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Introduction to accounting records and accounts
Published on May 29, 2017 15 min
Other Talks in the Series: Accounting Records and Accounts
Welcome to this series of lectures which will introduce you to accounting records and accounting in business. These sessions are designed for non-accounting students undertaking business and commerce courses and assumes no prior knowledge of accounting. To help bring the subject to life, we shall follow the journey of a friend of mine, Sean, who starts his business operating a Festival Lemonade Stand which then grows to a chain of shops. We shall see how Sean's accounting records need to change as his business develops and faces new challenges which will require more advanced methods of accounting.
So before we start Sean's journey, let's begin with a session that covers the definition of accounting and a look at some key terminology and concepts upon which accounting records are based.
Accounting is the collecting, analyzing, and communicating of financial information to allow the users to make informed decisions. It's not just about preparing regular financial or accounting records, although that is admittedly a key role of an accountant, what the readers of the accounts do with this information is equally important. If the accounting reports don't assist in decision-making, then there is little point in preparing them. So an accountant must ensure that the methods used to identify, measure, and communicate economic information are useful.
Users of financial information may be restricted to one or two individuals in the case of a small owner-managed business, or extensive and varied in the case of a larger company. The accountant needs to be aware of who will be using the accounting information they're preparing and what the needs of these users are. The users are normally grouped into the following categories and each will have their own particular information requirements. The owners and managers of the business may be the same for a small business or different for larger companies with shareholders, the potential investors and the analysts will be interested in the potential return on their investment, whilst lenders will want to ensure the money they have lent the business will be repaid with interest. Suppliers and customers will be concerned about trading terms with the business, whilst competitors, employees, the government, and community representatives will each have information requirements to meet their own interests. The needs for more detailed accounting information normally expand in line with the size of the business, so it's worth now commenting briefly on the typical types of business and their characteristics.