Part A
THE CONTEXT AND PURPOSE
OF FINANCIAL REPORTING

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Part A
Chapter 1: Introduction to accounting

Chapter 2: The regulatory framework

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Chapter 1

INTRODUCTION TO
ACCOUNTING


Learning Objectives
1.

The purpose of financial reporting

2.

Types of business entity

3.


– owners have liability limited to the amount
they pay for their shares.
– a limited liability company has a separate
legal identity from its owner.

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Users
Users of accounts
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Managers of the company
Shareholders of the company
Trade contacts
Providers of finance to the
company
Taxation authorities
Employees of the company
Financial analysts and advisors
Government and their

• Cash

Liability
Something owed to
somebody else
• Bank loan
• Amounts owed to
suppliers
• Taxation owed to
government

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The statement of financial position
•

Is a list of assets, liabilities and capital of a business at a given moment.

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Under IAS 1 (revised), the balance sheet is now known as the statement of financial position.

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The statement of financial position

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even if cash changes hands later than this.

Non-financial statements may be required under local legislation.

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The income statement
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Matches revenue earned in a period with the costs incurred in earning it.

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The income statement

Gross profit =
sales – cost of sales

Net profit =
gross profit – expenses
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