Liability Company (LLC)

A limited liability company (LLC) is

a type of business structure that
combines the liability protection of a
corporation with the simplicity and
tax benefits of a partnership. LLCs
are a popular form of ownership for
small businesses.
 Characteristics of an LLC
Limited liability protection: Like a corporation, an LLC offers limited liability protection to its owners, meaning that their
personal assets are generally not at risk if the business is sued or incurs significant debt.

Pass-through taxation: An LLC is taxed like a partnership, with the profits and losses of the business passing through to the
owners' personal tax returns. This can result in tax savings compared to a corporation.

Flexible management: An LLC can be managed either by its owners (called members) or by a designated manager.

No ownership restrictions: There are no restrictions on the ownership of an LLC. Individuals, corporations, and other entities
can all own an LLC.

Continuity of life: An LLC has a perpetual existence and can continue to operate even if a member dies or leaves the
business.
 Advantages of an LLC

Limited liability protection: An LLC offers personal liability protection for its owners, which can help protect their
personal assets.

Pass-through taxation: An LLC is not taxed as a separate entity, which can result in tax savings for its owners.

Flexible management: An LLC can be managed by its owners or by a designated manager, which allows for flexibility in
the management structure.

No ownership restrictions: There are no restrictions on who can own an LLC, which can make it easier to raise capital or
bring in new investors.
 Disadvantages of an LLC

Costly to set up: Setting up an LLC can be more expensive than other forms of business ownership, such as a sole
proprietorship or partnership.

Self-employment taxes: Owners of an LLC may be subject to self-employment taxes on their share of the business's
profits.

Limited life: While an LLC has a perpetual existence, it may be dissolved if the owners decide to dissolve the business or
if a member dies or leaves the business.
Corporation

A corporation is a type of business

structure that is owned by
shareholders and is considered a
separate legal entity from its owners.
A corporation is created by filing
articles of incorporation with the state
and is governed by a board of
directors.
 Corporation

•Limited liability protection: Shareholders are generally not

Characteri personally liable for the debts and obligations of the corporation.
•Centralized management: A corporation is managed by a board
of directors, which makes major decisions for the company.

stics of a •Perpetual existence: A corporation has a perpetual existence and

can continue to operate even if shareholders die or sell their
shares.

Corporatio •Transferability of ownership: Ownership in a corporation is

represented by shares of stock, which can be bought and sold by
investors.

n •Separate legal entity: A corporation is considered a separate

legal entity from its owners and is responsible for its own debts
and obligations.
 Corporation

•Limited liability protection: Shareholders are generally

Advantage not personally liable for the debts and obligations of the
corporation.

s of a
•Access to capital: Corporations can raise capital by
selling shares of stock to investors.
•Perpetual existence: A corporation has a perpetual

Corporatio existence and can continue to operate even if

shareholders die or sell their shares.
•Separation of ownership and management:
n Shareholders can own the corporation without being
involved in the day-to-day management of the business.
 Corporation

•Costly to set up: Creating a corporation can be

Disadvant expensive and time-consuming.
•Double taxation: A corporation is taxed as a separate

ages of a
entity, and its shareholders are also taxed on their
dividends, which can result in double taxation.
•Centralized management: A corporation is managed

Corporatio by a board of directors, which may not always be in

the best interests of individual shareholders.
•Strict regulations: Corporations are subject to strict
n regulations and reporting requirements, which can be
time-consuming and costly.
 The Purpose of Financial Accounting

The purpose of financial

accounting is to provide accurate
and reliable financial information
about a business or organization
to various stakeholders, including
investors, creditors, managers,
regulators, and the public. The
information provided by financial
accounting helps these
stakeholders make informed
decisions about their interactions
with the organization.
 The Purpose of Financial Accounting

The Main •Recording financial transactions: Financial accounting is

Objectives responsible for recording all financial transactions of an

organization in a systematic and organized manner.
•Preparing financial statements: Financial accounting prepares

of Financial various financial statements, including the balance sheet,

income statement, and cash flow statement, which provide a

Accounting
summary of the financial activities of the organization.
•Providing financial information: Financial accounting
provides financial information to various stakeholders to help

Are As them make informed decisions. This information includes the

financial statements, as well as other reports and analyses
prepared by the accountant.
Follows
 The Purpose of Financial Accounting

The Main •Ensuring compliance: Financial accounting

Objectives ensures compliance with various laws and
regulations, such as tax laws and accounting
of Financial standards.
•Facilitating communication: Financial
Accounting accounting facilitates communication
between different stakeholders of an
Are As organization by providing a common
language for financial information.
Follows
 Accounting Systems

