Lecture notes

Introduction to the basics of accounting.

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Module
Introduction to accounting (IAC)

Institution
Cardiff University (CF)

This document is a comprehensive, structured guide ideal for anyone preparing to learn or teach the fundamentals of accounting. Designed across four weeks, it introduces essential concepts and practices, building a solid foundation for understanding how financial records are organized and interpret...

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Uploaded on November 4, 2024
Number of pages 8
Written in 2024/2025
Type Lecture notes
Professor(s) Kwok lee
Contains First week to 4th week

it includes examples
covers defenetions
types of accounting
types of business
bodies and
it describes the basics of accounting and formulas
it includes oractice questions
users of economic information

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Week 1: introduction to the basics of accounting

1- definition and purpose of accounting: accounting is about recording , summarising,
and communicating financial information to help users make informed decisions. It acts as
the language of business.

2- users of economic information:
- Managers
- Investors
- Employees
- Lenders
- Customers
- Government agencies

Why do users need economic information?
Many reasons such as decision making, investment, assessing stability, and regulatory
compliance.

3- types of accounting:
- Financial accounting: aimed at external users like: (investors and regulators) why?
To show a company's financial health
- Management accounting: helps internal users (mainly managers or making day to
day decisions )
4- types of businesses:
- Sole traders
- Partnerships
- Private limited companies : information can't be shared to the public< liabilities are
limited to the business.
- Public limited companies : information can be shared to the public, liabilities are
limited to the business

5- regulatory bodies and framework:
Organisations like the financial accounting standards board (FASB) and the international
accounting standards board (IASB), explaining key concepts and the role of of accounting in
many business settings.

Week 2: the accounting equation

1- accounting equation:
assets= liabilities + owners equity
Assets: are what a business owns (cash,equipment etc)
Liabilities: are what a business owes (loans or bills)
Owners equity: is the owners investment in the business after all debts are paid

2- double entry bookkeeping: every transaction affects at least two parts of the equation to
keep it balanced.

, For example:
If you buy a machine, it increases assets (you own a new machine) but decreases cash (you
pay for it)

3- financial statements:
- Statement of financial position (balance sheet): shows the assets, liabilities, equity at
a specific time
- Statement of profit or loss: shows revenue and expenses over a period to reveal
profit or loss.
- Cash flow statement: tracks cash inflows and outflows
- Statement of changes in equity: shows changes in owners equity over time

4- revenues and expenses:
revenue : money earned from from selling goods and services
Expenses costs incurred to make that revenue. Subtracting expenses from revenue gives
you profit.
profit + revenue-expenses
If it is a negative number its a loss if its positive its a profit.

5- transactions:
Examples include:
- Adding cash to start the business increase both assets and owners equity
- Buying a computer on credit increases assets and liabilities

The goal is always to keep the equation balanced showing a clear picture of the business’s
financial health.

Week 3: journal entries (completing the accounting cycle)

The accounting cycle steps:
1. Identify the transactions:
Example: if a business buys the supplies the transaction needs to be documented with a
source like a receipt.
Question: why is it important to record every transaction?
Answer: it keeps financial records accurate and ensures no critical financial activity is
missed.
2. Analyse the transaction:
Decide which accounts are affected and by how much.
Example: buying supplies would decrease cash but increase supplies
Question: what would happen if we didn't analyse the transactions?
Answer: it could lead to errors in accounts, causing inaccurate financial statements.

3. Journal entries:
Record each transaction in the journal. Each transaction is record as both debit and credit.
Example: if we pay 500 in cash for office equipment , we debit (add to) the equipment
account and credit (deduct from) the cash account.

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