Welcome to Basic Accounting (ACC30205) Lecture No. 1 (Part 1)

What is Accounting?

What is Accounting?

Accounting is known as the “Language of Business”.

It is a tool use by businesses to communicate with their stakeholders (e.g. customer, supplier, bankers).

What is Accounting?

Specifically, it is an information system that:– Records the business transactions of a firm (this

is known as bookkeeping); &

– The recorded information are then reported to relevant persons to help them make business decisions.

What is Accounting?

Accounting

Recording transactions

i.e. bookkeeping

Reportingto assist in decision-

making

What is Accounting?

Example: A Hyundai car dealer sold 10 Sonatas (each $150,000) during the month.

The accountant records and reports the transaction (“sold 10 Sonatas – total $1.5 million”) to the branch manager.

The manager decides to order more Sonatas.

What is Accounting?

Bookkeeping or producing financial information involves these steps:

1. SourceDocuments 2. Journals 3. Ledgers

5a. Profit &Loss

4. Trial Balance5. FinancialReports5b. Balance

Sheet5c. Cash Flow

Statement

What is Accounting?

Nowadays, bookkeeping is completely computerised. MYOB, Netsuite and Quickbooks are some of the popular accounting software.

What is Accounting?

Computers allow businesses to handle a large amount of bookkeeping workload quickly.

It is also more accurate (i.e. can check for errors easily) and allow for convenient data storage.

Objectives of Accounting

Objectives of Accounting

Obviously, the primary purpose of accounting is to assist in decision-making.

But do accounting information provided other uses?

Objectives of Accounting

Besides assist in decision-making, accounting is also useful for evaluating business performance.

Example: The Hyundai dealership made $350,000 profit during the month. The owner thinks this is a good result.

Objectives of Accounting

Lastly, accounting is used for discharging accountability.

This means that accounting can be used to ensure that the business, its owners and employees carry out their duties in an honest and responsible manner.

Objectives of Accounting

For example, most accounting systems have built-in security features to detect fraud, money theft, etc.

This will discourage employees from stealing their employer's money.

Users of Accounting Information

Users of Accounting Information

In the business world, many interested parties use the accounting information of a business to make decisions:– Managers– Employees– Creditors (e.g. bank)– Owners/Shareholders– Government

Users of Accounting Information

– Customers

Users of Accounting Information

Managers – Managers are people hired by the owners to help

run their business.

– They use accounting information of the business to make decisions such as:

which product to manufacture to maximize profit. the amount of loan to borrow from lenders. the amount of bonus salary to be given to employees.

Users of Accounting Information

Employees– Employees are workers hired by managers to run

the business

– Employees use accounting information of the business to:

Bargain for salary raises from current employers. Choose future employers who provide better salaries,

fringe benefits, bonus.

Users of Accounting Information

Creditors– Creditors (e.g. banks) provide loans and credit to

businesses.

– Creditors use the accounting information of a business to decide:

Whether to approve loans to the business. Whether to ask the business to repay their loans.

Users of Accounting Information

Owners/Shareholder– They provide capital for start-up and own the

business.

– They use the accounting information of the business to decide:

Whether to invest more capital into the business. Whether to pull out from the business i.e. stop becoming

owners. Instruct the managers on important business decisions.

Users of Accounting Information

Government– The government is in charge of monitoring

the behaviours of a business.

– It uses the accounting information of a business to decide:

Whether businesses are breaking the law and how to punish them.

How much tax revenue to be collected from businesses.

Users of Accounting Information

Customers– They are parties who buy goods and services

from businesses.

– They use the accounting information of a business to decide:

Whether the business’ products are too expensive Whether the business is financially stable to provide

them post-sales services

SummaryWhat is Accounting?Objectives of AccountingUsers of Accounting