Accounting systems
are designed to •Manual Accounting System:
record, organize, and •A manual accounting system involves
report the financial recording financial transactions by
transactions of an hand in a ledger or journal.
organization. •This process is time-consuming and can
There are two main be prone to errors, but it is still used by
types of accounting some small businesses or organizations
systems: manual and with minimal financial activity.
computerized.
 Accounting Systems

Accounting systems
are designed to •Computerized Accounting System:
record, organize, and •A computerized accounting system uses accounting
software to automate the recording, organizing, and
report the financial reporting of financial transactions.
transactions of an •Computerized systems are more efficient, accurate,
organization. and provide more detailed financial information
than manual systems.
There are two main •They can also integrate with other business
types of accounting software systems, making it easier to manage
systems: manual and financial data and generate reports
computerized.
 Accounting Systems

The key •General Ledger: This is the central repository of financial

components transactions, including income, expenses, assets, and liabilities.
•Accounts Payable: This tracks the money that the organization

of a owes to its suppliers or vendors.

•Accounts Receivable: This tracks the money that the
organization is owed by its customers or clients.
computerized •Inventory Management: This tracks the organization's
inventory of goods or products.
accounting •Payroll Management: This tracks the organization's employee
compensation and tax withholding.
•Financial Reporting: This generates financial statements, such
system as the balance sheet, income statement, and cash flow
statement.
include:
 Chart of Accounts

A chart of accounts is a list of all the accounts used by a business to record its financial transactions.

It provides a systematic and organized way to categorize and record financial transactions, making it easier to prepare
financial statements and track the financial health of the organization.
 Chart of Accounts

The chart of •Asset Accounts:

accounts •These are accounts that represent items of value
owned or controlled by the business, such as cash,
typically accounts receivable, inventory, property, and
equipment.

includes the •Liability Accounts:

•These are accounts that represent debts owed by the
business, such as accounts payable, loans, and taxes
following owed.
•Equity Accounts:
types of •These are accounts that represent the owners'
investment in the business, such as stock, retained

accounts: earnings, and dividends.

 Chart of Accounts

The chart of •Revenue Accounts:

accounts •These are accounts that represent the
income generated by the business from
typically its operations, such as sales revenue or
includes the service revenue.
•Expense Accounts:
following •These are accounts that represent the
costs incurred by the business to
types of generate revenue, such as salaries, rent,
utilities, and supplies.
accounts:
 Chart of Accounts
An example of a chart of accounts with some examples of accounts under each category:

Asset Accounts Liability Accounts: Equity Accounts:

1000 Cash 2000 Accounts Payable 3000 Common Stock

1100 Accounts Receivable 2100 Loans Payable 3100 Retained Earnings

1200 Inventory 2200 Accrued Expenses 3200 Dividends

1300 Property, Plant, and

Equipment 2300 Taxes Payable
Chart of Accounts
An example of a chart of accounts with some examples of accounts under each category:

Revenue Accounts: Expense Accounts:

4000 Sales Revenue 5000 Salaries and Wages Expense

4100 Service Revenue 5100 Rent Expense

4200 Interest Revenue 5200 Utilities Expense

5300 Supplies Expense

Vouchers and Forms

Vouchers and forms are important

documents used in accounting and
bookkeeping to record financial
transactions and provide a paper trail for
auditing and record-keeping purposes.
 Vouchers and Forms

•A voucher is a document that provides evidence of a

financial transaction.
•It contains information such as the date of the transaction,
the amount, and the purpose of the transaction.
•Vouchers are used to support the accounting entry for the

Vouchers:
transaction and provide a paper trail for auditing
purposes.
•There are different types of vouchers used in accounting,
such as;
•Cash vouchers
•Receipt vouchers
•Purchase vouchers, and
•Sales vouchers.
Vouchers and Forms
 Vouchers and Forms
Forms:
Forms are documents used to collect and record They are used to standardize the recording of
data and ensure accuracy and completeness of
Forms are used for various Examples of accounting forms
information related to financial transactions.
information. purposes in accounting, such as; include;

Recording purchases Invoices

Sales Purchase orders

Payroll, and Credit memos, and

Expenses. Bank deposit slips.

Vouchers and Forms
Books of Accounts / Records

Books of accounts or records are

essential for maintaining accurate
financial records and preparing
financial statements
Books of Accounts / Records

Some examples of books of

accounts and their purposes:

Cash book:
•A cash book is used to record all cash transactions,
including cash receipts and cash payments.
•It helps track the cash balance of the business and
ensures accuracy in recording cash transactions.
Books of Accounts / Records

Some examples of books of

accounts and their purposes:

Sales book:
•A sales book is used to record all credit sales transactions.
•It includes information such as the date of the
transaction, the name of the customer, the amount of
the sale, and any applicable taxes.
•It helps track credit sales and accounts receivable.
Books of Accounts / Records

Some examples of books of

accounts and their purposes:

