1 Introduction to Accounting
I. What is accounting?
? Accounting mainly concerns financial data. It includes 4 phases:
? Recording of transactions (or financial data)
? Classification of the records
? Analysis of the records
? Interpretation of the records
II. Users of Accounting Information
? Owner of a business needs accounting information for reasons such as:
? He wants to see whether the business is profitable.
? If he wants to borrow money from a bank, he needs to show the accounting information of the
? When he wants to sell the business or have someone else to join his company, he needs to let hat
person examine the accounting information of the business.
? Other people may need the information of a business. They include:
Lenders (e.g. bank) Tax inspectors
Potential buyers Employees
III. What is book-keeping ?
The data recording phase of the accounting is called “Book-keeping”
A book-keeper’s work includes: 1. Within the accounting period
? Collecting data & keeping documents
? Entering the data into day books
? Posting the data from day books to ledger accounts ? Prepare bank reconciliation statements
? Prepare control accounts
2. At the end of the accounting period
? Balancing off all ledger accounts
? Prepare a trail balance
? Making corrections & setting up a suspense account ? Making year end adjustments
? Preparing a second trial balance
? Preparing a trading, profit and loss account to find the net profit / loss. ? Preparing a balance sheet to list out all the asset, capital, and liability account balances.