1. FINANCIAL AND MANAGEMENT ACCOUNTING
Accounting: The Language
of Business

2. COURSE OUTLINE Financial Information for Management
Introduction to Accounting
Accounting Process
Financial Statement
Analysis and Interpretation of Financial Stmts
Costs
Budgeting
Budgetary control
Working capital management
Decision making

3. Structure of this Presentation
Introduction
Nature of Accounting
Accounting as aid to decision making
Financial Statements
Types ownership

4. Learning Objectives
After completing this session/lesson, you should be able to:
Explain how accounting information assists in making decisions.
Describe the components of the balance sheet.
Analyze business transactions and relate them to changes in the balance sheet.
Compare features of proprietorships, partnerships, and corporations.

5. Introduction
Accounting - a process of identifying, measuring recording, summarizing, and (communicating) reporting economic information about an organization or other entity in order to permit informed judgment by users of the information to aid in decision making. Usually accounting information is presented in form of financial statements.

6. Introduction The objectives of accounting
l if they are making a profit or a loss;
l what their business is worth;
l what a transaction was worth to them;
l how much cash they have;
l how wealthy they are;
l how much they are owed;
l how much they owe to someone else;
l enough information so that they can keep a financial check on the things they do.

7. Introduction Some Key words in definition
Identifying and measuring- This is done by way of a "set of accounts", based on a system of accounting known as double-entry bookkeeping. The accounting system identifies and records "accounting transactions". to financial or economic activities of business or organization
Economic information-relates to financial or economic activities of business or organization.

8. Introduction Some Key words in definition
Measurement- It involves making judgments about the value of assets owned by a business or liabilities owed by a business. it is also about accurately measuring how much profit or loss has been made by a business in a particular period. Measurement of accounting information often requires subjective judgment to come to a conclusion to financial or economic activities of business or organization.
Organization- Occurs in organizational context

9. Introduction Some Key words in definition
Process- It is a sequence of activities starting from primary books of entry (sales journal, purchase journal, cash book) to sales & purchase ledger, general ledger, trial balance to finally financial statement.
Communication- There are several forms of accounting communication (e.g. annual report and accounts, management accounting reports) each of which serve a slightly different purpose. The communication need is about understanding who needs the accounting information, and what they need to know!

10. Introduction
Book-keeping – encompasses the record-keeping aspect of accounting and therefore provides much of the data to which accounting principles are applied in the preparation of fs and other financial information
Recording transactions in the books of a/c constitutes BOOKKEEPING. Keeping accounts and generating financial reports and information from these accounts for various purposes is ACCOUNTING. In other words accounting is broader than bookkeeping.

11. Introduction
Financial accounting - focuses on the specific needs of decision makers external to the organization, such as stockholders, suppliers, banks, and government agencies
Management accounting - process of producing accounts that are specifically designed to serve the needs of the managers who are running a business. It deals with cost-profit-volume relationships, efficiency and productivity, planning and control, pricing decisions, capital budgeting, and similar matters that aid decision-making.

12. The Nature of Accounting
Every business need to have some sort of accounting system.
The accounting system is a series of steps performed to analyze, record, quantify, accumulate, summarize, classify, report, and interpret economic events and their effects on an organization and to prepare the financial statements.

13. The Nature of Accounting
Accounting systems are designed to meet the needs of the decisions makers who use the financial information.
These accounting systems may be very complex or very simple, but the real value of any accounting system lies in the information that the system provides.

14. Accounting as an Aid to Decision Making
Accounting information is useful to anyone who makes decisions that have economic results.
Managers want to know if a new product will be profitable.
Owners want to know which employees are productive.
Investors want to know if a company is a good investment.
Creditors want to know if they should extend credit, how much to extend, and for how long.
Government regulators want to know if financial statements conform to requirements.

15. Users of Accounting Information
Required Information
Shareholders
Participate in distribution of profits, additional share issues, assets on winding up, voting rights of shares, election of directors, inspection of company books, transfer of shares.
Directors and Managers
Manage the entities (business enterprises, non-business organ and others). They plan, control and make decisions as part of managing the entities. They are accountable to owners.
They perform a stewardship function
Employees
Share in the fortunes of entities in which they work.
They seek economic, social and psychological satisfaction in the places of work. They need freedom from arbitrary behaviour of company officials, freedom to join trade unions, and participation in offering up their services through an employment contract, conducive working conditions

16. Users of Accounting Information
Required Information
Lenders
Participate in legal proportion of interest on loans and repayment of principal, security of pledged assets, relative priority in the event of liquidation. Participate in certain management and owner prerogatives if defaults of payments of interest occur.
Customers
Product quality, technical data to use the product, suitable warranties, spare parts to support the product, facilitation of consumer credit, safety in use of product.
Suppliers
Continuing source of business, timely payment of trade credit obligations, professional relationship in contracting for, purchasing and receiving goods and services.
Government, competitors, Tax authorities, donors, Unions, Local communities, investors, analysts and advisers, regulatory agencies, general public.

17. Accounting as an Aid to Decision Making
Fundamental relationships in the decision-making process:
Accountant’s
analysis &
recording
Financial
Statements
Event
Users

18. Financial and Management Accounting
Major distinction between fin and mgmt accounting is the users of the information.
Financial accounting serves external users.
Management accounting serves internal users, such as top executives, management, and administrators within organizations.

19. Financial and Management Accounting
The primary questions about an organization’s success that decision makers want to know are:
What is the financial picture of the organization on a given day?
How well did the organization do during a given period?

20. Financial and Management Accounting
Accountants answer these primary questions with three major financial statements.
Balance Sheet - financial picture on a given day
Income Statement - performance over a given period
Statement of Cash Flows - performance over a given period

21. Financial and Management Accounting
Annual report - a document prepared by management and distributed to current and potential investors to inform them about the company’s past performance and future prospects.
The annual report is one of the most common sources of financial information used by investors and managers.

