GHANA COMMUNICATION

TECHNOLOGY UNIVERSITY Department of

Accounting,
Banking and Finance
• Name:
• Course:

Main Campus:

Main Campus Location:

Off the Kwame Nkrumah Circle-Nsawam Road,
adjacent to the Police Training School, Tesano,
Accra
 Objectives

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The nature of accounting (what accounting
is all about)
• I am providing you with a general overview of the nature of
accounting.

• This section highlights accounting as the major provider of financial

information for decision making.

• mankind has over the centuries tried to keep records of various

financial dealings with other persons or organizations.
• You also keep some form of records of your financial activities. For
example, I guess you keep the receipts of the fees you paid to GTUC
for this degree program.

As businesses enter into numerous transactions, it is practically

impossible to keep mental records of such transactions let alone
show their impact on the resources of the organizations, irrespective
of their size and/ or nature.
Accounting developed as a natural consequence to meet the need
for keeping timely reliable records of financial transactions of
organizations.

In summary the function and purpose of accounting is threefold:

• Collecting and recording relevant economic data about organizations

• Analyzing, classifying and summarizing the data gathered and

recorded, and

• Communicating the outcomes of the information obtained from the

data to decision makers.
Accounting defined
• Accounting is a systematic means of writing the economic history of
an organization.

• Accounting is the process of identifying, measuring and

communicating economic information to permit informed judgement
and decision making by users of the information.
• Accounting is the art of recording, classifying, and summarizing in a
significant manner and in terms of money, transactions and event
which are, in part at least of a financial character, and interpreting the
results thereof.
Implication of the three definitions
A common strand that is observed from the three definitions
provided above is that accounting is basically an information system.

As an information system, accounting is concerned with the task of

gathering relevant data and,
processing the data into information and communicating the
information

to interested parties for their informed decision making purposes.

The challenges of accounting
accounting is concerned with providing :
 financial information to interested parties for decision making purposes
to maximize the use of scarce resources.

For information, and particularly accounting information to be useful, it

must meet the following two (2) critical criteria:

It must be timely and

It must be relevant

Bookkeeping and Accounting
Bookkeeping
Earlier on we noted that, the purpose of accounting is threefold:
Collecting and recording relevant economic data about organizations
Analyzing, classifying and summarizing the data gathered and recorded,
and
Communicating the outcomes of the information obtained from the data
to decision makers.
The task of collecting and recording relevant economic data about
organizations is executed through bookkeeping. Thus bookkeeping is the
mechanical and repetitive process of recording financial transactions
and keeping financial records.
It is an aspect of accounting.
Accounting
• The task of communicating or reporting the outcome of the financial
information obtained from the data to decision makers is the main
focus of accounting.

• It includes the classification and summarization of accounting data into

financial statements and the interpretation of the financial results.

• It involves among other things, the design of an information gathering

and dissemination system that meets user’s needs, the audit of
financial statements, cost studies, and the preparation of tax returns.
Business Transactions
Business transactions are the input to the accounting system
Business transactions are of two (2) types- internal and external
transactions.
Internal transactions are those activities that originate from within and
remain in the organization without relating to third parties outside it.
The promotion of an employee is a purely an internal matter within
the organization.
But it has an accounting implication since that promotion comes
along with new salaries and other benefits that must be captured by
the accounting information system upon an advice from management
to that effect.
External transactions
• They relate to all other set of financial transactions involving the
organization and other third parties.
E.g.
• When the organization buys goods or services from a supplier;
• When the organization sells goods or services to its customers; and
• When the organization grants discounts to its customers or clients
• When the organization receives discounts from its suppliers, etc
Sub-Divisions /specialized areas
Accounting
Financial accounting
Management accounting
Cost accounting
Tax accounting
Government/ public sector accounting
Auditing.
Interested parties/ or Users of accounting
information
owners of the business
prospective investors
the government and her agencies
employees
the general public, suppliers, customers, banks
Management.
Accounting reports/ or financial statements
The term financial statements suffice is now to consist of:
• the balance sheet (statement of Financial position)
• the income statement or the profit and loss account (statement of
comprehensive income)
• the cash flow statement and the notes to the accounts
Balance Sheet
• This report shows the total assets owned by the organization

• and the claims against those assets at a particular point in time

(capital and liabilities).
Income statement
The accountant prepares an income statement to ascertain the net
difference between revenue and expenses.

Since not all organizations exist to earn profit, different income

statements are prepared to show the net difference between
revenues and expenses.
Forms of Business Enterprises
Three common forms of business organizations are:

• Sole proprietorship

• Partnership

• company