| •The transactions are recorded in “books | | | | business as at a particular date. It shows the |
| of prime entry” | | | | financial position of the business at a particular |
| •The transactions are than analyzed and | | | | moment. |
| posted to the ledger | | | | A profit and loss account – is a record of |
| •Finally the transactions are summarized in the | | | | income generated and expenditure incurred over |
| financial statements | | | | a given period. |
| The need of Accounts | | | | The period chosen will depend on the purpose for |
| If business runs efficiently, why it have to go | | | | which the statement is produced, that time called |
| through all the bother of accounting procedures in | | | | finance year. |
| order to produce financial information? | | | | Management or cost accounting is a management |
| A business should produce information about its | | | | information system which analysis data to provide |
| activities because there are various groups of | | | | information as a basis for managerial action. The |
| people who want or need to know that | | | | concern of a management accountant is to |
| information. This sounds rather vague, to make it | | | | present accounting information in the form most |
| clearer, we should look more closely at the | | | | helpful to management. |
| classes of people who might need information | | | | Financial Accounting |
| about a business. We need also to think about | | | | Financial accounting is mainly a method of |
| what information in particular is of interest to the | | | | reporting the results and financial position of a |
| members of each class. | | | | business. It is not primarily concerned with |
| Users if financial statements and accounting | | | | providing information towards the more efficient |
| information | | | | conduct of a business. |
| The people who might be interested in financial | | | | This is particularly clear in the context of the |
| information about a large public company may be | | | | published accounts of limited companies. |
| classified as follows, | | | | Accounting standards and public law prescribe that |
| •Managers of the company. | | | | a company should produce accounts to be |
| •Shareholders of company. | | | | presented to the shareholders. |
| •Trade contacts. | | | | Financial Management |
| •Providers of finance to the company. | | | | The financial manager is responsible for raising |
| •The Inland Revenue. | | | | finance and controlling financial resources. Including |
| •Employees of the company. | | | | the following decisions |
| •Financial analysts and advisers. | | | | (a)Should the firm borrow from a bank or raise |
| •Government and their agencies. | | | | funds by issuing shares? |
| •The public. | | | | (b)How much should be paid as a dividend? |
| Accounting information is organized into financial | | | | (c)Should the firm spend money on new |
| statements to satisfy the information needs of | | | | machinery? |
| these different groups, | | | | (d)How much credit should be given to |
| Non commercial undertakings | | | | customers? |
| It is not only businesses that need to prepare | | | | (e)How much discount should be given to |
| accounts, Charities and Clubs also prepare financial | | | | customers who pay early? |
| statements every year. Accounts also need to be | | | | Auditing |
| prepared for public sector organization. | | | | The annual accounts of a company must |
| The Main Financial Statements | | | | generally be audited by a person independent of a |
| Transactions are summarized in the financial | | | | company. In practice, this often means that the |
| statements. The two main financial statements | | | | members of the company appoint a firm of |
| are the Balance sheet and the Profit and loss | | | | registered auditors to investigate the financial |
| account. Both of the balance sheet and the profit | | | | statements and report as to whether or not they |
| and loss account are summaries of accumulated | | | | show a true and fair view of the company’s |
| data. | | | | results for the year and its financial position at the |
| The balance sheet – is simply a list of all the | | | | end of the year. |
| assets owned and all the liabilities owned by a | | | | |