Purchase book:
•A purchase book is used to record all credit purchases
transactions.
•It includes information such as the date of the
transaction, the name of the supplier, the amount of the
purchase, and any applicable taxes.
•It helps track credit purchases and accounts payable.
Books of Accounts / Records

Some examples of books of

accounts and their purposes:

General ledger:
•A general ledger is used to record all financial transactions in a
systematic and organized manner.
•It includes all accounts such as assets, liabilities, equity, revenue,
and expenses.
•It helps ensure accuracy in recording financial transactions and
provides a complete picture of the financial status of the
business.
Books of Accounts / Records

Some examples of books of

accounts and their purposes:

Journal:
•A journal is used to record all financial transactions in
chronological order.
•It includes information such as the date of the transaction,
the accounts affected, and the amount of the transaction.
•It helps in the process of journalizing, or recording
transactions in the general ledger.
Books of Accounts / Records

Some examples of books of

accounts and their purposes:

Trial balance:
•A trial balance is used to ensure that the total
debits and credits of all accounts in the general
ledger are equal.
•It is used to verify the accuracy of the financial
records before preparing the financial statements.
 Review of Accounting Entries

A review of accounting entries involves examining the

financial transactions recorded in the books of accounts or
records to ensure accuracy, completeness, and compliance
with accounting standards and regulations.

An accountant, auditor, or other financial professional

usually performs the review, and it is an essential part of
the accounting process.
 Review of Accounting Entries
The review of accounting entries involves several steps, including:

Examining the source documents:

• The accountant reviews the source documents such as;
• Invoices
• Receipts, and
• Bank statements
• To ensure that the financial transactions were properly recorded in the books of accounts or records.

Verifying the accuracy of the entries:

• The accountant checks the accuracy of the entries made in the books of accounts or records, ensuring that;
• They are correctly classified
• Posted to the appropriate accounts, and
• That the amounts are accurate.
 Review of Accounting Entries
The review of accounting entries involves
several steps, including:
Checking for completeness:
•The accountant verifies that all financial transactions have
been recorded and that no transactions have been omitted.

Ensuring compliance with accounting standards and regulations:

•The accountant ensures that the financial transactions are recorded in compliance
with accounting standards and regulations, such as the Generally Accepted
Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).

Reconciling accounts:
•The accountant reconciles accounts, such as bank accounts and accounts
receivable, to ensure that the balances in the books of accounts or
records match the balances in the corresponding external records.
 Generally Accepted Accounting Principles (GAAP) or
International Financial Reporting Standards (IFRS).

Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) are two sets of
information that provide guidance on how to prepare financial statements and report financial information.

GAAP is a set of accounting principles and guidelines that are widely used in the United States (Rules Based).

It is developed by the Financial Accounting Standards Board (FASB) and the American Institute of Certified Public Accountants
(AICPA).

GAAP provides guidance on how to prepare financial statements such as Statement of Financial Position (balance sheets),
Statement of Comprehensive Income (income statements), and cash flow statements.

It also sets rules for recording transactions and events, measuring assets and liabilities, and reporting financial performance.
 Generally Accepted Accounting Principles (GAAP) or
International Financial Reporting Standards (IFRS).

IFRS, on the other hand, is a set of accounting standards developed by the International Accounting Standards Board (IASB).
IFRS is used in many countries around the world, including the European Union, Canada, and Australia.

It provides a single set of globally accepted accounting standards that are designed to improve transparency and
comparability of financial statements across different countries and jurisdictions.
Generally Accepted Accounting Principles (GAAP) or
International Financial Reporting Standards (IFRS).
The key differences between GAAP
and IFRS include:
Conceptual Framework:
•GAAP is based on a rules-based approach, which provides specific guidance on how to
account for different transactions.
•IFRS is based on a principles-based approach, which focuses on the underlying
principles behind accounting and allows for more judgment in accounting decisions.

Revenue Recognition:
•GAAP and IFRS have different approaches to revenue
recognition. GAAP has specific rules for recognizing revenue,
while IFRS provides more principles-based guidance.
Generally Accepted Accounting Principles (GAAP) or
International Financial Reporting Standards (IFRS).
The key differences between GAAP
and IFRS include:
Inventory Valuation:
•GAAP requires that inventory be valued using the lower of cost or market
value,
•While IFRS allows for the use of the first-in, first-out (FIFO) or weighted
average cost methods.

Financial Statement Presentation:

•GAAP and IFRS have different requirements for financial statement presentation.
•For example, GAAP requires a separate statement of comprehensive income,
•while IFRS allows for comprehensive income to be included in the statement of
profit or loss and other comprehensive income.
 Segregation of Duties

Segregation of duties is an important concept in

accounting that helps to prevent fraud and errors by
ensuring that no one person has complete control
over a financial transaction from beginning to end.

