This document provides an introduction to key accounting concepts: 1. It defines accounting as recording financial information about resources owned (assets), owed (liabilities), and equity. It outlines the different types of accountants and their qualifications. 2. Accounting information is used by various stakeholders like investors, creditors, employees, and government agencies. Useful attributes of accounting data include relevance, understandability, reliability, completeness, objectivity, timeliness, and comparability. 3. The document introduces double-entry bookkeeping where every transaction has two equal entries - a debit and a credit. It outlines the layout of T-accounts to record transactions.

1. Introduction To Accounting Accountants –Types of Accountants/qualifications ACA, ACCA, ACMA, CPA, AAT, IATA What is it all about? Accounting is sets of figures about resources. For a business: What have they got What they used to have The change in what they have got What they may have in the future

2. Users of Accounting information: Equity Investor Groups (existing and potential shareholders) Loan creditor groups Employees Analyst adviser (e.g. stockbrokers) Business contacts – competitors, creditors, customers Government (e.g. revenue) Public (e.g. consumer and environmental groups)

3. Attributes of Useful Accounting Information: Relevant to the user Understandability Reliability (checked by auditors) Complete (gives total picture) Objective (unbiased) Timeliness Comparability (from year to year and from business to business)

4. Double Entry Book-keeping Double Entry Book-keeping - System is based on the simple idea that for every transaction there is a double action – a giving and a receiving For example if we purchase a car by cheque · Car is received · Money is given Each transaction is recorded twice - once on the debit side And again on the credit side of the corresponding account

5. Layout of an account Account ____________ Debit Side | Credit Side (Often referred to a T- account)

6. Detailed Layout of an Account Account Name ------------------------------------------------------- Date | Details | f | € | Date| Details | f | € Date: Date of entry Details: Name of corresponding account F: Reference code, where other information is held € : Amount of money involved in transaction

7. There Are 4 Types of Accounts Expense accounts: Record the cost of goods and services used by the business (e.g. purchases, rent) Income accounts: Record the earnings of the business (e.g. sales) Asset Accounts: Record what is owned by the business Liability Accounts: Record what is owed by the business, including to the owner (capital)

8. Ledgers and Accounts To debit an account – an entry is recorded on the left hand side To credit an account – an entry is recorded on the right hand side The accounts are kept in a book called a ledger .

9. Useful Definitions Book-keeping - recording financial information Accounting (financial) Uses information from book-keeping records to prepare financial statements

10. Useful Definitions Financial statements - The profit and loss account and the balance sheet Cost accounting How much does something cost to produce Management accounting Uses cost accounting to forecast, control and evaluate costs

11. Business Organisations Types of business Private Sole traders, partnerships, companies, clubs Public sector Government bodies and nationalised industries

12. Sole Trader One-man business unit Capital is raised by the private resources of one person May also include borrowings Personally liable for all debts

13. Parternerships Anything from 2 to 20 partners Each partner contributing private resources May also include borrowings Personally liable for all debts of business Subject to partnership agreement

14. Limited Companies 2 types – private (LTD) or public (PLC) Limited companies have limited liability. This means that in the event of a companies collapse, shareholders are protected against the debts of a company. They may lose their paid-up capital, but nothing more. This is not the case for sole-traders or partnerships.

15. Private Limited Company (LTD) No restriction to number of shareholders But can only sell shares privately (without advertising) This in itself will limit the number of shareholders Generally see shares of limited companies being sold within boundaries of families,friends and business acquaintances

16. Public Limited Companies (PLC) Can issue a prospectus (invitation to the public to buy its shares) Shareholders then become part-owners of their companies. They receive dividends from company profits Shares may increase or decrease in value

17. Sources of Finance Owners capital Loan capital Debentures Profits Leasing/ hiring of fixed assets Creditors Government

18. Owners Capital Resources put into the business by the owner Limited companies have shareholders For PLC – authorised capital – how much it can raise

19. Owners Capital The shares issued and purchased by shareholders are known as issued and paid-up capital This may be less than or equal to the authorised capital

20. Classes of Shares 2 types of shares ordinary and preferential Ordinary shares: most common, often referred to as equity. Directors decide what is paid out as dividends and how much they want to keep in the company. Interim and final dividends Ordinary shareholders paid last!

