BASIC ACCOUNTING TYPES OF INFORMATION PROVIDED BY ACCOUNTING

LEARNING OBJECTIVES 1. QUANTITATIVE INFORMATION

1. Definition of Accounting - Information expressed in numbers, quantities or units
2. Purpose and phases of accounting
3. Elements of financial statements 2. QUALITATIVE INFORMATION
4. Typical account titles used - Balance sheet - Information expressed in words or descriptive form. Quantitative
5. Typical account titles used - Income statement information is found in the notes to financial statements as well as on
the face of the other components of financial statements

ACCOUNTING 3. FINANCIAL INFORMATION

 Is a service activity - Information expressed in money. It is also quantitative
 It function is to provide quantitative information, primarily information because monetary amounts are normally expressed in
financial in nature about economic entities that is intended to be numbers
useful in making economic decisions
 is an information system that measures, processes and
communicates financial information about an economic PURPOSE OF ACCOUNTING
entity  The accounting function is part of broader business system and
 is the process of identifying, measuring and communicating does not operate it in isolation.
economic information to permit informed judgements and  It handles financial operations of the business but also provides
decisions by users of the information information and advice to other departments.
 Business transactions are the economic activities of a business.
 Recording these historical events is a significant function of
ACCOUNTING accounting
 is often referred to as the language of the business, because it is  Accounts are produced to aid management in planning, control and
fundamental to the communication of financial information “ decision- making and to comply with regulations

ACCOUNTING IS SCIENCE AND ART

 As a social science, accounting is a body of knowledge which
has been systematically gathered, classified and organized
 As a practical art, accounting requires the use of creative skills and
judgement
PHASES OF ACCOUNTING OTHER TRADE determine whether amounts owing to them will be
1. RECORDING 2. CLASSIFYING 3. SUMMARIZING 4. INTERPRETING CREDITORS paid when due
This is Means the After each These are the
technically sorting of accounting accountant’s CUSTOMERS Have an interest in information about the
called business period, data interpretation continuance of an enterprise, especially when
bookkeeping. transactions to recorded are on the they have a long-term involvement with or are
their specific summarized Financial dependent on, the enterprise
A systematic and accounts. through statement. GOVERNMENT They are interested in the allocation of resources
chronological financial AND THEIR and therefore, the activities of the enterprises
recording of This is the statements. This is called AGENCIES
business phase where Analysis Report PUBLIC Enterprises affect members of the public in a
transactions, items are sorted These that must be variety of ways.
observing and grouped. Financial submitted
therein the statements together with Financial statements may assist the public by
fundamental Similar items are are: the Financial providing information about the trends and recent
principles of being classified 1) Income reports. developments in the prosperity of the enterprise
accounting.. under the same Statement and the range of its activities.
name. 2) Balance
Sheet
3) Statement
of
Retained
Earnings
4) Statement
of Cash
Flows
FINANCIAL STATEMENTS
 Financial statements are written records that convey the financial
USERS AND THEIR INFORMATION NEED activities of a company.
INVESTORS They need information to help them determine  Financial statements are often audited by government agencies
whether they should buy, hold or sell and accountants to ensure accuracy and for tax, financing, or
investing purposes.
EMPLOYEES They are interested in information about the  The financial statements are used by investors, market analysts,
stability and profitability of their employers and creditors to evaluate a company's financial health and earnings
potential. The three major financial statement reports are the
LENDERS They are interested in information that enables balance sheet, income statement, and statement of cash flows
them to determine whether their loans and the
 (Investopedia).

ELEMENTS OF FINANCIAL STATEMENTS

The elements directly related to the
measurement of financial position in
the balance sheet are ASSETS,
LIABILITIES and EQUITY
ACCOUNTING EQUATION:
Asset = liabilities + equity

ASSETS – is a present economic resource controlled by

the entity as a result of past events.

LIABILITIES – is a present obligation of the entity to transfer an

economic resource as a result of past
events.
EQUITY – is the residual interest in the assets of the
enterprise after deducting all its
liabilities

BALANCE SHEET ELEMENTS OF FINANCIAL STATEMENTS

 The elements directly related to the measurement in the income statement are
INCOME and EXPENSES

INCOME STATEMENTS
 Non-current Assets
TYPICAL ACCOUNT TITLES USED
BALANCE SHEET

ASSETS
Current Assets - – short-term assets, expected to be converted
into cash within 1 year or less

LIABILITIES
Current Liabilities - short-term liabilities, expected to be paid
within 1 year or less
 OWNER’S EQUITY

Non-current Liabilities
TYPICAL ACCOUNT TITLES USED
INCOME STATEMENT
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