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Accounting Lecture - 1

Financial accounting involves recording, summarizing, and reporting a company's financial transactions to prepare financial statements that reflect its performance and position. It is crucial for decision-making, legal compliance, and attracting investors, with key users including managers, investors, and banks. The main financial statements include the income statement, balance sheet, and cash flow statement, all grounded in the accounting equation: Assets = Liabilities + Equity.

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Abdullah Bah
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14 views3 pages

Accounting Lecture - 1

Financial accounting involves recording, summarizing, and reporting a company's financial transactions to prepare financial statements that reflect its performance and position. It is crucial for decision-making, legal compliance, and attracting investors, with key users including managers, investors, and banks. The main financial statements include the income statement, balance sheet, and cash flow statement, all grounded in the accounting equation: Assets = Liabilities + Equity.

Uploaded by

Abdullah Bah
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Lecture Note (1): Introduction to Financial Accounting

1. What is Financial Accounting?


Financial accounting is the process of recording, summarizing, and reporting a
company’s financial transactions. The goal is to prepare financial statements that show
the financial performance and position of a business.

In Simple Terms:
It helps us track the money coming in and going out of a business and then report it so
that others (like investors or banks) can understand how the business is doing.

2. Why is Financial Accounting Important?


- Helps make decisions: Business owners use it to see profits/losses.
- Keeps records: Every transaction is recorded and saved.
- Required by law: Companies must prepare financial reports.
- Attracts investors: Investors want to see how a business is performing.

3. Users of Financial Information


Internal Users External Users

Managers Investors

Employees Banks

Owners Government

4. Key Financial Statements


1. Income Statement (Profit & Loss): Shows revenues and expenses → Profit or Loss.
2. Balance Sheet (Statement of Financial Position): Shows assets, liabilities, and equity at
a point in time.
3. Cash Flow Statement: Shows how cash flows in and out of the business.

Lecturers: Abdullah Bah & Abdul Majid Abu


5. Basic Accounting Terms
- Asset: Something the business owns (e.g., cash, buildings, equipment)
- Liability: What the business owes (e.g., loans, accounts payable)
- Equity: Owner’s share in the business (e.g., capital)
- Revenue: Money earned from sales or services
- Expense: Cost of running the business

6. The Accounting Equation


Assets = Liabilities + Equity

This is the foundation of financial accounting. Every transaction affects this equation.

7. The Double-Entry System


Every transaction has two sides: a debit and a credit.
Example: If a business buys a car for cash:
- Debit (increase) Vehicle (Asset)
- Credit (decrease) Cash (Asset)

8. Real-Life Example
Imagine a small bakery:
- Sells bread (Revenue)
- Buys flour (Expense)
- Owns ovens (Assets)
- Owes money to a supplier (Liability)
- Owner invested money (Equity)

Every financial activity gets recorded, summarized, and reported using accounting.

Lecturers: Abdullah Bah & Abdul Majid Abu


9. Simple Transactions Practice
Transaction Debit Credit

Owner invests $1,000 in Cash Capital


the business

Buy flour for $200 cash Inventory (Flour) Cash

Sell bread for $300 cash Cash Sales (Revenue)

Pay electricity bill of $50 Electricity Expense Cash

10. Wrap-Up
- Financial accounting is essential for tracking, understanding, and reporting business
activities.
- Think of it like keeping a money diary for the business.
- Learning accounting helps you speak the language of business.

Lecturers: Abdullah Bah & Abdul Majid Abu

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