School of Commerce 09/02/2011

Overview

Nature and purpose of accounting
BD130002S
The areas (branches) of accounting
Accounting
The types of accounting information

The users of accounting information
Karen Lee
The business entities

Accounting as an information system

Lecture 1 1 Lecture 1 2

Identifying
Nature and Purpose of • Observe economic events

Accounting • Determine relevancy to business

Measuring
• Monetary system

Accounting Process Recording

1. Identifying • Double-entry system
2. Measuring Classifying and Summarizing
3. Recording • Classified in Appropriate Heading
4. Classifying and Summarizing Communicating
5. Communicating • Communicate with relevant users
• Objective feedback of relevance in accounts

Lecture 1 3 Lecture 1 4

The Areas (Branches) of Types of Accounting

Accounting Information

Auditing
Financial Accounting

Bankruptcy, liquidation and receivership

Book-keeping Summarized information

Executorships and trusts Backward looking

Taxation Infrequent reporting
Standardized formats
(i) Financial accounting; and
(ii) Management accounting
Lecture 1 5 Lecture 1 6

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School of Commerce 09/02/2011

Types of Accounting
Information The Users of Accounting

Management Accounting 1) Direct Users

Direct financial interest in the
business
Detailed information
Dependable on accountancy to
Forward looking measures and report information
Frequent reporting
Flexible format 2) Indirect Users

Indirectly financial interest in the
business

Non dependable
Lecture 1 7 Lecture 1 8

The Users of Accounting

Information Forms of Business Organizations

Internal users

Management
• Sole Proprietorship - owned by one

Employees person

External users • Partnership - owned by more than

Shareholders and Potential Shareholders

Government one person

Lenders and Creditors
• Corporation - organized as a separate

General Public

Customers and Competitors legal entity and owned by
Lecture 1 9 stockholders 10

Users of Financial
Forms of Business
Information
Organizations
• Internal Users - managers plan, organize and
run a business.
• External Users -
– Investors
– Creditors
– Others
• Taxing authorities
• Regulatory agencies
• Customers
• Labor unions 12
• Economic planners

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School of Commerce 09/02/2011

Questions Asked by Internal Questions Asked by

Users
• Is cash sufficient to pay bills?
• What is the cost of manufacturing each unit
of product?
• Can we afford to give employee pay raises
this year?
• What product line is most profitable?
External Users
• Is the company earning satisfactory
income?
• How does the company compare in size
and profitability with competitors?
• Will the company be able to pay its debts
when they become due?

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Basic Terms 3 Types of Business Activity

• Assets - resources owned by a • Financing

business
• Liabilities - debts and obligations of • Investing
the business • Operating
• Common stock - stock representing
the primary ownership interest in a
corporation
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Opportunities in
Accounting Big Five

Public Accounting
 Offer accounting services to the general public.

Price Waterhouse Cooper
 Major services include auditing, taxation

KPMG Peat Marwick

Private Accounting
Ernst & Young
 Known as managerial or commercial accounting
 Major activities include cost accounting, budgeting
Deloitte & Touch

Non-Profit Accounting
Arthur Anderson
 Apply to accounting for government agencies
 Focuses on allocation of funds
 Ensure organization meet its objectives

Lecture 1 17 Lecture 1 18

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School of Commerce 09/02/2011

Accounting as an
The Business Entities Information System

Proprietorship or Sole Traders
 Owned & managed individually

A system?
 No legal formality

Three components: input, processing

Partnerships and output
 Owned by two or more persons
 Partnership Act
Open and closed systems

Companies
Goal of the accounting system
 Formal type of business entity
 Separate legal existence
 Company Act

Lecture 1 19 Lecture 1 20

Deductions - Accounting
as an Information
System

Goal - to meet users information
needs

Identify needs, determine output

Output will provide the
data which is input
Summary




Define accounting
Identify the features of accounting information

Identify the main users of accounting information

Describe the employment opportunities in
accounting

Describe the basic structure of accounting
profession and its specialised fields
control for
Recognize the three basic forms of business
structure

Accounting information system

Lecture 1 21 Lecture 1 22

Topic 1 4