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The chapter is all about the introduction to accounting and the conceptual framework.
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2022ACCOUNTING CHAPTER 1:
INTRODUCTION AND
CONCEPTUAL FRAMEWORK
SUMMARY OF NOTES
, 1. ACCOUNTING 1.3.3 FINANCIAL RESULRTS
❖ ACCOUNTING is an information and measurement ❖ FINANCIAL RESULT of an entity is expressed in
system that identifies, records and communicates terms of the financial position and financial
relevant information to people to help them make performance.
better decisions. ❖ FINANCIAL POSITION> It shows the company’s
assets and liabilities at a specific point in time
1.2 BARTERING AND DOUBLE ENTRY SYSTEM (usually at year end) called Statement of Financial
❖ BARTERING> To exchange goods for goods rather Position.
than goods for money. ❖ FINANCIAL PERFORMANCE> It shows the profit and
❖ DOUBLE ENTRY SYSTEM> Is the system whereby loss for a specific period called Statement of Profit
the books of account reflect the fact that there and Loss and other Comprehensive Income for year
must be two entries in the ledger for each the year ended.
transaction: a debit entry and credit entry. ❖ FINANCIAL PERIOD> Is the time period between
❖ The father of DOUBLE ENTRY SYSTEM is LUCA one measurement period (year-end) and another.
PACIOLI (1447-1517), while the system was This will normally be 12 months e.g. from 01
developed between 1200-1350AD. October 2021 to 30 September 2022.
1.3 WHAT IS ACCOUNTING USED FOR? 1.4 DOMIANS OF ACCOUNTING
1.3.1 ❖ TWO domains of accounting namely financial
accounting and management accounting.
❖ IDENTIFY> Determine the nature of transactions. ❖ 1.4.1 FINANCIAL ACCOUNTING
❖ MEASURING> Determine the value of transaction. ❖ FINANCIAL ACCOUTING is the field of accounting
❖ RECORDING> Record transactions in the accounting concerned with the summary, analysis and
records. reporting of financial transactions related to a
❖ REPORTING> Report the financial results. business.
❖ FINANCIAL ACCOUTING comprises the preparation
1.3.2 PURPOSE OF ACCOUNTING
of the formal financial statements for study by
❖ TO PROVIDE FINANCIAL INFORMATION> external users.
Information expressed in monetary terms. ❖ External users are persons or institutions who are
❖ REGARGIN THE ECONOMIC ACTIVITIES> Resources not directly involved with the entity and who desire
used to create value. to study the formal financial statements.
❖ OF AN ENTITY> Independent economic unit.
EXAMPLES OF EXTERNAL USERS:
❖ TO THE USERS OF FINANCIAL STATEMENTS> People
that use this information to make informed ❖ 1. CUSTOMERS> To see if this company can deliver
decision. acceptable goods or services.
❖ 2. EMPLOYEES> Want job security, to see if the
FINANCIAL INFORMATION> Is the information
remuneration is fair and to look for job
expressed in monetary.
opportunities.
ECONOMIC ACTIVITY> Activities where resources are ❖ 3. COMMUNITY> Can the company give donations
employed to create value to help them.
❖ 4. GOVERNMENT/STATE INSTITUITIONS> To see if
ENTITY> Is an independent economic unit. the company is paying all the taxes and levies due.
❖ 5. CREDITORS> Wish to see if the company is able
to repay its debt.
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