02/06/2025 1

ACC 101
INTRODUCTION TO FINANCIAL REPORTING I

COURSE OUTLINE
 02/06/2025 2

COURSE DESCRIPTION – 1/2

• Designed to equip students with the basic principles

and concepts underpinning financial accounting.

• Exposes students to:

• The conceptual and regulatory framework of accounting

• Accounting equation

• Accounting cycle

• Procedures for recording business transactions

• Mechanics of reporting financial information viz financial

statements
 02/06/2025 3

COURSE DESCRIPTION – 2/2

• Equips students with the skills of preparing final

accounts for sole proprietorship after making the

necessary corrections.

• Exposes students to the application of relevant

accounting standards relating to the preparation and

presentation of financial statements.
 02/06/2025 4

COURSE OBJECTIVES – 1/2

• Define accounting and explain the purpose of accounting

information
• Describe the conceptual and regulatory framework of

accounting
• Apply the principles of double entry in recording business

transactions
• Apply the relevant accounting standards in preparing and

reporting financial information

 02/06/2025 5

COURSE OBJECTIVES – 2/2

• Locate and correct errors in the books of

accounts
• Prepare bank reconciliation statements

• Prepare basic financial statements for small and

medium-sized enterprises (SMEs)

• Make end of period adjustments to final accounts
02/06/2025 6

COURSE CONTENTS
02/06/2025 7

NATURE, FUNCTION AND REGULATORY FRAMEWORK OF

ACCOUNTING

TOPIC 1
 02/06/2025 8

TOPIC 1: CONTENTS
• Meaning, definition, evolution & function of accounting

• The IASB & the regulatory framework of accounting

• The Conceptual framework for financial reporting

• Ethical and Professional Issues

• Accounting concepts and conventions

• Accounting standards – IFRS and IFRS for SMEs

• IFRS 1 – First-time adoption of IFRS

• IAS 1 – Presentation of financial statements

02/06/2025 9

THE THEORY OF DOUBLE ENTRY PRINCIPLE OF ACCOUNTING

TOPIC 2
 02/06/2025 10

TOPIC 2: CONTENTS
• Source documents and books of original entry

• The cash book

• The imprest system and the petty cash book

• The accounting equation and effects of transactions on

the statement of financial position

• The double entry principle for assets, liabilities, capital,

revenues and expenses including VAT and NHIL issues

• The ledger, balancing of accounts and extraction of trial

balance
02/06/2025 11

CORRECTION OF ERRORS AND THE SUSPENSE ACCOUNT

TOPIC 3
 02/06/2025 12

TOPIC 3: CONTENTS
• Meaning and Location of Errors

• Correction of errors not affecting the agreement of the

trial balance
• Correction of errors affecting the agreement of the trial

balance
• The use of suspense account

• Effects of errors on the reported profit and the

statement of financial position

02/06/2025 13

BANK RECONCILIATION STATEMENTS

TOPIC 4
 02/06/2025 14

TOPIC 4: CONTENTS
• Meaning and purpose of bank reconciliation statement

• Causes of discrepancies between cash book and bank

statement balance
• Adjusting the cash book

• Preparation of bank reconciliation statement with the

aid of an adjusted cash book

• Preparation of bank reconciliation statement without

using an adjusted cash book

• Correction of net profit
02/06/2025 15

ACCOUNTING FOR NON-CURRENT ASSETS AND DEPRECIATION

TOPIC 5
 02/06/2025 16

TOPIC 5: CONTENTS
• Distinction between revenue and capital expenditure

• The nature and types of non-current assets including

documentations for non-current assets

• Accounting standards relating to non-current assets:

IAS 16, IAS 20, IAS 40, IAS 36, IAS 23

• Meaning and causes of depreciation

• Methods of charging for deprecation

• Ledger entries for depreciation

• Disposal of non-current assets

02/06/2025 17

PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS

OF SOLE PROPRIETORSHIP BUSINESS

TOPIC 6
 02/06/2025 18

TOPIC 6: CONTENTS
• Preparation of trial balance and the extended trial

balance
• Accounting standards relating to preparation and

presentation of FS: IAS 1, IAS 2, IAS 8, IAS 10, IAS 18,

IAS 37
• Statement of profit or loss and other comprehensive

income
• Statement of financial position
02/06/2025 19

ADJUSTMENTS TO FINAL ACCOUNTS

TOPIC 7
 02/06/2025 20

TOPIC 7: CONTENTS
• Accrued Expenses and Unearned Income

• Prepaid Expenses and Accrued Income

• Bad Debts and Provision for Doubtful Debts

• Discount Allowed and Provision for Discounts on

Account Receivable
• IAS 2 and valuation of Inventory
 02/06/2025 21

COURSE TEXTBOOK
• Marfo-Yiadom, E., Asante, S. & Tackie, G. (2020).

Financial accounting and reporting: An introduction.

Revised Edition. Accra: Kwadwoan Publishing.

• Cost: GHC80

• NB: To be used for both first and second semesters

 02/06/2025 22

OTHER MATERIALS
• International Financial Reporting Standards (IFRS)

• Full IFRS

• IFRS for SMEs

• Companies Act, Act 992, 2019

• Incorporated Private Partnership Act, Act 152, 1962

• www.iasplus.com

• www.ifrs.org
 02/06/2025 23

COURSE ASSESSMENT
• Continuous Assessment…………….40%

• Class attendance 5%
• Class participation 5%
• Quizzes 5%
• Assignments 5%
• Mid-semester exams 20%

• End of Semester examination………60%

• Total…………………………………….100%
02/06/2025 24

GRADING SYSTEM
 02/06/2025 25

COURSE POLICIES – 1/4

• Attendance and lateness to lecture

• Attendance to lectures and tutorials is compulsory

• Lateness shall not be tolerated - At least 5 minutes before

lectures

• Class participation

• Active participation is strongly encouraged

• Students are free to ask relevant questions

• Marks will be awarded for active class participation

 02/06/2025 26

COURSE POLICIES – 2/4

• Missed quizzes, tests, and assignments

• Zero mark is award for:

• missed quizzes and tests

• assignments not submitted on time

• unless due permission is sought in advance

• No retrospective permissions will not be granted

 02/06/2025 27

COURSE POLICIES – 3/4

• Dress code

• Dress smartly and appropriately

• Appropriate student dress is an integral part of professional

development.

• Students are required to dress like professional

executives once every month; the first lecture of each

month.
• Professional executive outfits to be won during end-

of-semester examinations.
02/06/2025 28

Dress Code
 02/06/2025 29

COURSE POLICIES – 4/4

• Academic dishonesty

• Cheating and plagiarism will be severely penalized

• Plagiarism involves copying someone’s work and presenting

it as if they were your original work.

