ACC 30105 Lecture 1 Understanding Accounting Equation...

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ACC 30105 Lecture 1 Understanding Accounting Equation Concept
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Learning Objectives After studying this chapter, you should be able to: Explain the nature of accounting and its main function Identify the users of accounting information Understand the role of accounting in decision making Understand the differences between accounting for management and accounting for external users Understand the importance of ethics in business Understand the different areas of the economy in which accountants work
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What is Accounting? A service activity To provide and interpret financial information which are useful for making economic decisions
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Definition of Accounting The process of identifying, measuring, recording & communicating economic information to allow informed judgments and economic decisions by users of the information.
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Definition of Accounting (Con’t) Identifying Observe which events are economic activities relevant to business Such events are known as “Transactions” External and Internal transactions External – One entity and another entity Internal – Entirely within one entity
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Definition of Accounting (Con’t) Measuring Expressed in common measurement So that effects of transactions can be combined Money – measure of value
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Definition of Accounting (Con’t) Recording Provides history of transactions Maintain files of all transactions Classified – place into meaningful groups Summarize – reports and financial statements
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Definition of Accounting (Con’t) Communicate Prepare and distribute accounting reports to users of information Then they are able to analyze and interpret
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Role of Accounting in Business People make decisions Business Transactions happen Accountants prepare reports to show the results of business operations
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Types of Business Entities Sole Traders Partnerships Companies
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Sole Traders Owned by one person Owners supply cash / assets to business Owners entitled to all profits Owner legally liable for debts Not separate legal entity But is a separate accounting entity
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Partnership A relationship between two or more people, carrying on a business with the view to profit Three main criteria: Must have agreement (oral or written) between two or more legally competent persons or entities to carry on a business A view to earn profit Members must be co-owners of business
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Partnership Partners supply resources and share profits Not separate legal entity Individual partners are personally liable Is a separate accounting entity
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Characteristics of Partnership Mutual Agency – partner act as an agent for
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