Session Objectives

Understand the definition of accounting

Topic 1
Identify the different types of business entity

Identify the users of accounting information and their
Introduction to Accounting needs

Describe different types of accounting

Describe the purpose of financial reporting

Identify the main financial statements

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“Accounting is the act of recording and reporting

financial transactions, including the origination of
the transaction, its recognition, processing, and
Recording of Elements of
summarization in the financial statements....” Summarising
Transaction Accounting Transactions

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 The accounting
Basic Functions of an process

Accounting System
 Interpret and Accounting “links”
record  Classify decision makers
business similar
with economic
transactions transactions Economic
into useful Activities
activities and with Accounting
 Summarize information
reports the results of their
and decisions.
communicate
information to
decision makers

Decision makers

© SmartClasses.com 2007 Student Notes for ACCA F3-Financial Accounting © SmartClasses.com 2007 Student Notes for ACCA F3-Financial Accounting

Financial Accounting
Accounting

The classification and recording of

monetary transactions of an entity in
accordance with established concepts,
principles, accounting standards and
Financial Management preparation of the final accounts
Accounting Accounting

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 Financial Accounting Management Accounting

Much of the information is financial
Application of principles of accounting

Maintain ledger systems of accounting and financial management to create,
records protect, increase value so as to deliver

Financial accounts are a source of that value to the stakeholder
management information but are
insufficient for the management

© SmartClasses.com 2007 Student Notes for ACCA F3-Financial Accounting © SmartClasses.com 2007 Student Notes for ACCA F3-Financial Accounting

Management Accounting Management Accountant vs.

Financial Accountant
Basis Management Accountant Financial Accountant

This involves participation of
management to ensure proper: Information User Internal Use External Use

Purpose Aid planning, controlling, Record financial

decision-making performance in a
 Strategic planning specific period
 Budgeting / Profit planning Legal requirements None Limited companies
must produce financial
 Financial management statements
 Financial control Formats Depends on the Prescribed
 Audit management
Nature Financial and non-financial Mostly financial

Time period Historical and forward- Historical

looking

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 Financial Information
System
Types of Business Entities
Cost & Revenue
Determination

Sole Trader Job costing
Process costing

Owned and managed by a single person
ABC

Owner fully and personally liable for all business Sales
losses
Assets & Liabilities

Partnership

Owned jointly by a number of partners
Plant and

Partners jointly and severally liable for any losses
made by business equipment
Loans & equity

Limited Liability Company Receivables,

Owned by shareholders payables & cash

Directors run the business Cash Flows

Liability limited to shares owned
From operations
From financing
From investing

© SmartClasses.com 2007 Student Notes for ACCA F3-Financial Accounting © SmartClasses.com 2007 Student Notes for ACCA F3-Financial Accounting

Financial Information Financial Information

System System
Cost & Revenue Cost & Revenue
Determination Determination
Information Job costing Information Job costing Decision
Process costing Process costing
Users Users Support
ABC ABC
Investors Sales Investors Sales
Creditors Assets & Liabilities
Creditors Assets & Liabilities
CVP analysis
Managers Managers Performance
Owners Owners evaluation
Plant and Plant and
Customers Customers Incremental
equipment equipment
Employees Loans & equity
Employees Loans & equity
analysis
Regulatory Receivables, Regulatory Receivables, Budgeting
agencies payables & cash agencies payables & cash Capital
Public Cash Flows Public Cash Flows allocation
Competitors Competitors Earnings per
From operations From operations
Government From financing
Government From financing
share
Suppliers From investing Suppliers From investing Ratio analysis

© SmartClasses.com 2007 Student Notes for ACCA F3-Financial Accounting © SmartClasses.com 2007 Student Notes for ACCA F3-Financial Accounting
 Objectives of External Objectives of Financial
Financial Reporting Reporting
Information about economic resources,
The primary external users of financial information are claims to resources, and changes in
investors and creditors. resources and claims.

Cash Flow Prospects

Information useful in assessing amount,
Investors Creditors
timing and uncertainty of future cash flows.
Return on
Investm ent Periodic dividends Periodic interest
Return of Sale of ow nership at Repaym ent of loan
Investm ent a future date at a future date Information useful in making
investment and credit decisions.

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Objectives of External Internal Users of Accounting

Financial Reporting Information
Balance Sheet

Income Statement  Board of Directors

The primary  Chief Executive Officer
Statement of Cash Flows  Chief Financial Officer
financial  Vice Presidents
statements.  Business Unit Managers
 Plant Managers
 Store Managers
 Line Supervisors

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 Objectives of Managerial
Reporting
Information about decision-making
authority, for decision-making support,
and for evaluating and rewarding
decision-making performance.

Information useful in assessing

both the past performance and future
directions of the enterprise and information
from external and internal sources.

Information useful to help the

enterprise achieve
its goal, objectives and mission.

© SmartClasses.com 2007 Student Notes for ACCA F3-Financial Accounting