As shown in color RED, accounting is very much related to information systems. You study information systems in through out 3 or 4 years. In the first year, you learnt JAVA, a programming language that is used to develop information systems. You also learnt system and analysis and design, which study and design information systems. Now, you learn accounting in order to design and develop or use accounting information systems.
Consider a super market, fuel station
Introduction to Accounting Rasika Dayarathna
Learning OutcomesAt the end of this module, students will be able to describe terms in financial accounting describe key financial accounting concepts prepare the important financial statements: profit and loss account, balance sheet, and cash flow statement prepare financial statements using computer- assisted accounting system
NOTESSoftware: TurboCash open source accounting toolLecture materials: available at http://www.dwmbeancounter.com/moodle/ - students must create an online account.Assessment: Assessment: 50% on final examination and 50% on assignments
Business• What is a business ?• What are the objective of a business entity?• What are the different types of businesses ?• Who are the parties involved?
Business – objectives/types/formsObjective is making profitTypes of business – Service Manufacturing TradingForms of business organization Sole proprietorship Partnership Company
Sole proprietorshipOne personMany professional services – lawyers, doctors,Retail and small business entitiesAccounting point of view – business entity is separated from the ownerLegal point of view- owner is personally liable for the debts of the business
PartnershipTwo or more personsPartnership agreementAccounting point of view – business entity is separated from the ownersLegal point of view- owners are personally liable for the debts of the business
CompanyAn artificial personOwners are known as shareholdersLiability is limited – unpaid share capitalLimited – LtdPrivate limited companyPublic limited company
AccountingAccounting is the process of designing and operating an information system for collecting, analyzing, and recording of business transactions and summarizing and communicating the results of these transactions to users to facilitate the making of economic decisions.Accounting is also known as language of business.
AccountingAccounting - the process of identifying, measuring and communicating economic information to permit informed judgments and decision by users of the information.
Economic/financial informationExamples-• What are economic events ? Examples ?• What are economic information ? Examples?• Who are the interested parties and why? • External parties • Internal parties
External Parties• Investors – good investment ?• Creditors – creditworthiness ? Safe to give loans ? How much and how long ?• Government – Tax liability ?• Customers – Entering into contracts?• General public – performance ?• Other users – who and why?• Regulators – e.g. CSE (Colombo Stock Exchange)
Book keepingBook keeping – Collecting, analyzing, and recording business transactions.• Mechanical and RepetitiveAccounting is more than book keeping. It involves analyzing, recording, summarizing, reporting, reviewing, and interpreting financial information
AccountingFinancial accounting - focuses on the specificneeds of decision makers external to theorganization, such as stockholders, suppliers,banks, and government agencies.Management accounting – concerned with thepreparation and presentation of information toassist managers.
Financial accountingBasically outsidersHistorical informationFormatMainly for taxation and profit sharing
Management accountingFor insidersPlanning, organizing, performance evaluationHistorical and planned dataNo specific format
Role of an accountantAuditing –• Express the true and fair view of financial statements• Independent examinerTaxation – various types of taxes including excise and custom duty
Role of an accountantManagement advisory services-• Investigate problems• Suggest corrective actions (quality control, acquisitions of and merging with)Cost accounting – allocating and controlling cost of production for a product or serviceBudgeting – forecast of future operationsInternal auditing – comply with the established procedures and policiesInformation security auditors -
Auditor Generals Department - http://www.auditorgeneral.gov.lk/Examination question – 5 marks
RegulationsCompany registration actStock exchange listingAccounting standardsBuy 10 units @15 = 150Buy 10 units @ 18 = 180Sell 5 units @ 20 = 100What is the profit ?
Procedures Sri Lanka Accounting Standards (SLAS) Sri Lanka Auditing Standards (SLAuS) International Accounting Standards (IAS) Generally Accepted Accounting Principles (GAAP) Why standards ? Advantages ?
Some conceptsMatching principle- matching revenues against all expenses incurred in earning those revenues.Going concern principle- business entity will continue to operate in the near future.Historical cost principle- cost are recorded at actual cost or price paid.Accounting period- prepared for each financial yea.Accounting entity- clearly defined accounting entity.