This is achieved by dividing tasks among different

people to ensure that each person is responsible for a
specific part of the transaction process.
Segregation of Duties
Examples of segregation of duties include:

Recording transactions: Custody of assets:

The person who records financial transactions The person who has custody of assets should
should not be responsible for the custody of the not be responsible for recording the
assets or the authorization of the transaction. transactions or authorizing the transactions.

For example, the bookkeeper who records For example, the person who receives cash
sales should not have access to the cash should not be responsible for recording the
received from those sales. transaction or approving the payment.
Segregation of Duties
Examples of segregation of duties include:

Authorization of transactions: Reconciliation of accounts:

The person who authorizes a transaction The person who reconciles accounts should not
should not be responsible for recording the be responsible for recording transactions,
transaction or the custody of the assets. custody of assets, or authorizing transactions.

For example, the manager who approves a For example, the accountant who reconciles the bank
purchase should not have access to the inventory statement should not have access to the bank account
or be responsible for recording the transaction. or be responsible for recording cash transactions.
 Correction of Entries

Correction of
entries is an •There are two main types of corrections: adjusting
entries and correcting entries.
important •Adjusting entries:
process in •Adjusting entries are made at the end of an
accounting period to update accounts that have not
accounting that been accurately recorded.
helps to ensure •These adjustments ensure that the financial
statements reflect the correct amounts for revenues
that financial and expenses during the period.
•Examples of adjusting entries include accruals for
statements are expenses or revenue, depreciation expense, and bad
accurate and debt expense.
reliable.
 Correction of Entries

Correction of
entries is an •There are two main types of corrections: adjusting
entries and correcting entries.
important •Correcting entries:
process in •Correcting entries are made to fix errors that have
been made in the accounting records.
accounting that •These errors can be related to a number of issues,
including incorrect account postings, mathematical
helps to ensure errors, or incorrect account balances.
that financial •Examples of correcting entries include reversing an
incorrect entry, correcting an incorrect account
statements are balance, or adjusting a transaction that was
accurate and recorded in the wrong period.

reliable.
 Audit Trail

An audit trail is a process of tracking and

documenting every transaction or event
in a financial system from its beginning
to its end. It is an essential component of
the accounting system, as it helps to
maintain the accuracy and integrity of
financial records and can be used to
detect and prevent errors or fraud.
 Audit Trail

The audit •Documenting the transaction:

trail is •The first step in creating an audit trail is to
document the transaction, including the date,
created amount, and description of the transaction.
through a •Assigning a unique identifier:
•Each transaction should be assigned a unique
series of identifier, such as a check number, invoice
number, or transaction ID.
steps, which •This helps to ensure that the transaction can
be easily tracked and identified.
may include:
 Audit Trail

The audit
trail is •Entering the transaction into the system:
•Once the transaction has been documented and assigned a
unique identifier, it should be entered into the financial system.
created •This may involve posting the transaction to a general ledger or
other accounting software.

through a
•Reviewing the transaction:
•After the transaction has been entered into the system, it should
be reviewed for accuracy and completeness.

series of •Any errors or omissions should be corrected as soon as possible.

•Retaining supporting documentation:
•All supporting documentation, such as invoices, receipts, and
steps, which bank statements, should be retained to provide evidence of the
transaction and support the accuracy of the financial records.

may include:
Custody of Accounting Records

The custody of accounting records

refers to the responsibility of
safeguarding financial documents and
records, including books of accounts,
invoices, receipts, bank statements, and
other financial documents. The
custodian of accounting records is
responsible for ensuring that these
records are properly maintained,
protected, and available for inspection
when required.
 Financial Statements

There are four primary

Financial statements
financial statements
are formal records of
that are used to
the financial activities
provide information
and position of a
about the financial
business,
performance and
organization, or
position of an
individual.
organization:
 Financial Statements

Income
Statement/Stat •Also known as a profit and loss
statement, the income statement
ement of provides a summary of the revenues
Comprehensive and expenses of an organization over a
Income specific period of time, usually a month,
(Previously quarter, or year.
•The income statement shows whether
Trading Profit the organization has earned a profit or
or Loss incurred a loss during the period.
Account):
 Financial Statements

Statement
•The balance sheet provides a
of Financial snapshot of an organization's
Position financial position at a specific point
in time.
(Previously •It summarizes the organization's
assets, liabilities, and equity, showing
Balance the relationship between them.
Sheet:
 Financial Statements

•The cash flow statement provides

information about the cash inflows
Cash Flow and outflows of an organization
Statement during a specific period of time.
•It shows the organization's sources
: and uses of cash, including operating
activities, investing activities, and
financing activities.
 Financial Statements

The statement of changes in equity is a financial statement that shows the changes in the
equity of a company over a specific period of time.

