11/8/2023

Preamble

Introduction to Accounting • Accounting’s history can be traced back thousands of

CPA. Madafu, Elias G.
(BSc. AF, MSc. AF and CPA(T))
years to the cradle of civilisation in Mesopotamia and
is said to have developed alongside writing, counting
and money.
• The early Egyptians and Babylonians created auditing
systems, while the Romans collated detailed financial
information.

Accounting Defined Accounting Defined

• Accounting can be defined as the process of
identifying, measuring, and communicating economic
information to permit informed judgments and
decisions by users of that information.
• Accounting is the process of recording, analyzing and
reporting (in the form of statement of profit or loss
and statement of financial position).

Accounting VS Bookkeeping Objectives of Accounting

Class Task 1 Class Task 2
• What is Bookkeeping? • Identify and briefly explain FIVE (5) objectives of
• How is it differentiated from Accounting (4 Accounting.
Differences)?

1

Financial Statements
• Financial statements are the accounting reports which
are compiled in conformity with the provisions of
GAAP (Generally Accepted Accounting Principles) to
meet the common needs of wide range of users.
• They provide information about the financial strength,
performance and changes in financial position of an
enterprise.
Objective of Financial Statements
• The objective of financial statements is to provide
information about an entity's assets, liabilities, equity,
income and expenses that is useful to financial
statements users in making decisions.
• The information provided from the FSs is also useful
for assessing the prospects for future net cash inflows
to the entity and in assessing management's
stewardship of the entity's resources and sets out the
going concern assumption.
Types of Financial Statements
• There are mainly two types statements, explicitly: the
statement of financial position and the statement(s)
of financial performance (the latter being the former
statement of comprehensive income);
• The rest are "other statements and notes".
11/8/2023
Financial Statements
• Financial statements are written reports created by a
company’s management to summarize the business’s
financial condition over a certain period (quarter, six-
monthly, or yearly).
• Financial statements are a collection of summary-level
reports about an organization's financial performance,
financial position, and cash flows.
Elements of Financial Statements
• Asset. A present economic resource controlled by the
entity as a result of past events. An economic
resource is a right that has the potential to produce
economic benefits.
• Liability. A present obligation of the entity to transfer
an economic resource as a result of past events.
• Equity. The residual interest in the assets of the entity
after deducting all its liabilities.
2
 11/8/2023

Elements of financial statements Equity

• Income. Increases in assets or decreases in liabilities Liabilities
that result in increases in equity, other than those
relating to contributions from holders of equity
claims.
Income
• Expenses. Decreases in assets or increases in liabilities
that result in decreases in equity, other than those
Assets
relating to distributions to holders of equity claims. expenseS

Branches of Accounting Financial Accounting

• Financial accounting is concerned only with the
financial state of affairs and financial results of
operations.
• It is mainly concerned with the preparation of
financial statements which primarily includes
statement of profit or loss and the statement of
financial position.
• These financial statements are used by various
stakeholders such as trade payables, investors and
financial institutions.

Cost Accounting Cost Accounting

• Cost accounting is ―the establishment of budgets, • In cost accounting, cost per unit of output produced
standard costs (benchmark for comparison with or services rendered is ascertained. It helps
actual) and actual costs of operations, processes, management in the control of cost of output or
activities or products; and the analysis of variances, services rendered.
profitability or the social use of funds.
• Cost Accounting is the process of accounting for costs.
It shows classification and analysis of cost on the basis
of functions, process, products etc. It also deals with
cost computation, cost saving, cost reduction etc.

3

Management Accounting
• Management Accounting deals with the processing of
data in financial accounting and cost accounting for
managerial decision making.
• It also deals with the application of managerial
economic concepts for decision making for the
efficient running of the business, thus maximising
profits.
Qualitative characteristics of useful financial
information
11/8/2023
Management Accounting
• In other words, it is accounting for the management.
Management accounting is useful to the management
to provided necessary information for decision making
and creation of suitable policies within the
organisation.
• The aim of management accounting is the efficient
running of the business, and thus, maximising profits.
Users of Financial Information
Class Task 3
• Who are users of financial information? Identify
their interest from the financial statements