22. Financial and Management Accounting
The annual report usually includes:
a letter from corporate management
a discussion and analysis of recent economic events by management
other corporate information
a statement of management’s responsibility for preparation of the financial statements
the report of the independent auditors
footnotes that explain many elements of the financial statements in more detail

23. The Balance Sheet
What are the different sections of the Balance Sheet?

24. The Balance Sheet Sections of the balance sheet:
Assets - resources of the firm that are expected to increase or cause future cash flows (everything the firm owns)
Liabilities - obligations of the firm to outsiders or claims against its assets by outsiders (debts of the firm)
Owners’ Equity - the residual interest in, or remaining claims against, the firm’s assets after deducting liabilities (rights of the owners)

25. The Balance Sheet Assets = Liabilities + Owners’ Equity or
The balance sheet equation:
Assets = Liabilities + Owners’ Equity or
Owners’ Equity = Assets - Liabilities

26. The Balance Sheet ZAMBIA SUGAR PLC
=============
..\UNILUS\ACCA Financial statement 2013.pdf
..\Part time CR&FA\Zambia Sugar Plc - Annual Report 2011.pdf

27. Balance Sheet Transactions
The balance sheet is affected by every transaction that an entity encounters.
Each transaction has counterbalancing entries that keep total assets equal to total liabilities and owners’ equity, i.e., the balance sheet equation must always be balanced.

28. Balance Sheet Transactions
Just as the balance sheet equation must always balance, the balance sheet must also always balance.
A balance sheet could be prepared after every transaction, but this practice would be awkward and unnecessary.
Therefore, balance sheets are usually prepared monthly or on some other periodic schedule.

29. Transaction Analysis
Transactions are recorded in accounts, which are summary records of the changes in particular assets, liabilities, or owners’ equity.
The account balance is the total of all entries to the account.

30. Transaction Analysis
For each transaction, the accountant must determine:
which specific accounts are affected
whether the account balances are increased or decreased
the amount of the change in each account

31. Statement of Retained Earnings
The Relationships between the Financial Statements
Statement of Cash Flows–1/1/11–12/31/11
Net cash flow from operating activities
Net cash used by investing activities
Net cash provided by financing activities
Change in cash balance
Beginning cash balance (12/31/10)
Ending cash balance (12/31/11)
Balance Sheet–31/12/2010
Balance Sheet–12/31/11
Assets
Cash
Other current assets
Long-term investments
Long-lived assets
Intangible assets
Liabilities and
Stockholders’ Equity
Current liabilities
Long-term liabilities
Contributed capital
Retained earnings
Assets
Cash
Other current assets
Long-term investments
Long-lived assets
Intangible assets
Liabilities and
Stockholders’ Equity
Current liabilities
Long-term liabilities
Contributed capital
Retained earnings
Income Statement–1/1/11–12/31/11
Revenues
− Expenses
= Net income
Statement of Retained Earnings
1/1/04–12/31/04
Beginning retained earnings balance
+ Net income
− Dividends
Ending retained earnings balance

32. Frank Wood's Business Accounting 1.pdf

33. Types of Ownership Three basic forms of ownership:
Sole proprietorships
Partnerships
Corporations

34. Types of Ownership Sole Proprietorship
A separate organization with a single owner
Tend to be small retail establishments and individual professional or service business - for example, a single dentist, attorney, or public accountant
The sole proprietorship is an individual entity that is separate and distinct from the owner.

35. Types of Ownership Partnership
An organization that joins two or more individuals who act as co-owners
Dentists, doctors, attorneys, and accountants tend to conduct their activities as partnerships. Some can be large international firms.
The partnership is an individual entity that is separate and distinct from each of the partners.

36. Types of Ownership Corporation
An “artificial entity” created under state laws
Corporations have limited liability - corporate creditors have claims against corporate assets only.
Individual investors are at risk only up to the amount they have invested in the corporation. Creditors cannot hold investors liable for the corporation’s debts.

37. Types of Ownership Corporation
Owners are called shareholders or stockholders.
Publicly owned vs. privately owned corporations
Public - Shares in the ownership are sold to the public on a stock exchange; the corporation can have many thousands of shareholders.
Private - Shares in the ownership are owned by families, small groups of shareholders, and shares are not sold to the public.

38. Types of Ownership Management by the owners:
Sole proprietorship - The owner is an active manager in day-to-day operation of the business.
Partnership - Partners are usually active managers in day-to-day operations of the business.
Corporation - Shareholders usually do not participate in the day-to-day operations of the business.

39. Advantages and Disadvantages of Forms of Ownership
Corporations
Advantages
limited liability
easy transfer of ownership - shares of stock can be bought and sold easily (stock exchanges)
ease of raising ownership capital - many potential stockholders
continuity of existence - life of the corporation continues even if its ownership changes

40. Advantages and Disadvantages of Forms of Ownership
Corporations
Disadvantages
possibility of double taxation - corporation pays tax at the entity level and its owners pay taxes on distributions of earnings to them

41. Advantages and Disadvantages of Forms of Ownership
Proprietorships and Partnerships
Advantages
no taxation at the entity level - income of sole proprietorship and partnership is attributed to the owners as individual taxpayers

42. Advantages and Disadvantages of Forms of Ownership
Proprietorships and Partnerships
Disadvantages
unlimited liability - creditors of the business can look to the owners’ personal assets for repayment
not easy to transfer ownership
not easy to raise ownership capital - few, if any individuals interested in a particular proprietorship or partnership
no continuity of existence - changes in ownership terminate the proprietorship or partnership