Principles of Accounting

Accounting An Introduction
Nguyen Hoang My Phuong menfuong@gmail.com

What is accounting?

Difference between a bookkeeper and an accountant

What is the purpose of bookkeeping and accounting?

Who are the users of accounting information?

Main content

The conflicting interests of users

Branches of Accounting

Accounting and Finance

Accounting as an information system Why do I need to know anything about accounting and finance?

What is accounting?

From the outside, accounting can appear to be a purely practical subject. It would be very easy to focus on just the application of techniques and procedures. BUT accounting is more than just a set of calculations; unless we can understand and interpret the figures we produce, the calculations are pointless!

What is accounting?
Accounting is termed as the analysis, classification and recording of financial transactions, and the ascertainment of how such transactions affect the performance and financial position of a business.
Accounting is therefore concerned with: recording of data classification and summary of data communicating what has been learned from the data

Difference between a bookkeeper and an accountant

Difference between a bookkeeper and an accountant

Bookkeeper Recording the detailed financial activities of a business. The bookkeepings end product, as following certain procedures, becomes the raw material for the production of the final statements of the business. Concerned with techniques involving the recording transactions. Concerned with the use of data for interpretation. Accountant Classifying and summarizing business transactions and interpreting their effects.

What is the purpose of bookkeeping and accounting?

To provide information concerning the financial affairs of a business.

Who are the users of accounting information?

Internal users
Owners Employees

External users

Bank and other financial institutions Potential investors/Prospective buyers The government Customers and suppliers The local community Business competitors Economic analysts Members of general public Future partners

Who are the users of accounting information? - Example

Activity 1.1, page 4

Eddie McLaney and Peter Atrill (2008), Accounting An Introduction,

4th edition, Pearson Education Limited.

The conflicting interests of users

Conflict between user groups is most likely to occur over the way in which the wealth of the business is generated and/or distributed. For example, conflict between the managers and the owners of a business, or lenders and owners.

Branches of Accounting
Cost and management accounting Financial accounting Auditing

Branches of Accounting
Financial accounting
External users Prepared on a periodic basis (most companies publish their financial statements only once a year, in their annual report) Based on past events and historic data

Management Accounting
Internal users Prepared frequently, as and when it is needed (most large businesses will prepare some information on a monthly basis and many use daily accounting information) More likely to contain forward-looking information (such as forecasts and budgets) More likely to incorporate non-financial information (such as quantities of products sold or numbers of customer complaints)

Comprised solely of financial information

Governed by rules and regulation

Not regulated (managers are free to produce whatever information they need in whatever format is most helpful to them, subject to available data and technology)

Branches of Accounting
Auditing: determines whether recorded information is true reflection of the business transactions that took place during an accounting period. Auditing is done in 2 ways internal or external, or both.

Accounting & Finance

Finance, like accounting, exists to help decision markers. It is concerned with the ways in which funds for a business are raised and invested. In essence, a business exists to raise fund from investors (owners and lenders) and then to use those funds to make investments (equipment, premises, inventories and so on) in an attempt to make the business, and its owners, wealthier.

Accounting as an information system

page 11 Eddie McLaney and Peter Atrill (2008), Accounting An Introduction, 4th edition, Pearson Education Limited.

Countries around the world organize their economic and financial activities in different ways so, inevitably, legal requirements, regulation and administrative procedures also vary across countries. However, accounting rules and guidelines around the world are becoming more similar (converging).

Why do I need to know anything about accounting and finance?

What is accounting?

Difference between a bookkeeper and an accountant

What is the purpose of bookkeeping and accounting?

Who are the users of accounting information?

Main content

The conflicting interests of users

Branches of Accounting

Accounting and Finance

Accounting as an information system Why do I need to know anything about accounting and finance?

Reference
Joel J. Lerner, M.S., Ph.D. (2004), Bookkeeping

and Accounting, The McGraw-Hill. Jennifer Ireland (2005), Principles of accounting, London School of Economics and Political Science (LSE) Eddie McLaney and Peter Atrill (2008), Accounting An Introduction, 4th edition, Pearson Education Limited. Cambridge University Press, Unit 1 Basic Principles of Accounting.

Q&A
menfuong@gmail.com