• Students are advised to learn from each other but not to copy

colleague’s assignments and present them.

02/06/2025 30

WISH YOU ALL THE BEST!

02/06/2025 31

ACC101
INTRODUCTION TO FINANCIAL REPORTING I
 A Word

• “Accounting is the only profession

practiced on earth and in heaven”

• “You have to account for all your actions

on earth and account for same in heaven”
• – Double entry
 Balance Sheet of Life

• Birth – Opening Stock

• What comes to you – Credit
• What goes from you – Debit
• Your ideas – Assets
• Your bad habits – Liabilities
….GOD
• Your character – Capital
IS YOUR
• Your happiness – Profit AUDITOR
• Youxzr sorrow – Loss
• Your knowledge – Investment
• Your age – Depreciation
• Death – Closing Stock
Chapter One:

Nature, Scope and Functions of

Accounting
 Introduction
• Accountability of scarce resources is a natural
phenomenon

• Owners of entities expect their management to provide

accountability of their stewardship

• Accountability can mainly be achieved when:

• There’s proper book keeping system; and
• There’s a clear and transparent financial reporting system
 Chapter Outlines/Objectives
• Definition and Meaning of Accounting
• Evolution of Accounting
• Distinction b/n Accounting and Book Keeping
• Purpose of Accounting
• Function/Uses of Accounting Information
• Limitations of Accounting Information
• Branches of Accounting
• The Accounting Process
• Users of Accounting Information
• Careers in Accounting
 Meaning & Definition - 1/4

• Systematic process of
• recording business transactions and
• reporting financial information
(Marfo-Yiadom et. al., 2015)

• Recording, classifying, summarizing and reporting fin info

• Provision of relevant information of a financial nature for

decision making
 Meaning & Definition - 2/4
• Accounting is defined as …“the art of recording, classifying
and summarizing in a significant manner and in terms of
money, transactions and events, which are in part, at least
of financial characteristics and interpreting the results
thereof” AICPA (1961)

• Accounting is defined as the art of collecting, analysing,

recording, summarising, presenting and interpreting financial
and operating data expressed in terms of money for use by
management of economic entities and interested parties in
making decisions.
 Meaning & Definition 3/4
• The provision of information about the financial
performance and financial position of a business
entity useful to a wide range of users for
assessing the stewardship of management and for
making economic decisions

• Accounting aims to assess the impact of an

organization or company on people both inside
and outside.
 Meaning & Definition 4/4
• Key issues in accounting definition:

• Collecting and recording data that is financial in nature

• Processing of the selected financial data

• Producing output/results that are communicated to

interested parties

• Aiding economic decision making

• Accounting does not tell all about a business organization

 Evolution of Accounting - 1/3
• Accounting existed as early as 8500 BC

• Clay tokens and wet clay tablets were used to keep records of
commodities.
• Been around in one form or the other since civilization

• Account-keeping methods advanced during the thirteenth to

fifteenth centuries in places like Florence, Egypt, Mesopotamia,
Venice, Rome, China and Genoa.

• Double entry bookkeeping was introduced in 1340 AD in Genoa

 Evolution of Accounting - 2/3
• In 1494, Luca Pacioli wrote on a branch known as double entry
in his book, summa de arithmetica, geometria, proportioni et
proportionalita. (Everything about arithmetic, Geometry and
Proportion)

• Fra Luca Pacioli is considered the father of accounting

• He formulated the first systematic record keeping in 1949

• He introduced three books of accounts which are

1. The memorandum
2. The journal
3. The ledger
 Evolution of Accounting - 3/3
• Expansion in business and changes in mode of financing due to
the industrial revolution changed the way of accounting.
• Accounting has evolved with the outburst of information
technology.

• Currently a number of accounting software are employed

• Tally Accounting
• SAGE
• QuickBooks
• Peach Accounting
 Purpose of Accounting

• Provide quantitative information expressed

in monetary terms to a wide range of users
to make economic decisions
 Functions/Uses of Accounting
• Provides decision useful information - to management and
owners
• Provides analysed and summarised information on
business activities
• Facilitates the allocation of scarce resources

• Meets regulatory/legal requirements

• Acts as a control mechanism of business activities

• Provides accountability of business activities to owners
• Provides information on persons or objects of an entity
• Used to plan for future operations
 Limitations of Accounting Information
• Ignores non-monetary information

• Conflict among qualitative characteristics

• Measurement unit unstable

• Contradictions among some underlying concepts’

• Subject to human error

• Accounting reports past or historical data which

may not be relevant for future decision making
 Branches of Accounting
• 3 main branches:
• Financial Accounting
• Management Accounting
• Cost Accounting

• Other specialised areas:

• Auditing
• Taxation
• Public sector accounting (governmental accounting)
• Environmental accounting (sustainability accounting)
• Hospitality accounting
• Non-profit accounting
• ………accounting
Distinction among Financial Acc, Mgt Acc and Cost Acc

Financial Accounting Management / Cost Accounting

• Recording transactions and • Processing Accounting information

reporting using financial reports. to aid management functions.
• Accounting information mainly for • Accounting information for internal
external users such as users such as Sales managers,
shareholders, creditors, govt production managers FD, MD.
agencies. • Prepared daily or weekly or as and
• Are prepared and published when management requires.
quarterly, semi-annually and more • Optional, and prepared when
often annually. considered relevant
• Legal requirement for public • Reports past, present and future
limited liability company information
• Reports historical information • Does not conform to strict GAAP
• Must conform to GAAP
 The Accounting Process
• Identification and collection of source documents

• Analysing the transactions

• Recording the transactions in the journals/day books

• Posting into ledgers

• Balancing off accounts and extracting the trial balance

• Preparing Financial Statements (FS) using the trial balance

and after considering adjustments
• Reporting/communication of information to users

• Interpretation of FS using ratio analysis

• Using the information to make informed decision

The Accounting Process
 Users of Accounting Information
• Management
• Shareholders and potential investors
• Suppliers and other trade payables
• Customers and other trade receivables
• Loan providers and other providers of finance
• Government and its agencies
• Employees and trade unions
• Financial analysts and advisors
• General public
 Career of Accounting
• Bookkeeper
• Financial, management and cost accountants
• Auditor
• Financial controller
• Investment advisor
• Insurance broker
• Financial analyst
• Banker
• Accounting educationist
End of Chapter One
 Solve this Puzzle
A guy buys goods worth GHC20 from a shop. The
guy gives GHC50 note to the shopkeeper. The
shopkeeper get a change from the next shop and
keeps GHC20 for himself and returns GHC30 to the
guy. Later, the shopkeeper of the next shop comes
with the GHC50 note saying “counterfeit” and takes
his money back.

How much loss did the shopkeeper make?

