INTRODUCTION TO FINANCIAL ACCOUNTING Lesson Note
Learning Objectives
This SS1 ACCOUNTING lesson note covers INTRODUCTION TO FINANCIAL ACCOUNTING for First Term, Week 1.
Lesson Note
Learning Objectives
At the end of the lesson, students should be able to:
Define bookkeeping.
Explain the meaning of financial accounting.
State the differences between bookkeeping and financial accounting.
Explain the importance of accounting.
Identify the role of accounting in a business.
A. Meaning of Bookkeeping
Bookkeeping is the systematic recording of the financial transactions of a business in the appropriate books of account.
In simple terms, bookkeeping means recording the money received, money spent, goods bought, goods sold, and other financial transactions of a business.
Examples of transactions recorded in bookkeeping:
Buying goods for resale
Selling goods
Paying workers’ salaries
Paying rent
Receiving money from customers
Paying money to suppliers
B. Meaning of Financial Accounting
Financial accounting is the process of recording, classifying, summarising, analysing and reporting the financial activities of a business.
It involves preparing financial statements that show the financial performance and financial position of a business.
Examples of financial accounting records include:
Trading Account
Profit and Loss Account
Statement of Financial Position
C. Differences Between Bookkeeping and Financial Accounting
Bookkeeping is mainly concerned with recording transactions, while financial accounting involves recording, classifying, summarising and reporting transactions.
Bookkeeping is the first stage of accounting, while financial accounting uses the information provided by bookkeeping.
Bookkeeping focuses mainly on financial records, while financial accounting uses those records to prepare financial statements.
Bookkeeping helps to keep proper records of transactions, while financial accounting helps users understand the financial performance and position of a business.
Bookkeeping does not normally involve the preparation of final accounts, while financial accounting involves preparing financial statements.
Bookkeeping is mainly concerned with recording, while financial accounting goes beyond recording to reporting and interpretation.
D. Importance of Accounting
Accounting is important to a business for the following reasons:
1. It keeps proper records
Accounting helps a business keep accurate records of its financial transactions.
2. It helps to determine profit or loss
Accounting helps the owner know whether the business is making a profit or suffering a loss.
3. It shows the financial position of a business
Accounting helps to show what the business owns and what it owes.
4. It helps in decision-making
Business owners and managers use accounting information to make good business decisions.
5. It helps to prevent fraud
Proper accounting records can help to detect errors and dishonest activities.
6. It helps with planning
Accounting information helps a business plan its future activities and expenses.
7. It helps in obtaining loans
Banks and other financial institutions may require accounting records before granting loans to a business.
8. It helps to determine the amount of tax payable
Accounting records can be used to calculate the taxable income of a business.
9. It helps to compare business performance
A business can use accounting records to compare its performance from one period to another.
10. It provides information to interested persons
Owners, managers, investors, creditors and government agencies can use accounting information for different purposes.
Evaluation
OBJECTIVE QUESTIONS
The systematic recording of business transactions is known as A. Marketing B. Bookkeeping C. Banking D. Auditing
Financial accounting involves the recording, classifying, summarising and ______ of financial information. A. hiding B. reporting C. destroying D. borrowing
Which of the following is mainly concerned with recording transactions? A. Bookkeeping B. Advertising C. Production D. Selling
One major purpose of accounting is to determine the ______ of a business. A. colour B. location C. profit or loss D. size of the building
Which of the following is an example of a business transaction? A. Sleeping B. Buying goods for resale C. Playing football D. Watching television
Accounting helps a business to make good ______. A. decisions B. jokes C. clothes D. songs
Which of the following may use accounting information? A. Business owners B. Musicians only C. Athletes only D. Tourists only
Financial accounting involves the preparation of ______. A. financial statements B. school uniforms C. advertisements only D. timetables
Proper accounting records can help to detect ______. A. fraud and errors B. weather changes C. sporting activities D. traffic
Accounting records can help a business determine the amount of ______ it should pay. A. salary B. tax C. food D. transport
Theory Questions
1a) What is bookkeeping?
1b) State four differences between bookkeeping and financial accounting.
2a) Define financial accounting.
2b) State five importance of accounting.
2c) Mention four examples of transactions recorded through bookkeeping.