Equity represents the ownership interest in the company and includes common stock, retained
earnings, and other reserves.

The statement of changes in equity typically includes the following information:

• Beginning Equity: This is the equity balance at the beginning of the period.
• Net Income: This is the profit or loss earned by the company during the period, which is added to or subtracted
from the beginning equity balance.
• Other Comprehensive Income: This includes gains or losses that are not included in net income, such as unrealized
gains or losses on investments or foreign currency translations.
• Transactions with Owners: This includes any transactions with shareholders that affect equity, such as the issuance
of new shares or payment of dividends.
• Ending Equity: This is the final equity balance at the end of the period, which includes the beginning equity
balance, net income, other comprehensive income, and any transactions with owners.
 The Business Entity Concept

The business entity concept is a fundamental accounting principle that

states that a business is a separate entity from its owners or shareholders.

This means that the financial transactions and records of the business
should be kept separate from those of its owners or shareholders.

Under the business entity concept, a business is treated as a distinct legal

and economic entity, with its own assets, liabilities, revenues, and
expenses.
 The Business Entity Concept

This principle is important because it enables accurate and reliable financial

reporting, and helps to protect the interests of the business's owners and other
stakeholders.

For example, if a business owner uses personal funds to purchase inventory for
the business, this transaction should be recorded as a loan from the owner to
the business, rather than a sale of inventory from the owner to the business.

Similarly, if a business owner withdraws funds from the business for personal
use, this transaction should be recorded as a withdrawal or distribution, rather
than a business expense.
 The Business Entity Concept

By keeping accurate
The business entity records of the financial
concept is applied in all transactions of the
types of businesses, business separate from
including sole the personal finances of
proprietorships, its owners, the business
partnerships, entity concept helps to
corporations, and limited ensure transparency,
liability companies. accountability, and sound
financial management.
 Financial Reporting By Sole Traders and Partnerships

Sole traders and The financial statements

partnerships have no legal typically prepared by sole
obligation to prepare traders and partnerships
financial statements that include the income
accurately reflect the statement, statement of
financial position of the financial position, and
business. statement of cash flows.
Financial Reporting By Sole Traders and Partnerships

Income Statement: Statement of Financial Position: Statement of Cash Flows:

The income statement,

also known as the profit
and loss statement, shows
the revenue earned by the
business during the
accounting period, as well
as the expenses incurred
to generate that revenue.
The statement of financial position,
also known as the balance sheet,
provides a snapshot of the financial
position of the business at a
particular point in time.
The statement of cash flows
shows the cash inflows and
outflows of the business
during the accounting
period.

It shows the assets owned by the It helps to track the sources

The income statement
helps to determine the net
income or net loss of the
business for the period.
and uses of cash, including
business, the liabilities owed to
creditors, and the equity or operating activities,
investing activities, and
ownership interest of the owners.
financing activities.
 Financial Reporting By Sole Traders and Partnerships

Sole traders and partnerships may also need to prepare additional financial statements or disclosures, depending
on the size and complexity of the business, and any regulatory requirements that apply.

It is important for sole traders and partnerships to keep accurate records of all financial transactions, including
receipts, invoices, and bank statements, to ensure that the financial statements are prepared correctly.

They may also need to engage the services of an accountant or bookkeeper to help prepare the financial
statements and ensure compliance with applicable accounting standards and regulations.

The financial statements of a sole trader are private and do not have to be disclosed, except to the tax authorities.

These must be prepared according to accepted accounting principles and practice, but need not conform to all the
requirements of accounting standards.

Similarly, the financial statements of a business partnership are private and do not have to be disclosed.
 Financial Reporting By Companies

The financial statements

that companies typically
Companies are required
prepare include the
to prepare and publish
income statement,
financial statements as
statement of financial
part of their legal and
position, statement of
regulatory obligations.
changes in equity, and
statement of cash flows.
 Financial Reporting By Companies

Income Statement: Statement of Financial Position:

The income statement, also known as the

profit and loss statement, shows the The statement of financial position, also
revenue earned by the company during the known as the balance sheet, provides a
accounting period, as well as the expenses snapshot of the financial position of the
incurred to generate that revenue. company at a particular point in time.

The income statement helps to determine It shows the assets owned by the
the net income or net loss of the company company, the liabilities owed to
for the period. creditors, and the equity or ownership
interest of the shareholders.
 Financial Reporting By Companies
Statement of Changes in Equity:
The statement of changes in equity shows
the changes in the equity or ownership
interest of the shareholders during the
accounting period. It includes information
about the issuance of new shares, the
payment of dividends, and any other
changes in equity.
Statement of Cash Flows:
The statement of cash flows
shows the cash inflows and
outflows of the company during
the accounting period.
It helps to track the sources and
uses of cash, including operating
activities, investing activities, and
financing activities.
 Financial Reporting By Companies

In addition to these financial statements, companies may also need to prepare

other financial disclosures, depending on the size and complexity of the business,
and any regulatory requirements that apply.