A. GHC20 E. GHC70
B. GHC30 F. GHC80
C. GHC50 G. GHC100
D. GHC60
The Answer is …..
C. GHC50
Chapter Two:

Conceptual and Regulatory

Framework of Accounting
 Introduction
• Accounting information aims at enabling users to make
informed economic decisions

• For information to be useful, it must be generated based

on certain guidelines.

• These guidelines are set out in ff frameworks:

• The IASB conceptual framework for financial reporting
• The regulatory framework for financial reporting
IASB’s Conceptual Framework for
Financial Reporting
02/06/2025 63

What is the Conceptual Framework?

• Promulgated by the IASB originally in 1989, revised
subsequently.
• Initially, framework for the preparation and presentation of
financial statements
• Now, conceptual framework for financial reporting
• The IASB Framework is not a standard
• It does not override the specific requirement of any
standard
• It sets out the concepts which underlie the preparation
and presentation of financial information for external
users
 02/06/2025 64

The Conceptual Framework

Purposes
• To assist IASB in setting standards
• To serve as a basis for harmonisation
• To assist national standard-setters
• To assist preparers, auditors and users
• To assist in understanding of standard-
setting
 02/06/2025 65

Contents of the Conceptual Framework

• Users of FS
• Objectives of FS
• Underlying assumptions
• Qualitative Characteristics of FS
• Elements of FS, their recognition and
measurement
• Concept of capital and capital maintenance
02/06/2025 66

Users of financial statements

• Investors
• Employees
• Lenders
• Suppliers and other trade creditors
• Customers
• Government and their agencies
• The Public
 Users Groups of Accounting information
• Management Group - Managers, Board of Directors

• Equity interest group – existing, potential and past shareholders,

partners, sole proprietors
• Business contact groups - customers, creditors

• Loan creditor group - debenture holders, lenders, bankers, other loan

and finance providers
• Government - tax authorities, local authorities, government depts. and
agencies etc.
• Employee Group – existing, potential and past employees, trade unions

• Analysts/advisors - Financial/investment analysts, journalists,

economists, statisticians, lecturers, researchers, students, stock brokers
• General Public - tax payers, consumers, pressure groups, social
commentators, community groups.
 02/06/2025 68

User groups and their Information needs

• Employees and Management - interested in the overall
profitability, financial soundness, growth and efficiency.

• Investors - interested in the profitability, earnings

potential , dividend policy, yields on investment, financial
stability and risk exposure.

• Creditors - concerned about the company’s solvency and

ability to pay debt and interest as and when they fall due,
asset backing for liability, their position vis-à-vis other
stakeholders etc.
 02/06/2025 69

User groups and their Information needs

• Suppliers - interested in the continued existence of their
client company, and it’s growth.

• Consumers - interested in quality of goods and/or service

delivery, reasonableness of pricing and trade terms, etc

• Bankers - interested in the cash flow and performance

efficiency of the client.
 02/06/2025 70

User groups and their Information needs

• Insurance Companies - interested in the continued
operation of the client, risk management policies and
safety measures.

• Governmental agencies - interested in the profitability

and growth prospects of companies within the economy,
their ability to meet their tax liability,their ability to
generate employment and meet their statutory
responsibility etc.

• The general public - would like to see corporate bodies

living up to their social responsibilities
 02/06/2025 71

Objectives of FS
• Financial statements (FS) are the financial reports through
which financial information about an entity is reported to a wide
range of users in making economic decisions. E.g. about
whether to buy or sell shares in an entity or whether to lend to
it.

• Management displays accountability of management of

resources entrusted to them through the provision of FS.

• To provide info about the financial performance, financial

position, and changes in the financial position of an
enterprise that is useful to a wide range of users in
decision making.
 Objectives of FS cont’d
• The objective of general purpose financial reporting
is to provide information about:
• Economic resources and claims (SFP)
• Changes in economic resources and claims
(SPLOCI)
• Financial performance reflected by past cash
flows (SCF)
• Changes in economic resources and claims not
resulting from financial performance (SCE)
 The Nature of FS
• A complete set of financial statements comprise:

a. A statement of financial position as at the end of the

reporting period

b. A statement of profit and loss and other comprehensive

income for the reporting period

c. A statement of changes in equity for the reporting period

d. A statement of cash flows for the reporting period

e. Notes comprising a summary of significant accounting

policies and other explanatory information
 FINANCIAL STATEMENTS
• Income Statement
• Provides info about the performance of an entity over
a period of time.
• Matches revenue and gains with expenses and
losses to arrive at the net profit or loss.
• Based on the double entry system
• Similar to trading, profit and loss account
• Now renamed as statement of profit and loss and
other comprehensive income
 FS Cont’d
• Statement of Financial Position
• List of balances of assets, liabilities and capital of the entity at
a particular point in time.
• Shows the financial position of the business entity at a point in
time
• A pictorial presentation of the Accounting Equation:
Assets = Capital + Liabilities.
• Implies total assets must agree with the total of capital and
liabilities.
• Can be presented in different forms such as Total Assets, Net
Assets, and Net Current Assets.
• Not prepared based on double entry but affected by the double
entry principle.
 FS Cont’d
• Cash Flow Statement:
• Shows principal sources and uses of cash in the business
• Show the relationship between profit and cash
• Prepared to show the cash generating potential of the
entity
• Reports cash flow emanating from
• Operating activities
• Investing activities
• Financing activities
• Show the composition of cash and cash equivalents
 02/06/2025 77

Underlying Assumptions
• Accrual basis: This means that the effects of transactions
and other events are recognized as they occur and not as
cash or its equivalent is received or paid.
• Underlies the preparation of the income statement

• Going concern basis: Assumes that the entity would

continue to be in operational existence into the foreseeable
future. It assumes that the entity has neither the need nor
the intention to liquidate or curtail materiality the scale of its
operation.
• Underlies the preparation of the statement of financial position
(balance sheet)
 02/06/2025 78

Qualitative Characteristics of FS
• Accounting information aims at enabling users to make informed
economic decisions.

• Acc info must be useful in terms of its contents and its

presentation

• For acc info to be useful for decision making, it must possess:

• fundamental accounting qualities and
• enhancing accounting qualities
 Fundamental Accounting Qualities
• Relevance: Accounting information should have a direct bearing
on the decision to be made. It must help the user to make
predictions, evaluations, confirmations, and corrections of events.

• Faithful Representation: The information purports to represent

what it is actually supposed to represent. It is neutral, complete,
and free from material error. Hence, it can be depended upon to
make decisions.

• Materiality: The quality of being essential or important in

influencing the economic decisions of users such that its omission
or misstatement could affect decision making. Materiality depends
on the nature and circumstance specific to an entity.
 Enhancing Accounting Qualities
• Comparability: The quality that enables users to identify
and understand similarities in, and differences among items
of financial statements.

