Lecture 1:

(i) Financial statements and business decisions;

(ii) Investing and financing decisions and the Statement of

Financial Position

2Objectives for Week 1

1. Define accounting, describe the accounting process and define the

diverse roles of accountants

2. Explain the characteristics of the main forms of business organisation

3. Understand the conceptual framework and the purpose of financial

reporting

4. Identify the users of financial reports and describe users’ information

needs

5. Identify the elements of each of the four main financial statements

6. Describe the financial reporting environment

7. Explain the accounting concepts, principles, qualitative characteristics

and constraints underlying financial statements

8. Calculate and interpret ratios for analysing an entity’s profitability,

liquidity and solvency

Introduction

Accounting is often referred to as the ‘language of

business’ as it is a means of common communication

where information flows from one party to others.

Accounting:

Primary Function:

‘The primary function of accounting is to provide reliable and

relevant financial information for decision making’.

Model of economic reality of business

The Accounting Process

Accounting is the process of identifying, measuring,

recording and communicating the economic

transactions and events of a business operation.

Transactions are economic activities relevant to a

particular business

e.g., - sale of item to customer

- purchase of office stationery from supplier

The Accounting process

5

Transactions are the basic inputs into the

accounting process

Identifying

Taking into

consideration all

transactions

which affect

business entity

Measuring

Quantifying in

monetary terms