Companies are required to comply with applicable accounting standards and

regulations when preparing their financial statements, such as Generally Accepted
Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS).

They may also need to engage the services of an external auditor to provide an
independent opinion on the accuracy and completeness of their financial
statements.
 Regulation of Financial Reporting

The regulation of financial

reporting is essential to ensure
that companies provide reliable,
accurate, and timely financial
information to investors,
creditors, and other stakeholders.
 Regulation of Financial Reporting
The following are some of the main regulatory bodies that oversee
financial reporting:

Securities and Exchange Commission (SEC):

• The SEC is a federal agency in the United States that regulates securities markets and enforces
securities laws.
• It requires public companies to file periodic reports, including annual and quarterly financial
statements, and reviews these filings for compliance with accounting standards and regulations.

Financial Accounting Standards Board (FASB):

• The FASB is an independent organization that sets accounting standards for public and private
companies and not-for-profit organizations in the United States.
• Its standards are known as Generally Accepted Accounting Principles (GAAP).
 Regulation of Financial Reporting
The following are some of the main regulatory bodies that oversee financial reporting:

International Accounting Standards Board (IASB):

• The IASB is an independent organization that sets accounting standards for companies in many countries around the world.
• Its standards are known as International Financial Reporting Standards (IFRS).

Public Company Accounting Oversight Board (PCAOB):

• The PCAOB is a nonprofit organization that oversees the audits of public companies and other issuers to protect investors and
promote public trust in the audit process.
• It sets audit standards, inspects audit firms, and enforces compliance with auditing and related professional practice standards.

National Financial Reporting Authority (NFRA):

• The NFRA is an independent regulator in India that oversees the quality of audits and financial reporting by public companies,
including listed companies and large private companies.
 Generally Accepted Accounting Principles

Generally Accepted Accounting Principles (GAAP) refer to a set of accounting rules and
standards used to prepare and present financial statements.

GAAP is a set of guidelines, principles, and standards that public and private companies
in the United States must follow when preparing their financial statements.

These standards help ensure that financial reporting is consistent, reliable, and
transparent.

The Financial Accounting Standards Board (FASB) is the primary organization

responsible for establishing GAAP standards in the United States.

The FASB develops and updates the accounting standards that public and private
companies must follow when preparing their financial statements.
 Generally Accepted Accounting Principles

The GAAP standards cover a wide range of accounting topics, including revenue recognition,
inventory valuation, depreciation, and amortization.

The GAAP standards also require companies to provide disclosures about significant accounting
policies, contingencies, and other relevant information that may impact financial statement users.

In addition to the United States, many other countries have their own set of accounting standards.

However, as the global economy has become more interconnected, there has been a push towards
international convergence of accounting standards.

The International Accounting Standards Board (IASB) has developed International Financial
Reporting Standards (IFRS), which are used in many countries around the world.
 In Zambia, the main sources of GAAP are
the following:
The Zambia Institute of Chartered Accountants (ZICA): ZICA is the national professional body for accountants in Zambia.
ZICA is responsible for setting accounting standards and issuing guidelines for accounting professionals to follow.

The Companies Act: The Companies Act of Zambia requires all companies registered in Zambia to prepare financial
statements in accordance with ZICA's accounting standards.

The Securities and Exchange Commission (SEC): The SEC regulates the financial reporting requirements of publicly listed
companies in Zambia. The SEC relies on ZICA's accounting standards to ensure that companies are reporting their
financial information accurately and transparently.

The Bank of Zambia: The Bank of Zambia regulates financial reporting for banks and other financial institutions in
Zambia. The Bank of Zambia relies on ZICA's accounting standards to ensure that these institutions are reporting their
financial information accurately and transparently.

International Financial Reporting Standards (IFRS): While not mandatory, many companies in Zambia follow IFRS as a
best practice for financial reporting.
International Financial Reporting Standards (IFRS)

IFRS are designed to

International
provide a common
Financial Reporting
accounting language
Standards (IFRS) are a
for businesses and
set of global
organizations around
accounting standards
the world, allowing
developed by the
for easier comparison
International
of financial
Accounting Standards
information across
Board (IASB).
borders and markets.
 International Financial Reporting Standards (IFRS)

