1. CDA COLLEGE ACC101: BOOK KEEPING 1 Lecture 1 Lecture 1 Lecturer: Kleanthis Zisimos

2. Chapter Review Today’s Lecture demonstrates the Concepts, Principles and the work of the accountant Concepts, Principles and the work of the accountant The purpose of accounting The purpose of accounting The main financial statements The main financial statements Classification of Assets and Liabilities Classification of Assets and Liabilities The users of accounting information and the accounting cycle The users of accounting information and the accounting cycle

3. What is the purpose of Accounting The purpose of Accounting is to provide relevant, timely information for user decision making. The purpose of Accounting is to provide relevant, timely information for user decision making. Financial accountants follow general accepted accounting principles for preparing financial statements. The accounting principles used in Cyprus adopt the IFRs (international accounting reporting standards) which are issued from IASC (International accounting standard committee) Financial accountants follow general accepted accounting principles for preparing financial statements. The accounting principles used in Cyprus adopt the IFRs (international accounting reporting standards) which are issued from IASC (International accounting standard committee)

4. Types of Accountants Professional accountants are generally members of the following professional bodies Professional accountants are generally members of the following professional bodies 1. ACCA 2. CIMA 3. ACA 4. CIPFA 5. AAT In Cyprus the most commonly used accounting schools are ACCA and ACA In Cyprus the most commonly used accounting schools are ACCA and ACA

5. Users of Accounting Information Accountants provide reports to users for decision making. They are divided to internal and external users Internal Users are individuals directly involved in managing and operating an organization like Managers, Officers, Internal auditors, Sales staff and employees Internal Users are individuals directly involved in managing and operating an organization like Managers, Officers, Internal auditors, Sales staff and employees External Users are individuals not directly involved in managing and operating an organization like Creditors, Shareholders, External auditors, Customers and Government. External Users are individuals not directly involved in managing and operating an organization like Creditors, Shareholders, External auditors, Customers and Government.

6. Forms of business organizations 1. Sole proprietorship. The Business is owned by one person which has unlimited liability, that means he is responsible to pay the debts of the company by his personal belongings. 2. Partnership. The Business is owned by two or more persons. The business is not legally separated from its owners which means they have unlimited liability. One type of partnership though limits liability and that is LLC. 3. Corporation (ltd). The business is legally separated from its owners. The difference between Corporation and LLC is in the tax treatment of profit. LLC is not subject to business income tax.

7. Limited Companies The owners of a limited company are its shareholders. The owners of a limited company are its shareholders. The law recognizes a company as a legal entity, quite separate from its owners so a company can acquire assets and incur debts. If it becomes bankrupt then the owners are not obligated to pay the depts. Also because it is a separate entity the money which the owners put to the company are called capital and they are treaded as debts. The law recognizes a company as a legal entity, quite separate from its owners so a company can acquire assets and incur debts. If it becomes bankrupt then the owners are not obligated to pay the depts. Also because it is a separate entity the money which the owners put to the company are called capital and they are treaded as debts. Discussion question page 6 Discussion question page 6

8. Main Financial Statements The main financial statements are 1) the Balance Sheet and 2) the Profit and Loss account. The main financial statements are 1) the Balance Sheet and 2) the Profit and Loss account. The balance sheet is a list of all the assets owned by a business and all the liabilities owed by a business as at a particular date The balance sheet is a list of all the assets owned by a business and all the liabilities owed by a business as at a particular date Assets are the business resources which a company owns like a building, machinery and furniture. Additionally it may have bank balances, cash and amounts of money owed to it. Assets are the business resources which a company owns like a building, machinery and furniture. Additionally it may have bank balances, cash and amounts of money owed to it. Liabilities are the debts of the company like a bank loan, creditors and the capital. Capital is money invested from the proprietor Liabilities are the debts of the company like a bank loan, creditors and the capital. Capital is money invested from the proprietor

9. Main Financial Statements (continued) A Profit and Loss Account is a record of income generated and expenditure incurred over a given period. The profit and loss account shows by the end of the year if a company has profit (more income than expenditure) or loss A Profit and Loss Account is a record of income generated and expenditure incurred over a given period. The profit and loss account shows by the end of the year if a company has profit (more income than expenditure) or loss

10. Assets Assets in the balance sheet are divided into two groups Assets in the balance sheet are divided into two groups 1. Fixed Assets a) Tangible Fixed Assets a) Tangible Fixed Assets b) Intangible Fixed Assets b) Intangible Fixed Assets c) Investments c) Investments 2. Current Assets

11. Fixed Assets A Fixed Asset is an asset acquired for continuing use (more than one year ) within the business. If it is acquired for sale to a customer then is NOT a fixed asset A Fixed Asset is an asset acquired for continuing use (more than one year ) within the business. If it is acquired for sale to a customer then is NOT a fixed asset Tangible Fixed Asset is a physical asset like machine, furniture, land Tangible Fixed Asset is a physical asset like machine, furniture, land Intangible Fixed asset in an asset which does not have physical existence like Goodwill Intangible Fixed asset in an asset which does not have physical existence like Goodwill Investment are shares bought from another company Investment are shares bought from another company

12. Current Assets Current assets are either Current assets are either 1. Cash and Cash in Bank 2. Items owned by the business with the intention of turning them into cash within one year like the Debtors, Stock and prepayments

13. Liabilities and Capital Liabilities are divided into Liabilities are divided into 1. Long Term Liabilities. They are debts payable after one year like a 20 years loan 2. Short Term Liabilities. They are debts payable within one year like bank overdraft, trade creditors, taxation payable Capital is money invested from the proprietor Capital is money invested from the proprietor

14. Accrual Basis Amounts in the financial statements are not prepared on a cash basis but on an accrual basis Amounts in the financial statements are not prepared on a cash basis but on an accrual basis The accrual concept states that a sale or purchase is dealt with in the year in which it is made, even if cash changes hands in a later year. The accrual concept states that a sale or purchase is dealt with in the year in which it is made, even if cash changes hands in a later year. Discussion Example Discussion Example