• Comparability is facilitated by consistency which refers to

the use of the same accounting methods for the same
items, either from period to period within a reporting entity or
in a single period across entities.

• Understandability: Acc info must be prepared and

presented in a clear and concise manner to make it
understandable to users.

• Understandability in itself is user specific.

Enhancing Accounting Qualities contd.
• Verifiability: This implies there’s some amount of assurance
about the economic reality of the transactions from which the
accounting information was prepared. One way of verifying
accounting information is through the evidence provided by
source documents. For instance, the entries in the sales
daybook must be backed by sales invoices.

• Timeliness requires that information will be received on time

to be relevant for decision making.

• NB: In practice, not all the qualities can be present all the
time. More often, a balancing trade-off between the qualities,
is necessary to ensure that the maximum benefit is derived
 02/06/2025 82

Elements of FS
• Assets

• Liabilities

• Equity

• Income

• Expenses
 Elements of FS
• Assets: Resources controlled by an entity as a result of
past events and from which future economic benefits will
flow to the entity. Classified as current and non-current
assets.
• Composition: Non-current assets and current assets
• Non-current Assets – acquired for use in the business,
not for resale, benefit to derive span more than one
accounting period, cost of acquisition substantial and
significant.
• Current Assets – acquired for resale or to be converted
into cash. Benefits span within one accounting period.
 Elements of FS
• Liability: A present obligation of the entity arising from
past events, the settlement of which is expected to result
in an outflow from the entity resources embodying
economic benefits. We’ve short and long-term liabilities

• External claims against the resources controlled by

the business entity.
• Non-Current liabilities (Long Term) – obligations
which must be settled beyond one accounting
period.
• Current Liabilities(Short Term) - obligations which
fall due within one accounting period.
 Elements of FS
• Equity interest (capital): The residual interest in the
assets of the entity after deducting all its liabilities. It is
also the internal claims against the resources controlled
by the business.

• Internal claims against the resources

controlled by the business
• Represents the interest of the shareholders
• Simply, Assets less liabilities
• Also termed shareholders’ fund
 Elements of FS cont’d
• Income(revenue or gains): Increases in economic
benefits during the accounting period in the form of
inflows or enhancements of assets or decreases of
liabilities that result in increases in equity, other than
those relating to contributions from equity
participants.
• Can be in the form of revenue (inflows from sale of main
activity) or gains (inflows from activities incidental to major
activities)
• E.g. example of revenue is sale of goods
• E.g. gains is profit from sale of non-current assets in a
mechandising firm
 Elements of FS cont’d
• Expenses(or losses): Decreases in economic
benefits during the accounting period in the form of
outflows or depletions of assets or incurrence of
liabilities that result in decreases in equity other than
those relating to distributions to shareholders.
• Expenses leads to outflow of an entity’s resources
• When expenses incurred are not settled, they become liabilities
• When cost expires, it becomes expenses. So expenses is expired
cost. So the unexpired portion of cost incurred and paid for is
treated as an asset.
• Examples – salaries of employees, purchases of goods for resale
• Expenses result from main operations whiles losses result from
activities incidental to the main operations
02/06/2025 88

Recognition criteria of elements of FS

• Probability that there will be an inflow or

outflow of economic benefits associated
with the asset or liability, and

• The asset or liability can be measured

reliably
 02/06/2025 89

Measurement bases of elements in FS

• Historical cost
• Current Cost
• Realisable value
• Present value
• Others (not specified in the Framework)
– Depreciated Replacement cost
– Fair Value
– Recoverable amount
– Deprival value
02/06/2025 90

Concepts of Capital & Capital Maintenance

• Financial Capital Maintenance

• Monetary Financial Capital Maintenance
• Real/CPP Financial Capital Maintenance

• Physical Capital Maintenance

• Productive-capacity Physical Capital
Maintenance
• Real/Gen Purch. Power Physical Capital
Maintenance
 Regulatory Framework of Accounting
• General term used to describe the laws, principles, rules and
regulations that govern the recording of business transactions
and the reporting of financial information.

• It includes:
a. Generally Accepted Accounting Principles. e.g. IFRS
b. Acts of Parliament. e.g.. The Companies Act, 1963 (Act
179).
c. Relevant legal requirements. e.g. Stock exchange
regulations.
d. Other international influences. e.g. Pronouncements from
IMF, World Bank, IFAC, IASB etc.
 02/06/2025 92

International Federation of Accountants (IFAC)

• IFAC is the worldwide organization for the accountancy

profession.

• Founded in 1977

• IFAC is comprised of 159 members and associates in 124

countries worldwide, representing approximately 2.5 million
accountants in public practice, industry and commerce, the
public sector, and education.
 02/06/2025 93

International Federation of Accountants (IFAC)

• Its mission is to serve the public interest by continuing to

strengthen the worldwide accountancy profession and
contributing to the development of strong international
economies by establishing and promoting adherence to
high-quality professional standards, furthering the
international convergence of such standards, and speaking
out on public interest issues where the profession’s expertise
is most relevant.
 02/06/2025 94

The IASB & the Standards Setting Process

• The International Accounting Standards Board (IASB) is the
global accounting standards body responsible for the issue of
the International Financial Reporting Standards (IFRS)

• The IASB was established in 2001 and it succeeded its

predecessor body the International Accounting Standards
Committee (IASC) which was established in 1973.

• The IASC issued 41 international accounting standards (IASs)

• The IASB now has 45 IFRSs (28 IASs + 17 IFRSs)

 02/06/2025 95

Structure of IASB
• IFRS Foundation
– Responsible for funding and appointment of members of IASB,
SAC and IFRIC

• IASB
– Responsible for all technical matters, preparation and issue of
IFRS and the approval of IFRIC proposals

• IFRIC
– Responsible for the development of IFRIS

• IFRS Advisory Council

– Responsible for input on IASB’s agenda, input on IASBs project
time table and priorities and supporting IASB in promotion of
IFRS
02/06/2025 96

Structure of IASB
02/06/2025 97

Objectives of the IASB

• To develop a single set of high quality,
understandable and enforceable global accounting
standards;

• To promote the use and rigorous application of those

standards;

• To work actively with national standards setters to

bring about convergence of national accounting
standards and IFRS to high quality solutions
 02/06/2025 98

The Standards Setting Process

 STEP 1: Setting the agenda
• The IASB evaluates the merits of adding a potential
item to its agenda, also know as the work plan, mainly
by reference to the needs of investors.
•
 STEP 2: Planning the project
• When adding an item to its active agenda, the IASB
also decides whether to: conduct the project alone; or
jointly with another standard-setter. due process is
followed under both approaches.
•
 STEP 3: Developing and publishing the
Discussion Paper, including public consultation
 02/06/2025 99