IFRS cover • Presentation of financial statements

a wide •
•
Revenue recognition
Accounting for assets and liabilities
range of •
•
Financial instruments
Leases
financial •
•
Business combinations
Income taxes
reporting • Employee benefits
•
topics, •
Share-based payments
Agriculture

including:
 The Objective of Financial Reporting

The objective of
financial reporting is to
provide information The information
about the financial provided in financial
position, performance, reports should be
and cash flows of an relevant, reliable,
entity that is useful to comparable, and
a wide range of users understandable.
in making economic
decisions.
 The Objective of Financial Reporting
Relevant information
is information that is capable of making a
difference in the decisions made by users.
For example, information about a company's
revenue, expenses, and net income can help
investors decide whether to buy, hold, or sell
shares in the company.
Reliable information
is information that is free from
error and bias and can be
depended upon by users.
For example, financial statements
that are prepared in accordance
with accounting standards and
audited by an independent auditor
are considered more reliable than
unaudited financial statements.
 The Objective of Financial Reporting
Comparable information
is information that can be compared
across different entities and over time.
For example, a company's financial
statements for this year should be
comparable to its financial statements for
the previous year, and should also be
comparable to financial statements of
other companies in the same industry.
Understandable information
is information that is presented in a
clear and concise manner so that users
can comprehend its meaning.
For example, financial statements
should be presented in a format that is
easy to read and understand, and
should not be overly technical or
complicated.
 The Needs of Users of Financial Statements
Financial reporting serves the needs of various stakeholders who use financial statements to make decisions about an
organization. The primary users of financial reports are:

Investors: Creditors: Management:

Creditors use financial Management uses financial

Investors need financial
statements to make informed
decisions about investing in a
company.
statements to determine
whether a company has the
ability to pay back its loans and
to assess the level of risk
involved in lending money to
the company.
statements to monitor the
financial performance of the
company, set financial goals
and objectives, and make
informed decisions about
resource allocation.

They analyze the financial statements to

evaluate the financial health of a company, its
profitability, growth prospects, and risk.
 The Needs of Users of Financial Statements
Financial reporting serves the needs of various stakeholders who use financial statements to make
decisions about an organization. The primary users of financial reports are:

Regulators: Employees: Customers:

Customers use financial

Regulators use financial
statements to ensure
compliance with regulatory
requirements and to assess the
financial stability of regulated
entities.
Employees use financial
statements to evaluate the
financial health of their
employer, assess their job
security, and make decisions
about their career paths.
statements to evaluate the
financial stability and
performance of the companies
they do business with, and to
assess the level of risk involved
in continuing to do business
with those companies.
 The Needs of Users of Financial Statements
Financial reporting serves the needs of various stakeholders who use financial statements to make
decisions about an organization. The primary users of financial reports are:

Suppliers: Competitors: Tax authorities:

Competitors may use

Suppliers use financial Tax authorities use
financial reports to gain
statements to evaluate the financial reports to ensure
insight into the financial
financial health of their that companies are paying
performance and position
customers, assess their the correct amount of
of their rivals, and to
ability to pay bills on time, taxes, and to identify
identify potential
and make decisions about potential areas of tax
weaknesses or
whether to extend credit. evasion or avoidance.
opportunities for growth.
 The Needs of Users of Financial Statements
Financial reporting serves the needs of various stakeholders who use financial statements to make decisions about
an organization. The primary users of financial reports are:

Academics and researchers: Non-governmental organizations General public:

(NGOs):

The general public may use

Academics and researchers
use financial reports as a
source of data for studying
various aspects of corporate
finance, accounting, and
economics.
NGOs may use financial
reports to assess the social
and environmental impact of
companies, and to advocate
for greater corporate social
responsibility.
financial reports to gain a
better understanding of the
financial performance and
position of companies in which
they have an interest, such as
those in their local community
or those that are publicly
traded.
 BUSINESS TRANSACTIONS

Business In accounting, a
transactions are business
events that transaction is
involve the recorded in the
exchange of books of accounts
something of to keep track of
value between the financial
two or more position of the
parties. business.
 BUSINESS TRANSACTIONS
Examples of business transactions include:
Purchase of inventory:
• When a business buys goods or products to sell, it records the transaction as a
purchase of inventory.

Sale of goods:
• When a business sells goods to customers, it records the transaction as a sale of
goods.

Payment of salaries:
• When a business pays salaries to its employees, it records the transaction as a
payment of salaries.
 BUSINESS TRANSACTIONS

Examples of business transactions include:

Receipt of payment from customers:

• When a business receives payment from customers for goods or
services rendered, it records the transaction as a receipt of
payment.

Purchase of fixed assets:

• When a business buys fixed assets such as land, buildings, or
equipment, it records the transaction as a purchase of fixed assets.
 BUSINESS TRANSACTIONS

Examples of business transactions include:

Depreciation of fixed assets:
• When a fixed asset is used over time, its value decreases due to wear and tear.
• The decrease in value is recorded as depreciation in the books of accounts.

Borrowing money:
• When a business borrows money from a lender, it records the transaction as a
borrowing.

