1. Introduction to Financial Accounting
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
Apr 2011 C1 - 1

2. What is accounting?
An information system that
provides reports to stakeholders
(users or interested parties)
about the economic activities and
condition of a business.
Apr 2011 C1 - 2

3. Accounting — An Information System
Identification
of Users
Apr 2011 C1 - 3

4. Accounting — An Information System
Identification
of Users
User
Information
Needs
Apr 2011 C1 - 4

5. Accounting — An Information System
Identification
of Users
User
Information
Needs
Accounting
System
Apr 2011 C1 - 5

6. Accounting — An Information System
Identification
of Users
User
Information
Needs
Economic Data Accounting
and Activities System
Apr 2011 C1 - 6

7. Accounting — An Information System
Identification
of Users
User
Information
Needs
Economic Data Accounting
and Activities System
Reports
Apr 2011 C1 - 7

8. Accounting — An Information System
Identification
of Users
User
Information
Needs
Economic Data Accounting
and Activities System
User
Reports
Decisions
Apr 2011 C1 - 8

9. 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
Apr 2011 C1 - 9

10. 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
Apr 2011 C1 - 10

11. Users of Accounting Information
• investors
• Bankers
Financial Accounting
• creditors
EXTERNAL USERS
• Regulators
/government
• customers
Managerial Accounting
INTERNAL USERS • owners
• managers
• employees
Apr 2011 C1 - 11

12. The Accounting Profession
Public Private
accounting accounting
Serves general public Works for a single organisation
Auditing Cost accounting
Tax accounting Budgeting
Management consultancy Information systems design
Insolvency Internal auditing
Financial accounting
Management accounting
Apr 2011 C1 - 12

13. 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
Apr 2011 C1 - 13

14. Types of business organisations
• Sole proprietorship
• Partnership
• Company
Apr 2011 C1 - 14

15. Types of businesses
• Manufacturing business
• Trading business
• Service business
Apr 2011 C1 - 15

16. Assets
• What are your assets?
Apr 2011 C1 - 16

17. Asset
Assets
• Resources owned by the business
• Items of value owned by the business
• Eg - cash, buildings, equipment
Apr 2011 C1 - 17

18. Liability
Liabilities
• Amounts owed by a business
to external parties.
• Examples – Creditors /
Accounts Payable
Salaries Payable
Loans
Apr 2011 C1 - 18

19. Liability
Liabilities
• Say you borrowed $5
from your friend for Your friend
lunch. You take on a You
liability or debt of $5.
You friend becomes
your creditor.
Liability- $5 Your creditor
Apr 2011 C1 - 19

20. Owner’s equity
Owner’s Equity/Capital
• 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
Apr 2011 C1 - 20

21. The Accounting Equation
Relationship between the total assets, total
liabilities and total owner’s equity of a business
Apr 2011 C1 - 21

22. The Accounting Equation
Resources
What are an organization’s resources called?
Apr 2011 C1 - 22

23. The Accounting Equation
Resources = Sources
Assets
What are the
Resources used sources of
in the business
these assets?
Apr 2011 C1 - 23

24. The Accounting Equation
Resources = Sources
Liabilities
Assets
Owner’s
Equity/Capital
Resources
Resources used supplied by
in the business creditors and
owners
Apr 2011 C1 - 24

25. The Accounting Equation
Assets = Equities
Assets = Liabilities + Owner’s Equity
Assets - Liabilities = Owner’s Equity
Apr 2011 C1 - 25

26. Accounting Equation (an illustration)
a. Student started an internet business with cash
$600 and notebook $3,100. Borrowed money from
parents $2,000.
ASSETS LIABILITIES
= OWNER’S EQUITY
Apr 2011 C1 - 26

27. Accounting Equation (an illustration)
a. Student started an internet business with cash
$600 and notebook $3,100. Borrowed money from
parents $2,000.
ASSETS LIABILITIES
Cash
$600
+
= OWNER’S EQUITY
Notebook
$3,100
Apr 2011 C1 - 27

28. Accounting Equation (an illustration)
a. Student started an internet business with cash
$600 and notebook $3,100. Borrowed money from
parents $2,000.
ASSETS LIABILITIES
Loan
Cash $2,000
$600
+
= OWNER’S EQUITY
Notebook
$3,100
Apr 2011 C1 - 28

29. Accounting Equation (an illustration)
a. Student started an internet business with cash
$600 and notebook $3,100. Borrowed money from
parents $2,000.
ASSETS LIABILITIES
Loan
Cash $2,000
$600
+
= OWNER’S EQUITY
Notebook Capital
$3,100 $1,700
(600+3,100-2,000)
Apr 2011 C1 - 29

30. Changes in Owner’s Equity
OWNER’S EQUITY
decreased by increased by
Owner’s Owner’s
withdrawals/Drawings investments/Capital
Expenses Revenues
Revenues less Expenses = Business Profits
Inflow of cash or increase in Outflow of cash or increase in creditors
debtors from outflow of from inflow of services or goods
services or goods
Apr 2011 C1 - 30

31. Introduction to Financial Accounting
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
Apr 2011 C1 - 31