The Standards Setting Process

 STEP 4: Developing and publishing the Exposure
Draft, including public consultation
• Publication of an Exposure Draft is a mandatory step in
due process.
•
 STEP 5: Developing and publishing the Standard
• The development of an IFRS Standard is carried out
during IASB meetings, when the IASB considers the
comments received on the Exposure Draft.
•
 STEP 6: Procedures after a Standard is issued
• After a Standard is issued, the staff and the IASB
members hold regular meetings with interested
parties, including other standard-setting bodies, to
help understand unanticipated issues related to the
Standards Setting Process [Summary]
• a) Identifying a suitable topic
• b) Commissioning research study on the topic
• c) Preparing draft for discussion
• d) Allowing period of at least 6 months for
comments from stakeholders
• e) Summarising and reviewing comments
• f) Producing final draft, announcing the new
standard and providing date of application
The Need for Accounting Standards
• Businesses/Transactions are complex
• Judgements needed in allocating certain costs
and revenues
• Different people with different opinions on what is
right/appropriate
• Standards help to set the acceptable limits within
which to operate
• Define what is acceptable practice and what is
not
• Increases in investor confidence
• Transparency and comparability
 IFRS and IFRS for SMEs

• Full IFRS - Global accounting standards for entities

with public accountability

• IFRS for SMEs – Global accounting standards for

Small and Medium-sized entities
 02/06/2025 103

Current IFRS [28 IASs + 17 IFRSs]

IFRS DESIGNATION

IAS 1 Presentation of financial statements

IAS 2 Inventory

IAS 7 Statement of Cash Flows

IAS 8 Accounting Policies, Changes in Accounting Estimates

and Errors

IAS 10 Events after the Reporting Period

 02/06/2025 104

Current IFRSs cont’d

IFRS DESIGNATION
IAS 12 Income Taxation
IAS 16 Property, Plant and Equipment

IAS19 Employee Benefits

IAS 20 Government Grant and Disclosure of
Government Assistance
 02/06/2025 105

Current IFRSs cont’d

IFRS DESIGNATION

IAS 21 Effect of Changes in Foreign Exchange

Rates

IAS 23 Borrowing Cost

IAS 24 Related Party Disclosures
IAS 26 Accounting and reporting by retirement
benefit plans

IAS 27 Separate Financial Statements

IAS 28 Investment in Associates
 02/06/2025 106

Current IFRSs cont’d

IFRS DESIGNATION

IAS 29 Financial reporting in hyper-inflationary

economies
IAS 32 Financial Instruments: Presentation
IAS 33 Earnings Per Share
IAS 34 Interim Financial Statements
IAS 36 Impairment of Assets
IAS 37 Provisions, Contingent Liabilities and
Contingent Assets
 02/06/2025 107

Current IFRSs cont’d

IFRS DESIGNATION

IAS 38 Intangible Assets

IAS 40 Investment Property

IAS 41 Agriculture
IFRS 1 First-time Adoption
IFRS 2 Share-Based Payment
IFRS 3 Business Combination
 02/06/2025 108

Current IFRSs cont’d

IFRS DESIGNATION

IFRS 5 Non-current assets held for sale and

discontinued operations

IFRS 6 Exploration for and Evaluation of Mineral

Resources

IFRS 7 Financial Instruments: Disclosures

IFRS 8 Segment Reporting
IFRS 9 Financial Instruments
 02/06/2025 109

Current IFRSs cont’d

IFRS DESIGNATION

IFRS 10 Consolidated Financial Statements

IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interest in Other Entities
IFRS 13 Fair Value Measurement
IFRS 14 Regulatory Deferral Accounts
IFRS 15 Revenue from Contracts with Customers

IFRS 16 Leases
IFRS 17 Insurance Contracts
 02/06/2025 110

IFRS for SMEs

 The IASB, in 2009, developed and published a separate
standard intended to apply to the general purpose financial
statements of, and other financial reporting by, entities that in
many countries are referred to by a variety of terms, including
small and medium-sized entities (SMEs), private entities,
and non-publicly accountable entities.

 That standard is the International Financial Reporting

Standard for Small and Medium-sized Entities (IFRS for
SMEs).
02/06/2025 111

IFRS for SMEs

1 Small and medium-seized entities
2 Concepts and Pervasive Principles
3 Financial Statement Presentation
4 Statement of Financial Position
5 Statement of Comprehensive Income and Income
Statement
6 Statement of Changes in Equity and Statement of Income
and Retained Earning
7 Statement of Cash flows
8 Notes to the Financial Statements
9 Consolidated and separate Financial Statements
10 Accounting Policies, Estimates and Errors
11 Basic Financial Instruments
12 Other Financial Instruments Issued
02/06/2025 112

IFRS for SMEs cont’d

13 Inventories
14 Investment in Associates
15 Investments in Joint Ventures
16 Investment Properties
17 Property, Plant and Equipment
18 Intangible Assets other than Goodwill
19 Business Combination and Goodwill
20 Lease
21 Provisions and Contingencies
22 Liability and Equity
23 Revenue
24 Government Grants
02/06/2025 113

IFRS for SMEs cont’d

25 Borrowing Costs
26 Share Base Payments
27 Impairment of Assets
28 Employee Benefits
29 Income Tax
30 Foreign Currency Translation
31 Hyperinflation
32 Events after the end of the Reporting Period
33 Related Party Disclosure
34 Specialized Activities
35 Transition to the IFRSs for SMEs
 Take a break

What do you put in a toaster?

Answer is ………

Bread, not toast

Another one:

Say “silk” five times.

Now spell “silk”.

Now ….

What do cows drink?

Cows drink water, not milk.
IFRS 1 First-time Adoption of IFRSs
• Objective
• Scope
• Definitions
• Recognition and Measurement
• Exemptions
• Presentation and disclosure
 Objective
• To ensure that an entity’s first IFRS financial
statements, and its interim financial reports for part of
the period covered by those financial statements,
contain high quality information that:
• (a) is transparent for users and comparable over all periods
presented;

• (b) provides a suitable starting point for accounting in

accordance with International Financial Reporting Standards
(IFRSs); and

• (c) can be generated at a cost that does not exceed the

benefits.
 Scope
• An entity shall apply this IFRS in:
• (a) its first IFRS financial statements; and

• (b) each interim financial report, if any,

• that it presents in accordance with IAS 34 Interim

Financial Reporting for part of the period covered
by its first IFRS financial statements.
 Definitions/Terms
• First-time adopter
• First IFRS financial statement
• Opening IFRS statement of financial position
• Previous GAAP
• Date of transition
• Reporting date
 First IFRS Financial Statements - 1/3
• The first annual financial statements in which the entity
adopts IFRSs, by an explicit and unreserved statement
in those financial statements of compliance with IFRSs.
•
• Financial statements in accordance with IFRSs are an
entity’s first IFRS financial statements if, for example,
the entity:
• (a) presented its most recent previous financial statements:
• (i) in accordance with national requirements that are not consistent with
IFRSs in all respects;
• (ii) in conformity with IFRSs in all respects, except that the financial
statements did not contain an explicit and unreserved statement that
they complied with IFRSs;
First IFRS Financial Statements – 2/3
• (iii) containing an explicit statement of compliance with some,
but not all, IFRSs;

