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This document provides an introduction to financial accounting and costing. It discusses key topics such as the role of accounting, users of accounting information, the domains of accounting including financial and management accounting. It defines accounting and key terms. It also outlines the characteristics of good financial information and discusses important accounting concepts used in preparing financial statements and reports. The purpose is to provide an overview of the topics that will be covered in the course.

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Lawrence Mosiza
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33 views

Week 1 Acc

This document provides an introduction to financial accounting and costing. It discusses key topics such as the role of accounting, users of accounting information, the domains of accounting including financial and management accounting. It defines accounting and key terms. It also outlines the characteristics of good financial information and discusses important accounting concepts used in preparing financial statements and reports. The purpose is to provide an overview of the topics that will be covered in the course.

Uploaded by

Lawrence Mosiza
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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INTRODUCTION TO

FINANCIAL ACCOUNTING
AND COSTING
LIKANDO LISIMBA
71452335/76919324
[email protected],
[email protected]
Overview of Accounting

The role of Accounting


Users of Accounting Information
Domains of Accounting
Characteristics of good financial information
Definition of Accounting terms
Upon completion of this unit you should be able to:

 Define Accounting and Accounting terms

 Appreciate the difference between bookkeeping and accounting

 State the main purpose of accounting

 Distinguish between financial and management accounting

 Examine the concepts and best practices of business accounting


Overview of the course

 Businesses and individuals need to keep track of how


they spend their finances or monies

 For them to know this, they need to keep a systematic


record of all financial data and actions. (book keeping)

 Over a period of time (usually twelve months) these


businesses or individuals may want to know whether
they are using their funds appropriately or effectively.
 This now calls for a further step of analysis and
summary of the recorded data. The step requires a
systematic processing, analysing, summarising
(and reporting of such information to users) of the
financial records.(Accounting)
What is Accounting?

 It is a systematic process of identifying, recording, measuring,

classifying, verifying, summarizing, interpreting and

communicating financial information.

 “the process of identifying, measuring and communicating

economic information to permit informed judgement and decision

by users of the information”. (American Accounting Association,

1966).
The Nature of Accounting

 Accounting captures only economic


information that can be expressed in
monetary terms.
Users of Accounting Information

There are two categories of users of accounting information. They

are Internal and External users.

Internal users of accounting information include the following:

Management: for analyzing the organization's performance and

position and taking appropriate measures to improve the company

results.

Employees: for assessing company's profitability and its

consequence on their future remuneration and job security.


 Accounting information is presented to
internal users usually in the form of
management accounts, budgets, forecasts
and financial statements.
Users of Accounting Information

External users of accounting information include the following:

 Creditors: for determining the credit worthiness of the


organization. Terms of credit are set according to the assessment
of their customers' financial health. Creditors include suppliers as
well as lenders of finance such as banks.
 Owners/ Shareholders: for analyzing the viability and
profitability of their investment and determining any
future course of action.
 Customers: for assessing the financial position of its
supplier which is necessary for a stable source of
supply in the long term.

 Regulatory Authorities: for ensuring that the


company's disclosure of accounting information is in
accordance with the rules and regulations set in order
to protect the interests of the stakeholders who rely on
such information in forming their decisions
 Tax Authorities: for determining the credibility of the
tax returns filed on behalf of the company
 Potential Investors: for analyzing the
feasibility of investing in the company. Investors
want to make sure they can earn a reasonable
return on their investment before they commit
any financial resources to the company.
Domains of Accounting

1. Financial Accounting – is concerned mainly with


provision of financial/accounting information to external
users
- Is governed by various frameworks and regulatory
instruments.
2. Management Accounting – is concerned with provision
of financial/accounting information to internal users
- No particular rules are followed, the only guiding
factor is the needs of management
 Financial Management
 Financing, Investing and Dividend policy
CHARACTERISTICS OF FINANCIAL INFORMATION

 Understandable to Users-The users must understand


the information, that is, it has to be user-friendly.
 Reliability-Information that is being published by
companies should be reliable, that is, users should be
able to place confidence on that information
 Objectivity-This means that financial reports that are
published or produced by companies should be free of
bias
 Comparability-This means the preparing of
financial information should pay particular attention
to consistency of application of accounting
concepts and policies. This consistency allows
financial information to be comparable over the
years and across companies.
 Timeliness-Users of financial information should
have access to that information within a timescale
that is likely to affect their decisions.
Accounting Concepts

 These are assumptions that are made when


preparing financial information. These concepts are
the rules that govern the preparation and
presentation of financial accounting reports.
 Going concern : the principle assumes that the entity will
continue in operation for the foreseeable future. There is no
intention to put the entity into liquidation.
 Accruals – revenue and costs must be recognized as they are
earned or incurred not as money is received or paid.
 Consistency : the presentation and classification of items
should stay the same from one period to the next. Also, like
items should be treated in a like way.
 Materiality: All material items should be included in the
financial statements. Information is material if its omission
or misstatement could influence the decision of an economic
user.
 Business entity: an entity is a separate legal entity thus the
enterprise is distinct from its owners.
 Prudence : the inclusion of a degree of caution in the
exercise of judgment such that assets or income are not
overstated and liabilities and expenses are not understated.
 Money measurement: accounts deal with items to which
monetary value can be attributed.
 Historical cost : transactions are recorded at the cost when
they are incurred or occurred.
 Duality ; every transaction has two effects.
 Time interval concept: financial statements are produced
within a specified time interval that enable users to make
relevant economic decisions usually a year.
 Matching : requires that revenue and related expenses be
recorded in the same accounting period.
Thanks.

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