21. Preferential Shares Fixed rate of dividend (e.G 10% preferential shares) Cumulative preference shares – allows arrears of dividends to be paid Participating preference shares – may allow an additional bonus (if ordinary dividend is higher)

22. Rights Issue Where existing shareholders are invited to buy the new issue first – being offered in proportion to their existing shareholding Generally offered at a favourable price

23. Loan Capital Loans – short–term (less than 1 year), medium-term (2 to 5 years), long-term (up to 20 years) Short-term – generally used for day to day running of a business (eg. Overdraft) Medium and long-term – purchase machinery, buildings, etc Generally provided by banks

24. Debenture Issues Debentures are loan capital - issued by companies for the purpose of financing over a specific period of time (e.G 5 or 10 years) Interest is then paid to the debenture holder at a fixed percentage of the nominal value of the stock even if no profits are made Normally secured against assets of company

25. Debenture Issues Debentures are sold in blocks of €100 and this amount is repaid to debenture holder when the debenture matures Debentures can also be sold on the stock exchange Value is not determined by the future profts of the company but of interest rates available elsewhere

26. Profits Profits can be ploughed back into the business to finance future financial needs Companies who retain their profits can transfer them to what is known as a P and L reserve, that is to leave it to accumulate in the profit and loss account

27. Leasing/ Hiring Fixed Assets Hire purchase: expensive form of credit. Asset only becomes legal property of the business when last payment is made. Leases – 2 types – operating and finance Operating lease – merely a form a rental. Rental amount deducted from profts Finance lease – depreciation and interest charges can be written off against profits

28. Factor Finance Pass all trade debts to a factoring company who pay the company a major percentage of the debts immediately and the balance when the debts are collected. (Done for cash flow purposes)

29. Factor Finance Factoring company charges interest on the sum advanced until the debts are paid plus an administration fee for the service ‘ Without recourse’ – often factoring company bears any loss as a result of bad debts

30. Creditors Important source of short-term finance Credit facilities granted to a company are effectively an interest free loan Short-term – generally 30 days

31. Governement Funds Offer financial support in the form of grants Example, fingal county enterprise board, IDA

32. Role of Accountant Collecting & recording financial data Organisation of this data into books Control of cash resources Preparation of financial statements Assessment of financial performance Role of auditor Preparation of budgets

33. Role of Accountant Preparation of costing estimates Preparation of cash flow Negotiations with banks/ other sources of capital Role of financial advisor/ consultant

34. Accounts Office Typical roles Sales ledger – recording customers records Purchase ledger –suppliers (accounts payable) Cashier – bank statements/ recomciliations Payroll – PAYE, etc Credit controller – outstanding debts

35. The Auditor Independent assessment of accounts by accounting professional The purpose is to ensure financial statements give a TRUE and FAIR VIEW Audtors report produced – for PLC included in annual report Can ‘qualify’ a report if not satisfied with accounts or there is insufficient information available to him

36. Introduction to Financial Statements Trading Account Sales €500 Less Cost of Sales: Purchases €100 Opening Stock €50 € 150 Less Closing Stock ( €20) ( €130) GROSS PROFIT €370

37. Trading Account Sales Less sales returns Purchases Less purchases returns Less drawings

38. Trading Account Only other amounts that need to be taken into the trading account are: Carriage inwards Customs duties Import duties

39. Trading Account Sales (less returns €20) €480 Less cost of sales: Opening stock €100 Purchases €100 Less returns (€25) €75 Add carriage-in €20 Add import duties €10 € 205 Less closing stock €105 €100 Gross profit €380

40. Trading Account Always trading account for year ended ….. eg. 31/12/2005

41. Profit and Loss Account Gross profit (from trading account) Add income Less expenses = Net profit

42. Income Money received by the business Discount received Dividends received Interest received Rent received

43. Expenses Wages Rent Rates Light and heat Advertising Discount allowed Carriage outwards

44. The Balance Sheet Statement of assets, liabilities and capital as at a particular date Comprises of: Fixed assets Current assets Capital Long-term libilities Current liabilities

45. Fixed Assets Assets which are permanent in nature Vital to the operation of the business Generally last longer than 1 year Examples Land Buildings Machinery Motor vehicles

46. Current Assets Assets which are temporary in nature. The amounts change frequently Examples Stock (closing stock) Debtors Bank Cash

47. Capital Total investment by the owner in this business Made up of capital plus net profit (or minus net loss)

48. Long-term Liabilities Debts due by the business Repayable at a date that is more than one year from the date of the balance sheet Example Mortgage Five year loan

49. Balance Sheet Layout Fixed Assets 500 Current Assets 200 Less Current liabilities 100 100 600 Financed by : Capital 100 Add Net Profit 200 300 Long term Liabilities 300 600