• (iv) in accordance with national requirements inconsistent with

IFRSs, using some individual IFRSs to account for items for
which national requirements did not exist; or

• (v) in accordance with national requirements, with a

reconciliation of some amounts to the amounts determined in
accordance with IFRSs;
 First IFRS Financial Statements – 3/3
• (b) prepared financial statements in accordance with IFRSs for
internal use only, without making them available to the entity’s
owners or any other external users;

• (c) prepared a reporting package in accordance with IFRSs for

consolidation purposes without preparing a complete set of
financial statements as defined in IAS 1 Presentation of Financial
Statements

• (d) did not present financial statements for previous periods.

 Recognition and Measurement – 1/3
• An entity shall prepare and present an opening IFRS statement
of financial position at the date of transition to IFRSs. This is
the starting point for its accounting in accordance with IFRSs.

• An entity shall use the same accounting policies in its opening

IFRS statement of financial position and throughout all periods
presented in its first IFRS financial statements. Those
accounting policies shall comply with each IFRS effective at the
end of its first IFRS reporting period.

• An entity shall not apply different versions of IFRSs that were

effective at earlier dates. An entity may apply a new IFRS that
is not yet mandatory if that IFRS permits early application.
 Recognition and Measurement – 2/3
An entity shall, in its opening IFRS statement of financial position:
• (a) recognise all assets and liabilities whose recognition is
required by IFRSs;
• (b) not recognise items as assets or liabilities if IFRSs do not
permit such recognition;
• (c) reclassify items that it recognised in accordance with previous
GAAP as one type of asset, liability or component of equity, but
are a different type of asset, liability or component of equity in
accordance with IFRSs; and
• (d) apply IFRSs in measuring all recognised assets and
liabilities.
 Recognition and Measurement – 3/3
• An entity’s estimates in accordance with IFRSs at the
date of transition to IFRSs shall be consistent with
estimates made for the same date in accordance with
previous GAAP (after adjustments to reflect any
difference in accounting policies), unless there is
objective evidence that those estimates were in error.
 Exemptions
• Business combinations
• Fair value or revaluation as deemed cost
• Employee benefits
• Cumulative translation differences
• Compound financial instruments
• Timing of adoption in groups
 Presentation and Disclosure
• Comparative information
To comply with IAS 1 Presentation of financial statements an
entity is required to report at least one year of comparative
information.

• Explanation of transition
An entity should explain how the transition from its previous GAAP
to IFRS has affected the financial statements in relation to its
financial performance and position and cash flows.
 IFRS 1 [Summary]
• Transition date

• Opening IFRS Statement of Financial Position

• Recognise all assets and liabilities required by IFRS

• Not recognise assets/liabilities if IFRS do NOT permit

• Reclassify items in accordance with IFRS

• Apply IFRSs in measuring assets/liabilities

 Transition Date 31 December year end

Comparative 1st year of

year adoption

1.1.15 31.12.15 30.6.16 31.12.16

Transition First IFRS First full IFRS

Date Interim accounts
accounts
 Solve this puzzle
• Two fathers and their two sons went to a
restaurant for their dinner. The cost per
plate for each person was GHC10. After
they finished having their dinner, the
total cost to be paid was GHC30. How
come they paid GHC30 and not GHC40?
The reason is ….

Grandfather, Father and Son

= 3 persons x GHC10 = GHC30
 IAS 1
Presentation of Financial Statements
IAS 1 Presentation of Financial Statements

• Objective
• Scope
• Definitions
• Components/complete set of FS
• General features
 IAS 1 Presentation of Financial Statements

Objective
• Prescribes the basis for the presentation of general
purpose financial statements both with the entity’s
financial statements of previous periods and with the
financial statements of other entities

• Sets out overall requirements for the presentation of

financial statements, guidelines for their structure and
minimum requirements for their content
 IAS 1 Presentation of Financial Statements

Scope

• An entity shall apply this Standard in preparing

and presenting general purpose financial
statements in accordance with International
Financial Reporting Standards (IFRSs).
 Definitions/Terms
• General purpose financial statements
• Impracticable
• IFRSs
• Material
• Notes
• Other comprehensive income
• Owners
• Profit or loss
• Reclassification adjustments
• Total comprehensive income
 IAS 1 Presentation of Financial Statements

Fair Presentation and Compliance with IFRSs

• Financial statements are required to present fairly
the financial position, financial performance and
cash flows of an enterprise

• Compliance with IFRSs will result, in virtually all

circumstances, in financial statements that achieve
fair presentation
 IAS 1 Presentation of Financial Statements

Contents of Financial Statements

A complete set of financial statements must include:

• a statement of financial position as at the end of the
period;
• a statement of profit or loss and other
comprehensive income for the period;
• a statement of changes in equity for the period;
• a statement of cash flows for the period;
• notes, comprising a summary of significant
accounting policies and other explanatory
information
 General Features
• Fair presentation and compliance with IFRSs
• Going concern
• Accrual basis of accounting
• Materiality and aggregation
• Offsetting
• Frequency of reporting
• Comparative information
• Consistency of presentation
 IAS 1 Presentation of Financial Statements

Fair Presentation and Compliance with IFRSs

• Financial statements, if they comply with IFRSs,
must state that fact

• Financial statements must not be described as

complying with IFRSs unless they comply with
each applicable IFRS and each applicable
SIC/IFRIC Interpretation
 IAS 1 Presentation of Financial Statements

Fair Presentation Override

• Non-compliance with a requirement in a standard is

permitted where, in management’s opinion, compliance
would be misleading and would not give a fair presentation

• This is expected to be extremely rare and would need to be

accompanied by detailed disclosures outlining the reason
for, the nature of, and the financial effect of the non-
compliance
 IAS 1 Presentation of Financial Statements

Going Concern
• Must be assessed at each reporting date and
must be prepared on that basis, unless
management either intends to liquidate the
enterprise or to cease trading, or has no
realistic alternative

• If the going concern basis is not applied, must

state that fact, explain why and state the basis
on which the financial statements have been
prepared
 IAS 1 Presentation of Financial Statements

Accrual Basis

• Should be applied in the preparation of financial

statements, except the cash flow statement
 IAS 1 Presentation of Financial Statements

Consistency

• Presentation and classification of items should be

retained from one period to the next unless:

