INTRODUCTION TO ACCOUNTING Session 01
Session Outline • Definition of Accounting • History of Accounting • Objectives of Accounting • Users of Accounting Information • Book-keeping vs. Accounting • Financial Accounting vs. Management Accounting • Recent Trends in Accounting
DEFINITION OF ACCOUNTING “The process of identifying, measuring and communicating economic information to permit informed judgments and decisions by users of the information.“ American Accounting Association [AAA]-1941
HISTORY OF ACCOUNTING • Initiated around 4000 BC – WHY? – To record business transactions – To evaluate financial success – To know how much is owned and how much is owed • Practiced in Ancient times in Egypt, China, Greece etc. • Use of clay tablets/ tokens to keep track records of live stocks
HISTORY OF ACCOUNTING • Development of the ‘Abacus’ by Chinese (Middle 3000 BC.) • Luca Pacioli- Father of accounting – 1494- Double entry book keeping system
OBJECTIVES OF ACCOUNTING Primary Objective: To provide information for decision making Other Objectives: – To keep systematic records – To ascertain profitability – To ascertain the financial position of a business – To comply with laws and regulations
USERS OF ACCOUNTING INFORMATION
USERS OF ACCOUNTING INFORMATION User Interests Investors Profitability/ Security Management Financial progress and the status Employees Job security/ Pay and benefits Lenders Repayment capacity Government Employment creation/ Tax payable Suppliers Financial health/ Liquidity Customers Business stability Public Local welfare/ Environmental concerns (CSR) Competitors Benchmarking
BOOK KEEPING VS. ACCOUNTING • Book-keeping is the process of recording data relating to accounting transactions in the accounting books. • Accounting is concerned with the uses which accountants might make of the bookkeeping information given to them.
FINANCIAL ACCOUNTING VS. MANAGEMENT ACCOUNTING • Financial Accounting – Preparation of financial statements and presenting historical transactions and events of a certain Accounting entity, to the external parties to enable them to make economic decisions. • Management Accounting - Provision of financial and non-financial information to all levels of management to enable them to act on their responsibility for planning, controlling and decision making.
RECENT TRENDS IN ACCOUNTING Cloud Accounting • Software that runs on servers, enabling people to access data anywhere and anytime, using the internet. Social Media Strategy • Accountants using social networking sites, in order to reach a wider community, maintain business partnerships, and attract potential clients.
RECENT TRENDS IN ACCOUNTING Outsourcing • Hiring an outside party to perform Accounting functions • Gives access to experienced accountants who can provide compliance work according to required standards. Accounting Software • Software that records and processes accounting transactions
Thank You Email il – anjalee@bms.edu.lk
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