1
Basics of
accounting
dr Wojciech Hasik
Lecture no. 1
Basic Issues
and Key Questions
of Accounting
- an introduction
1
Basics of
accounting
dr Wojciech Hasik
Lecture no. 1
Basic Issues
and Key Questions
of Accounting
- an introduction
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
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
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
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
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
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)
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
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
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
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?
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