• the enterprise significantly changes the nature of its

operations or identifies that a change will result in a more
appropriate presentation
• a change is required by an IFRS or a IFRIC/SIC interpretation
 IAS 1 Presentation of Financial Statements

Materiality and Aggregation

• IFRSs apply to only material items

• material items should be presented
separately
• immaterial items are to be aggregated
with amounts of a similar nature and
function
 IAS 1 Presentation of Financial Statements

Offsetting

• Not permitted in respect of assets and liabilities

unless specifically required or permitted by
another IFRS
• Income and expense items are to be offset only:
if an IFRS requires or permits: or
gains, losses and related expenses arising from the same
or similar transactions and events are not material
 IAS 1 Presentation of Financial Statements

Comparatives

• Required for the previous period unless specifically

exempted in another IFRS

• Must be reclassified if the presentation and

classification in the financial statements is amended,
unless it is impracticable to do so
 IAS 1 Presentation of Financial Statements

Identification of Financial Statements

• The financial statements must be clearly identified and
distinguished from other information in the financial
report
• Each component of the financial statements must be
clearly identified and the following disclosed:
(a)name of the enterprise
(b)whether individual or consolidated statements
(c)reporting date or period covered by the statement
(d)reporting currency
(e)the level of precision in the presentation of figures
 IAS 1 Presentation of Financial Statements

Reporting Period/Frequency

• Financial statements must be presented at least

annually

• Where, in exceptional circumstances an

enterprise is required to, or decides to, change
its reporting date, it is required to state why the
change occurred and the fact that the
comparative amounts are not comparable
 IAS 1 Presentation of Financial Statements

Statement of Financial Position

• Assets and liabilities can be presented either:

on a current/non-current basis or
in order of their liquidity

• But must disclose the amounts of assets and

liabilities expected to be recovered or settled
after more than twelve months
 IAS 1 Presentation of Financial Statements

Current Assets
Are assets:
(a) expected to be realised, consumed or disposed
of in the normal course of the enterprise’s
operating cycle; or
(b) held primarily for trading purposes or the short-term
and expected to be realised within 12 months of
balance date; or
(c) is a cash or cash equivalent asset not restricted in its
use
 IAS 1 Presentation of Financial Statements

Current Liabilities

• Are liabilities:
• Expected to be settled in the normal course
of the enterprise’s operating cycle; or

• Due to be settled within 12 months of

balance date
 IAS 1 Presentation of Financial Statements

Statement of Comprehensive Income

Two statements or one

• Information to be presented on the face of the Income
Statement

• Allocation of profit – NCI/equity holders of parent

• Analysis of expenses – nature or function

 IAS 1 Presentation of Financial Statements

Additional Information Disclosed on the Face of

the Income Statement or in the Notes

• Enterprises must present an analysis of expenses using

a classification based on either the nature of expenses
or their function within the enterprise
 IAS 1 Presentation of Financial Statements

Additional Information Disclosed on the Face of

the Income Statement or in the Notes

• If functional classification is adopted, must also

disclose information on the nature of expenses,
including depreciation and staff costs

• Dividends per share, declared or proposed, must be

disclosed
 IAS 1 Presentation of Financial Statements

Statement of Changes in Equity

• A statement showing the change in equity for the

period resulting from income, expenses, gains and
losses (including prior period adjustments) must be
presented

• Other changes in equity must also be disclosed either

as part of the statement or in the notes
 IAS 1 Presentation of Financial Statements

Statement of Changes in Equity

• A statement showing the change in equity for the period

resulting from income, expenses, gains and losses
(including prior period adjustments) must be presented

• Other changes in equity must also be disclosed either

as part of the statement or in the notes
 IAS 1 Presentation of Financial Statements

Early Application of IASs/IFRSs

Must be disclosed in the financial statements

 IAS 1 Presentation of Financial Statements

Notes to the Financial Statements

• Must include an “Accounting Policies Section”

identifying the measurement basis used in preparing
the financial statements and the significant accounting
policies adopted

• Must include other information required by IASs or

necessary for a fair presentation
 IAS 1 Summary
Primary statements

Statement of
Comprehensive
Statement Income OR Statement
of Financial income of changes Statement of
Position Statement and in equity Cash Flows
Statement of
Comprehensive
Income

Notes in order of Primary

Material Accounting policies including
statements
key sources of estimation uncertainty
End of Chapter Two
 Solve this puzzle
• Some birds were flying and met a bird
on their way. The bird greeted them;
hello hundred! They responded, ‘we
are not hundred, we need half of us
plus you to make us hundred’.

• Question: How many birds were

flying?
Answer is …..

66 birds

Explanation:
Half of 66 is 33

So, 66 + 33 + 1 = 100
Alternatively,

Let the birds flying = x

Half of x = 1/2x or 0.5x
Hence, x + 0.5x + 1 = 100
Group like terms, x + 0.5x = 100 – 1
1.5x = 99
x = 99/1.5
x = 66
Chapter Three:

Accounting Concepts and

Conventions
 Introduction
• Accounting concepts and conventions are the set of
rules, principles, postulates, conventions, and methods
applied in the measuring and recording of business
transactions and reporting financial information.

• Accounting concepts and conventions are part of the

regulatory and conceptual framework for financial
reporting

• It is supported by IAS 8 – Accounting policies, …..

 Usefulness of accounting concepts
• 1. Standardisation: Adherence to concepts and conventions enable
companies to prepare uniform and standardised accounting systems.

• 2.Consistency: Businesses are able to maintain consistent accounting

policies and practices if they adhere to concepts and conventions

• 3. Comparability: Uniform and standardised accounting information

facilitate useful comparisons of financial performance.

• 4. Going concern helps companies to make plans and gives them time to
gather funds to sort out financial problems.

• 5. Accrual concepts ensure that all expenses and revenues pertaining to

a particular financial year are recorded in the year’s financial statement.
Fundamental Accounting Concepts
• The going concern (continuity) concept

