BA L1 Basic issues in Accounting v2

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1

Basics of

accounting

dr Wojciech Hasik

Lecture no. 1

Basic Issues

and Key Questions

of Accounting

- an introduction

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2

Objectives for today

Organizational issues

What is „accounting”?

Purpose and users of financial reporting

Balance sheet equation (BSE) and valuation

Organizational issues

Contact:

e-mail: wojciech.hasik@ue.wroc.pl

office hours - to be declared

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3

Organizational issues

General course schedule – to be delivered

Class materials accessible (directly
delivered) or provided for classes:

Slides for lecture

Readings for lectures (materials or
links)

Cases (for self practicing and for in-
class activities)

Objectives for today

Organizational issues

What is „accounting”?

Purpose and users of financial reporting

Balance sheet equation (BSE) and valuation

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4

What is „accounting”?

the oldest way/ system of economic record keeping

the independent branch of science within Economics

the informational system (in an economic unit/entity)

the set of logically organized, following one another
activities

the process of data transformation into financial
information

the international language of business

What is „accounting”?

Economic data recording

Statistics

Accounting

Operational data

recording

Bookkeeping

Financial reporting

Cost accounting

Financial analysis

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5

The micro-level perception of
accounting

Accounting is a the nervous system of an

business entity.

Accounting as an information system

Accounting

- the information system

E
N
T
R
Y

E
X

I

T

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6

Accounting as an information system

Accounting

E
N
T
R
Y

MEASU-

RING

DOCUMEN

-TING

B O O K K E E P I N G

RECOR-

DING

COST

ACCOUNT.

INVEN-

TORYING

FINANCIAL

REPORTING

FINANCIAL

ANALYSIS

E
X

I

T

IDENTI-

FYING

The purpose of financial accounting

REPORTS:

Management reports

Financial reports

Tax declarations

Others

Accounting

- the information

system

E
N
T
R
Y

E
X

I

T

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7

Branches of Accounting

Management accounting

Financial accounting

Tax accounting (in some
countries included in financial
accounting

)

Legal regulations of accounting

Act on accounting (domestic)

Ministry of Finance regulations (executive
regulations)

Intenational Financial Reporting Standards
(obligatory for some entities in European
Union)

US GAAP (obligatory for companies quoted
in capital markets in USA)

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8

Objectives for today

Organizational issues

What is „accounting”?

Purpose and users of financial

reporting

Balance sheet equation (BSE) and valuation

Users: Does anyone care?

Ambivalence of accounting:

To whom should we report?

Owners

Creditors

Others

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9

Users: What do they expect from
business?

Owners:

– what are the benefits that we have already gained?

– what is the potential of benefits achieving in the future?

Creditors:

– what is the risk of losing money?

– what is the absolutely secure level of profit to be

distributed?

Objectives for today

Organizational issues

Role of accounting

Balance sheet equation (BSE)

and valuation

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10

Accounting – let’s begin!

PLN 200k

PLN 500k

PLN 300k

Accounting – let’s begin!

ASSETS = FINANCING SOURCES

(lattin: passiva)

ASSETS =

OWNERS’ EQUITY

+ LIABILITIES

PLN 200k

PLN 500k

PLN 300k

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11

Fundamental accounting equation
(balance sheet equation)

ASSETS = CAPITAL

ASSETS = EQUITY + LIABILITIES

Balance sheet equation

=

ASSETS - LIABILITIES

EQUITY

EQUITY

(NET

(NET ASSETS

ASSETS))

What goal of accounting is suggested by this form of
Balance Sheet Equation?

How equity will be affected by the change of assets
and liabilities valuation?

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12

ASSETS

I. Non-current assets

1. Intangible assets, of which:

2. Tangible fixed assets

3. Long term debtors

4. Long term investments

5. Long term prepayments

II. Current assets

1. Inventories

2. Short term debtors

3. Short term investments

4. Short term prepayments

Total assets

EQUITY AND LIABILITIES

I. Equity

II. Liabilities and provisions for

liabilities

1. Provisions for liabilities

2. Long term liabilities

3. Short term liabilities

4. Accruals and deferred income

Total equity and liabilities


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