Accounting 1a: Module Overview

• Waseela Suleman presents "Accounting - 2025"

Accounting 1a Module Overview

• This module focuses on the core concepts and principles of accounting.
• It provides appropriate accounting frameworks and policies
• Enhances the competence to systematically identify and record monetary values of business transactions.

Learning Unit 1 Main Topics

• Introduction to Business
• Bookkeeping
• Accounting

Learning Unit 1 Focus

• Origin and the role of accounting in the business environment
• Identification of the main users and applications of financial information
• Explanation of how accounting serves as a language of business
• How it is used by different types of entities to improve business efficiency.

Learning Outcomes

• Give a brief overview of the history of account
• Identify the users and uses of accounting information
• Learn the principles of International Financial Reporting Standards (IFRS)
• See visually the accounting cycle
• Difference between Financial and management accounting
• Recognize the different types of transactions during business as usual events

Users of Accounting Information

• Internal users include owners, managers, and employees.
• External users include investors, lenders, suppliers, customers, tax authorities and the public.

Uses of Accounting Information

• Accounting is important and its role is developing data to provide answers to questions, such as:
• How's the financial health of the business?
• Did the business make a profit or loss?
• How did the different departments perform?
• Which activities or products are profitable?
• Which products should be stopped or increased?
• Should components be bought or manufactured?
• Is the production cost reasonable?
• How have existing policies affected profitability?
• What will be the impact of new policies on earnings?
• How should the business plan for the future based on past performance?

GAAP

• Generally Accepted Accounting Principles

IFRS

• International Financial Reporting Standards (IFRS)
• Set of accounting standards from the International Accounting Standards Board (IASB).
• The goal is to provide a global framework for how public companies disclose their financial statements

Terminology

• Difference in accounting terms used in South Africa, with IFRS

Qualitative Characteristics of Financial Statements

• Relevance influences economic decisions of users
• Materiality is when significant
• Understandability through timeliness, information must be accessible to users with reasonable knowledge of business activities
• Faithful Representation ensures completeness and freedom from error
• Verifiability of the information
• Comparability to examine differences and similarities with other financials

Different Business Forms

• Legal Personality
• Starting Procedures
• Obtaining Capital
• Ownership and Management
• Distribution of Profits
• Income Tax

Sole Trader

• The oldest form of business ownership.
• Suited for small businesses, such as a butchery, florist, plumber, electrician, spaza shop or corner café.
• The owner is personally responsible for the business's liabilities.
• Easy to start by choosing a name and getting a license, if needed
• The owner can manage alone or hire staff.
• Capital access depends on the owner's creditworthiness.
• The owner gets all the profits but is taxed on them.

Financial Accounting

• Mandatory for reporting financial statements.
• Summarizes of financial consequences.

Management Accounting

• Reporting is voluntary.
• Focuses on decisions affecting the future.

Importance of Management Accounting

• Management's four essential functions:
  • Planning
  • Organising
  • Leading
  • Controlling

Transactions

• Transactions are exchanges or interactions that take place in a business.

Accounting Cycle

• Financial statements are the end output
• Transactions occur
• Capture the source data
• Analyze the transaction
• Post to a journal
• Post to the general ledger
• Adjustments to accounts
• Prepare a trial balance
• Bank reconciliation is completed

Financial Transactions

• Include cash or valuables contributed by the owner.
• Withdrawals by the owner
• Cash/credit sales receipts
• Credit invoice for services etc
• Supplier payments for merchandise

Source Document

• Paper or electronic records that summarize business financial transactions.
• Receipts from debtors, plus cheque details

Journal

• Used to summarize similar transactions in a table, rather than lots of entries into the bookkeeping system.

Bank Recon

• A monthly process to ensure business records match the bank's transaction records.

General Ledger

• A summary of subsidiary journals with accumulated balances
• The official record book where the final business transactions are recorded.

Trial Balance

• The list of all totals in the general ledger at the end of the month
• Transactions are summarized on source documents, then recorded in journals, then the general ledger and finally the trial balance

Financial Statements - statement of profit or loss

• Statement of financial position has closed off
• Lists all current and future income against expense accounts
• Used to find the elements of financial performance

Financial Statements - statement of financial position

• This discloses the financial position of the business.
• Lists balances with past and current accounts.

Points to note

• Know the difference between debtor and creditor
• Materiality is a component of qualitative characteristics, name two other qualitative characteristics of financial statements from IFRS
• Explain how each stakeholders use financial information, such as lenders, or employees/labour unions
• The steps of the monthly bookkeeping cycle, for example journals summarize source documents