Repayment of loans:
• When a business repays a loan to a lender, it records the transaction as a repayment of
loans.
Classification of Business Transactions
The main classifications of business transactions are:

Revenue transactions: Expense transactions:

These are transactions that These are transactions that involve

involve the sale of goods or the purchase of goods or services
services and result in revenue for and result in expenses for the
the business. business.

Examples include sales to Examples include cost of goods sold,

customers, fees earned for salaries and wages, rent, and
services rendered, and interest utilities.
income.
 Classification of Business Transactions
The main classifications of business transactions are:

Capital transactions: Non-operating

transactions:

These are transactions that involve the These are transactions that are not related to
acquisition or disposal of long-term assets or the normal operations of the business and
liabilities and result in a change in the capital do not affect the revenue or expenses of the
structure of the business. business.

Examples include gains or losses on the sale

Examples include the purchase or sale of fixed of investments or fixed assets, and one-time
assets, loans, and equity financing. or extraordinary items such as litigation
settlements.
 Capital and Revenue Transactions

• Are those transactions that involve the acquisition, disposal or alteration of a

company's fixed assets or long-term liabilities.
• Fixed assets are the assets that are intended to be used in the business for more
than one accounting period, such as land, buildings, machinery, and equipment.
• Long-term liabilities are debts that are not expected to be repaid within one year,
such as long-term loans or bonds.
Capital • Examples of capital transactions include the purchase of:
transactions • A new building,
• The sale of a piece of equipment,
• The repayment of a long-term loan, or
• The issuance of new shares of stock.
• Capital transactions are reflected in a company's balance sheet, which shows the
company's assets, liabilities, and equity.
 Capital and Revenue Transactions

• On the other hand, are transactions that involve the sale of goods or services by a
company.
• Revenue transactions are reflected in a company's income statement, which shows
the company's revenues, expenses, and net income or loss.
• Examples of revenue transactions include the:
• Sale of a product,
• The provision of a service, or
Revenue • The receipt of rent or interest income.
transactions • Properly distinguishing between capital and revenue transactions is important for
accurate financial reporting and tax purposes.
• Capital transactions are generally subject to different tax rules and accounting
treatments than revenue transactions.
• For example, capital expenditures may be depreciated over their useful life, while
revenue expenditures are usually expensed immediately.
• Additionally, capital gains and losses may be taxed differently than ordinary income.
 Capital and Revenue Expenditure

The main
Capital and
difference
revenue
between the two
expenditure refer
is the effect that
to two types of
the expenditure
expenditures that
has on the
a company may
financial
incur during its
statements of the
operations.
company.
 Capital and Revenue Expenditure
Capital Expenditure

Capital expenditure is an expenditure incurred by the company for acquiring

or improving its fixed assets such as land, building, machinery, equipment, etc.

This expenditure is expected to provide benefits over several accounting

periods.

Capital expenditure is a long-term investment made by the company to

generate future benefits.

It is not fully written off in the year of purchase but is instead depreciated over
its useful life.
 Capital and Revenue Expenditure

Examples of capital expenditure

are:

Intangible Development
Purchase of Capital assets such costs such as
Purchase of
machinery repairs to as patents, research and
land and
and assets trademarks, development
buildings
equipment copyrights costs
 Capital and Revenue Expenditure

• Revenue expenditure is an expenditure incurred

by the company in the course of its normal
operations to maintain or run its business.
Revenue • This expenditure is expected to provide benefits
Expenditure in the current accounting period only.
• It is fully written off in the year of purchase and
does not have any future benefits.
 Capital and Revenue Expenditure

Examples of revenue expenditure are:

Office Advertising Telephone

Rent and Wages and Insurance Repairs and and
supplies and maintenance and utility
rates salaries premiums promotional
stationery bills
costs
 Revenue and capital Receipts
Revenue receipts are the receipts
that arise from the day-to-day
operations of the company.
These receipts are earned Examples of revenue
by selling goods or receipts include:
These receipts are
services, such as revenue reported as part of the
from the sale of products, company's revenue in
services provided, rent the income statement. Sales revenue from the
received, interest earned, sale of goods or services
commission received, etc.
Fees earned for services
provided
Rent received from
leasing out property
Interest earned on
investments
Commission received for
sales made
 Revenue and capital Receipts

Capital receipts, on Examples of capital receipts

the other hand, These receipts are non- Capital receipts represent an include:
refer to the recurring and are usually inflow of funds for the
receipts that do not associated with financing company and are reported as
arise from the and investing activities. part of the company's capital
company's ordinary in the balance sheet. Proceeds from the sale of a fixed
course of business. asset, such as a building or
equipment

Money received from the issuance

of shares or debentures

Loans received from banks or other

financial institutions

Grants received from the

government or other organizations
for capital expenditures