Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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CHAPTER 1INTRODUCTION

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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WHAT IS ACCOUNTING?

Accounting can be defined as:

The process of identifying, measuring and communicating economic information to permit informed judgements and decisions by users of

that information.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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BRANCHES OF ACCOUNTINGTwo main branches:

Financial Accounting (for external users and focuses on information regarding the whole organization)

Management Accounting (for internal users and centers on costing information for operational decision making purposes )

The focus of BA100 is Financial Accounting

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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WHAT ARE THE OBJECTIVES OF ACCOUNTING?

Is the business making a profit or a loss? What is the business worth? What is a transaction worth? How much cash is in the business? How wealthy is the business? How much is the business owed? How much does the business owe? Keeping a financial check on activities.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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Sole tradersPartnershipsClubsManufacturing entitiesCompanies

5

TYPES OF ENTITY

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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SOLE TRADER/ PROPRIETOR Single owner

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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PARTNERSHIPS Minimum 2 owners

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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CLUBS / ORGANIZATIONS

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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MANUFACTURING COMPANY

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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COMPANIES

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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WHAT IS BOOKKEEPING?Bookkeeping is the process of recording data relating to accounting transactions

in the accounting books.

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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USERS OF ACCOUNTING INFORMATION Managers Owner(s) of the business A prospective buyer The bank Tax inspectors A prospective partner Investors Creditors

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

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THE ACCOUNTING EQUATIONResources supplied by the owner = Resources in

the business

Capital = Assets

But if someone else has provided some of the assets:

Capital = Assets - Liabilities

Frank Wood and Alan Sangster, Frank Wood’s Business Accounting 1, 12th Edition, © Pearson Education Limited 2012

Slide 1.14ACCOUNTING EQUATION IS LIKE A SCALE…… IT SHOULD ALWAYS BALANCE

ASSETS = CAPITAL + LIABILITIES