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C1 - 1
Topic 1: Introduction
Learning Objectives
1. Define accounting
2. Identify users of accounting information
3. The accounting profession
4. Describe 3 types of business organisations
5. State 3 types of business activities
6. Define Assets, Liabilities & Owner’s Equity
7. State the Accounting Equation
Introduction to Financial Accounting
Apr 2011
C1 - 2Apr 2011
What is accounting?
An information system that
provides reports to stakeholders
(users or interested parties)
about the economic activities and
condition of a business.
C1 - 3Apr 2011
Accounting — An Information System
Identification
of Users
C1 - 4Apr 2011
User
Information
Needs
Accounting — An Information System
Identification
of Users
C1 - 5Apr 2011
Identification
of Users
User
Information
Needs
Accounting
System
Accounting — An Information System
C1 - 6Apr 2011
Identification
of Users
User
Information
Needs
Accounting
System
Economic Data
and Activities
Accounting — An Information System
C1 - 7Apr 2011
Identification
of Users
User
Information
Needs
Accounting
System
Economic Data
and Activities
Reports
Accounting — An Information System
C1 - 8Apr 2011
Identification
of Users
User
Information
Needs
Accounting
System
Reports
Economic Data
and Activities
User
Decisions
Accounting — An Information System
C1 - 9Apr 2011
Why do we study accounting?
• Accounting is the language of business.
• Accounting provides information.
• To who? Owners, managers and other
business stakeholders
• What information? How the business is
performing e.g. Coca Cola
C1 - 10Apr 2011
How to Study Accounting in
NP?
• Introduction to Financial Accounting
(INFA) 1st semester
• INFA, FFA, IFA, RFA, AFA modules
• 3 years of study to generate financial reports
or statements
• INFA Module Outline and Teaching
Schedule
C1 - 11Apr 2011
EXTERNAL USERS
Financial Accounting
• investors
• Bankers
• creditors
• Regulators
/government
• customers
• owners
• managers
• employees
INTERNAL USERS
Managerial Accounting
Users of Accounting Information
C1 - 12Apr 2011
The Accounting Profession
Public
accountingPrivate
accounting
Serves general public
Auditing
Tax accounting
Management consultancy
Insolvency
Works for a single organisation
Cost accounting
Budgeting
Information systems design
Internal auditing
Financial accounting
Management accounting
C1 - 13Apr 2011
What is a business?
• A business is an organisation in which basic resources (inputs) are assembled and processed to provide goods or services (outputs) to customers. Customers pay for these goods or services.
• Singapore Telecoms, Robinsons, MacDonald's
• Provision shops, gift shops, beauty salons, restaurants, law firms, clinics
C1 - 14Apr 2011
Types of business organisations
• Sole proprietorship
• Partnership
• Company
C1 - 15Apr 2011
Types of businesses
• Manufacturing business
• Trading business
• Service business
C1 - 16Apr 2011
• What are your assets?
Assets
C1 - 17Apr 2011
Asset
• Resources owned by the business
• Items of value owned by the business
• Eg - cash, buildings, equipment
Assets
C1 - 18Apr 2011
Liability
• Amounts owed by a business
to external parties.
• Examples – Creditors /
Accounts Payable
Salaries Payable
Loans
Liabilities
C1 - 19Apr 2011
Liability
• Say you borrowed $5
from your friend for
lunch. You take on a
liability or debt of $5.
You friend becomes
your creditor.
Liabilities
Your friendYou
Liability- $5 Your creditor
C1 - 20Apr 2011
Owner’s equity
• Amount of owner’s interest/investment in
the business
• Amount owed by the business to the owner
• Say Sally puts $10,000 cash into the
business. Therefore $10,000 of the business
belongs to Sally. Owner’s equity = $10,000
Owner’s Equity/Capital
C1 - 21Apr 2011
The Accounting Equation
Relationship between the total assets, total
liabilities and total owner’s equity of a business
C1 - 22Apr 2011
Resources
The Accounting Equation
What are an organization’s resources called?
C1 - 23Apr 2011
Assets
Resources = Sources
The Accounting Equation
What are the
sources of
these assets?
Resources used
in the business
C1 - 24Apr 2011
Assets
Liabilities
Owner’s
Equity/Capital
Resources = Sources
Resources used
in the business
Resources
supplied by
creditors and
owners
The Accounting Equation
C1 - 25Apr 2011
The Accounting Equation
Assets = Equities
Assets = Liabilities + Owner’s Equity
Assets - Liabilities = Owner’s Equity
C1 - 26Apr 2011
a. Student started an internet business with cash
$600 and notebook $3,100. Borrowed money from
parents $2,000.
ASSETS
=
Accounting Equation (an illustration)
OWNER’S EQUITY
LIABILITIES
C1 - 27Apr 2011
a. Student started an internet business with cash
$600 and notebook $3,100. Borrowed money from
parents $2,000.
ASSETS
=
Accounting Equation (an illustration)
OWNER’S EQUITY
LIABILITIES
Cash
$600
+
Notebook
$3,100
C1 - 28Apr 2011
a. Student started an internet business with cash
$600 and notebook $3,100. Borrowed money from
parents $2,000.
ASSETS
=
Accounting Equation (an illustration)
OWNER’S EQUITY
LIABILITIES
Cash
$600
+
Notebook
$3,100
Loan
$2,000
C1 - 29Apr 2011
a. Student started an internet business with cash
$600 and notebook $3,100. Borrowed money from
parents $2,000.
ASSETS
=
Accounting Equation (an illustration)
OWNER’S EQUITY
LIABILITIES
Cash
$600
+
Notebook
$3,100
Loan
$2,000
Capital
$1,700
(600+3,100-2,000)
C1 - 30Apr 2011
OWNER’S EQUITY
Changes in Owner’s Equity
Owner’s
withdrawals/Drawings
Expenses
Owner’s
investments/Capital
Revenues
decreased by increased by
Revenues less Expenses = Business Profits
Inflow of cash or increase in
debtors from outflow of
services or goods
Outflow of cash or increase in creditors
from inflow of services or goods
C1 - 31
Topic 1: Introduction
Summary
1. Define accounting
2. Identify users of accounting information
3. The accounting profession
4. Describe 3 types of business organisations
5. State 3 types of business activities
6. Define Assets, Liabilities & Owner’s Equity
7. State the Accounting Equation
Introduction to Financial Accounting
Apr 2011