1. Nature of Accounting Unit 1

2. Learning Objectives The meaning & functions of Accounting
The difference between Accounting & Bookkeeping
The purpose of keeping Accounting records
The Accounting Cycle/Process
Identify the different users of Accounting information

3. What is Accounting Accounting is the language of business It involves:
Recording transactions
Classifying transactions
Summarising transactions
Interpreting and analysing transactions

4. 4 Steps in Accounting Recording Journal
Day to day recording of transactions
“T “shape accounts
Classifying
Ledger
Summarising
Trial Balance
Verification of accuracy of accounts
Interpretation
Final Accounts
Preparation of reports Ratio Analysis

5. Accounting verses Bookkeeping
Bookkeeping involves the actual data recording
This is often computerized in organizations
Accounting is concerned with the use, analysis & interpretation of accounting records

6. Financial Statements Income Statement or Profit & Loss Account
Revenue – Expenses = Income (or profit)
Balance Sheet
Asset – Liability = Owners Equity
Cash flow statement
$ Receipts - $ Payments = Changes in cash balance

7. Users and Uses of Accounting Information

8. Managers, to know: Profitability Return on investment
Operational efficiency (day-to-day operation)
Ensure security of investment
Basic functions like planning, budgeting, decision-making and control purposes

9. Prospective investors, to ascertain
Earning capacity of the business
Solvency or financial strength of the business
Ability of the management
Decision to invest in a business

10. Creditors/ Banks, to find out
The borrower's capacity for repayment
Whether to grant a credit or advance money to a busines
The limits of advance, or credit limits for a customer

11. Employees/ Unions To discuss and arrange labour contracts
To be assured of steady employment
To determine the ability of the business to pay higher wages

12. Tax inspectors/ Government
To evaluate tax returns to calculate tax payable by the business
To check that the business is following the government rules and regulations

13. General Public To know the effect of pricing on customers
To judge the ability of the firm to survive and honour it's product warranties

14. Owners of the business, to ascertain
Profitability of the firm
Security of capital
Return on their investment (ROI)
Resources owned
Financial stability
Whether to increase of decrease their existing ownership in the firm

15. Common Terminology
Capital Resources supplied by the owners to the business
Assets Resources owned by the business
Liabilities What the business owes for the assets supplied
Purchase Goods bought by the business
Sales Goods sold by the business

16. Common Terminology
Purchase return/ Goods returned by the business to it's suppliers
Return outwards
Sales return/ Goods returned to the business by it's customers
Return inwards
Creditor A person to whom the business has to pay for goods and services rendered.
Debtor A person from whom the business has to receive money for goods and services supplied.

17. Common Terminology Stock Unsold goods
Expense Cost of operating the business
Revenue Money received for goods and services supplied
Profit Revenue minus expenses
Loss Expense minus revenue

18. The Accounting Equation
Assets = Liabilities + Owner's Equity

19. Types of Business Sole Trader Features This is a one-man show
Capital put in by the owner
Business is run by the proprietor
Profits and losses at the year end are taken over by the proprietor
Usually small retail establishments
Unlimited liability

20. Types of Business Partnership Features
Minimum 2 people, maximum 10 or 20, depending upon the type of partnership
Capital contributed by all partners
Every partner has a right to participate in the business
Each partner acts as the principal and agent of the firm
Profits or losses at the end of the year are shared in the agreed ratio
Usually professionals like doctors, lawyers, accountants, etc
Unlimited liability

21. Types of Business Company Features
Largest form of business organisation
Capital contributed by the public, who are joint owners of the company
Can be public or private
Separate legal entity
Registered under the company's act
Ownership and management is usually separate
No limit to the maximum amount of members
Accounts must be prepared and audited yearly under the company's act

22. Q & A