Introduction to Accountancy

Introduction to Accountancy

• Accountancy involves recording, classifying, summarizing, and interpreting financial transactions.
• It provides financial information to stakeholders (investors, creditors, managers).
• Key functions include bookkeeping, financial statement preparation, and auditing.
• Accountancy is crucial for business operations, enabling decision-making and financial planning.
• Accurate and reliable accounting practices are essential for informed business decisions.

Fundamental Accounting Principles

• Double-entry bookkeeping: Each transaction affects at least two accounts.
• Matching Principle: Expenses are matched with related revenues in the same period.
• Going Concern Principle: Assumes a business will continue operations indefinitely.
• Consistency Principle: Consistent accounting methods are applied over time.
• Materiality Principle: Only significant amounts require detailed accounting.
• Objectivity Principle: Financial records rely on verifiable evidence.
• Full Disclosure Principle: All relevant financial information is reported.
• Cost Principle: Assets are initially recorded at their original cost.

Accounting Equation

• Assets = Liabilities + Equity
• Assets represent a company's holdings (cash, equipment).
• Liabilities are a company's obligations (loans, accounts payable).
• Equity shows the owners' stake in the company.

Financial Statements

• Income Statement: Summarizes financial performance over a period (month, quarter, year).
• Balance Sheet: Shows a company's financial position at a specific point in time.
• Statement of Cash Flows: Details cash inflows and outflows from operating, investing, and financing activities.

Types of Accounts

• Assets: Resources owned by the business (cash, accounts receivable, buildings).
• Liabilities: Obligations owed by the business (accounts payable, loans payable, salaries payable).
• Equity: Residual interest in entity assets after deducting liabilities.
• Revenues: Increases in equity from selling goods or services.
• Expenses: Decreases in equity from operating costs.

Accounting Standards

• Accounting standards ensure consistent and comparable financial reporting.
• IFRS (International Financial Reporting Standards) are global standards; GAAP (Generally Accepted Accounting Principles) is used in the USA.
• These standards guide financial statement preparation and presentation.

Auditing

• Auditing involves an independent review of financial records for accuracy and reliability.
• Auditors assess compliance with accounting standards and detect errors or fraud.
• Auditors' opinions are critical for stakeholders relying on financial statements.

Accounting Careers

• Accountant roles include public (audit), management (internal reporting), and financial accounting.
• Related careers include financial analysts, investment bankers, and budget analysts.

Importance of Ethics in Accountancy

• Ethical conduct and integrity are vital for public trust in financial reporting.
• Adherence to professional codes ensures accurate and unbiased financial information.
• Ethical considerations include avoiding conflicts of interest and maintaining confidentiality.