Week 1 Introduction to accounting

Definition of accounting. Definition, Functions, objectives and uses of financial statement. Main users group of financial statement. Type of various forms of business ( sole trader of merchandising and service enterprise, partnership, and private & public company. Difference between bookkeeping and accounting.

 Why

Do We Need Accounting? . Asking this question of an accountant is like asking a farmer why we need rain. We need accounting because its the only way for business to grow and flourish. Accounting is the backbone of the business financial world. After all, accounting was created in response to the development of trade and commerce during the medieval times.

Accounting definition

Identify : business activities to be recorded by the enterprise. Record : Record the identified activities. These activities are recorded in a systematic and orderly manner. Classify & Summarize Data that recorded need to sorted out as to be most useful to the business. Presenting : Communicate the information recorded to the various groups of users. This normally done to the document called financial statement

 Definition

Summary report that shows how a firm has used the funds entrusted to it by its stockholder (shareholder) and lenders (creditors) and what is its current financial position. The three basic financial statement are the (1) balance sheet, which shows firm's assets, liabilities, and net worth on a stated date; (2) income statement (also called profit & loss account ), which shows how the net income of the firm is arrived at over a stated period

 (3)

cash flow statement, which shows the inflows and outflows of cash caused by the firm's activities during a stated period.

A financial statement summarizes key

information about the financial health, success, and profitability about a particular company. The financial figures in a financial statement also provide a measure of the success or failure of its current management and business strategies. To know the financial status of the organization. For easier reference. To avoid misleading financial statement.

The users of accounting information can be divided into two category: Internal users External users

. Owners 2. Managers 3. Employees

1

1. 2.

3.
4.

Creditors / Bankers Current and potential Bankers Government Consumer of product / services

 1.

Sole Proprietorship Registration Business Registrar Capital By owner Ownership one person Management and control owner Liability Unlimited liability Profit or loss belong to owner Books and account no legal obligations

2. Partnership Registration Business Registrar Capital contribute by partners Ownership 2-20, if Professional, 2-50. Management and control by partners or by board. Liability Unlimited liability Profit or loss belong to partners on ratio. Books and account no legal obligations

 3.

Limited companies Registration Commissioner of companies Capital by shareholder through shares Ownership 2-50. Management and control by board of directors. Liability limited liability Profit or loss be paid to shareholder in form of dividend. Books and account has legal obligation.

 Accounting

can be defined as the art of identifying, recording, summarizing of business transaction and presenting the result to the interested party. Bookkeeping is different from accounting as it only part of accounting. Its refers to mechanical aspects of accounting such as identifying, recording and summarizing of transaction systematically.