• Prudence (conservatism) concept

• Accrual matching concept

• Consistency concept
 Fundamental Accounting Concepts
• Going concern: Assumes that an entity will continue to be in
operational existence into the foreseeable future or for an
indefinitely long period of time, and there is no intention to
liquidate the entity or make drastic cutbacks to the scale of
operations.
• Prudence: Requires that losses, whether actual or anticipated,
should be recognised and accounted for while profits should only
be recognised when realised.
• Accrual: The effects of transactions and other events are
recognized as they occur and not as cash or its equivalent is
received or paid. In computing profits, revenue earned must be
matched against the expenditure incurred in earning it.
• Consistency: The use of the same accounting methods for the
same items, either from period to period within a reporting entity or
 Other Accounting Concepts
• Business Entity Concept
• Double Entry(Dual Aspect) Concept
• Money measurement Concept
• Periodicity
• Historical Cost Convention
• Materiality Concept
• Realization Concept
• Objectivity Concept
• Substance over Form concept
• Full Disclosure
 Concepts and Accounting Conventions
Business entity Concept- separation between owners and
business activities
Money Measurement- Money as a unit of measure and
accounting information only measure transaction that can be
expressed in monetary terms.
Materiality Concept - information is material if its
omission/misstatement will affect economic decision
Duality-two sides to every transaction and both sides must be
reflected in the books.
Revenue recognition- revenue is realised when goods sold or
services rendered pass to the consumer and he assumes liability
for them
 Accounting Concepts and Conventions
Periodicity - financial statements are prepared for
specific periods.
Objectivity – no subjectivity/personal feeling/biases.
Historical cost convention - values of assets,
liabilities Capital etc. must be recorded at cost
Substance over form - report the substance
/financial reality and not just the legal form of
transactions.
Full Disclosure – every relevant and material info
should be fully disclosed.
 Accounting Concepts, Bases & Policies
Accounting concepts: The general set of rules, principles,
postulates, conventions and methods applied in the provision of
financial information. E.g. accrual (or matching) concept
Accounting Bases: Methods which have been developed
applying fundamental accounting concepts to financial
transactions and events when preparing and presenting FS.
E.g. Depreciation of non-current assets.
Accounting Policies: Specific accounting bases selected and
consistently applied by a business enterprise as being, in the
opinion of management, appropriate to its circumstances and
best suited to present fairly its results and financial position.
E.g. Straight-line method of depreciation.
 02/06/2025 177

ETHICAL AND PROFESSIONAL ISSUES

• A distinguishing mark of the accountancy profession is
its acceptance of the responsibility to act in the public
interest.

•A professional accountant’s responsibility is not

exclusively to satisfy the needs of an individual client
or employer.

• In acting in the public interest, a professional

accountant must observe and comply with Code of
Ethics of the accounting profession.
02/06/2025 178

Fundamental Principles (Code of Ethics)

• Integrity

• Objectivity

• Professional competence and due care

• Confidentiality

• Professional behaviour
02/06/2025 179

Integrity
• To be straightforward and honest in all professional
and business relationships.
02/06/2025 180

Objectivity
• To not allow bias, conflict of interest or undue
influence of others to override professional or
business judgments.
02/06/2025 181

Professional Competence and Due Care

• To maintain professional knowledge and skill at the
level required to ensure that a client or employer
receives competent professional services based on
current developments in practice, legislation and
techniques and act diligently and in accordance with
applicable technical and professional standards.
02/06/2025 182

Confidentiality
• To respect the confidentiality of information acquired
as a result of professional and business relationships
and, therefore, not disclose any such information to
third parties without proper and specific authority,
unless there is a legal or professional right or duty to
disclose, nor use the information for the personal
advantage of the professional accountant or third
parties.
02/06/2025 183

Professional Behavior
• To comply with relevant laws and regulations and
avoid any action that discredits the profession.
End of Chapter Three
 Puzzle Break

If a red house is made from red bricks

and a blue house is made from blue
bricks and a pink house is made from
pink bricks and a black house is made
from black bricks, what is a green house
made from?
Greenhouses are made from
glass, not green bricks.
Chapter Four:

Documents used in Business

 Introduction
• For accounting information to be useful for decision making,
it must faithfully represent what it purports to represent.

• To faithfully represent what is purports to represent, it must

be verifiable.
• Assurance about the economic reality of the transactions from
which the accounting information was prepared.

• One way of verifying accounting information is through the

evidence provided by source documents.
• E.g. entries in the sales daybook must be backed by sales
invoices.
 Uses of Source Documents
• Provide evidence of the occurrence of business transactions.

• Identify and describe transactions and events.

• Provides an objective, reliable and verifiable source of accounting

information

• Source documents basically serve two purposes:

• to give information to the other party - e.g, to tell a supplier what goods are required.
• to enable an entity to keep its own records - e.g, to know what goods
have been ordered.

• They are termed value documents – they provide evidence of the value
of accounting transactions
Examples of source documents
• Purchase requisition
• Letters of enquiry
• Quotation
• Delivery note
• Pro Forma invoice
• Voucher
• Invoice
• Credit note
• Debit note
• Receipt
 Examples of source documents
• Invoice - A document sent to a buyer by a seller, as
evidence of sale or purchase transaction. Used most
especially for sales made on credit and serves as
demand for payment.

• Debit Note- a document sent either by a seller or a

buyer to indicate that an account will be debited with
the amount stated on the note.

• Credit Note-sent by a supplier to a customer in

respect of goods returned or overpayment made.
 Examples of source documents
• Quotation - A written offer from a business to a
client/prospective client to produce or suppler goods at
certain amount.

• Pay-In-Slip - document showing an amount of money

has been deposited into a bank account.

• Remittance Advice - document sent with a payment

detailing which invoices are being settled and credit
notes being off set.
End of Chapter Four
 Break Puzzle

Twenty years ago, a plane crashed from

20,000 feet over Germany. At that time,
Germany was politically divided into East
and West Germany.

Where do you think the survivors were

buried? East Germany, West Germany, ‘no
man’s land’?
You don’t bury survivors!!!
Chapter Five:

Books of Prime Entry

 Books of Prime Entry
• Accounting data from source documents are first entered into
books of prime entry/Journals.

• These are books or journals in which transactions are first

recorded before being entered into the ledgers.

• Provides chronological record of daily business transactions.

• Also referred to as: books of original entry, Day books, subsidiary

books of account etc.

• Does not form part of the double entry system….(Except Cash

book-both journal & Account)
 Books of Prime Entry - Types
• Special journals are used to record and post transactions of
specific and similar nature.
• Examples-Sales journal, Purchases journal, Returns Journal, Cash book ,
Petty Cash book.

• The General Journal/The Journal – used to record all other

transactions that are not covered in the special purpose journal.
• The GJ records transactions such as recording opening and closing
entries and correction of errors, sale and purchase of fixed assets on
credit.
 Books of Prime Entry – Special Journals
• Sales Journal/Sales Day book – for sales made on credit.

• Sales Returns Journal/Sales Returns Day book – for credit

sales returned.
• Purchases Journal/Purchases day book – for purchases
made on credit.

• When fixed assets are bought on credit, they are recorded in the
general journal.

• Cash purchases are recorded in the cash book.

• Purchases Returns journal/purchases day book – for the

return of purchases made on credit.
 Book of Prime Entry – Special Journals
• Cash Book/Cash journal – for cash receipts and payments.
• Serves both as journal and an account
• Cash book can be any of the ff: Cash receipts book, cash payments book, single
column cash book(cash or bank only), two column cash book(cash and bank),
three column cash book.

Petty Cash Book – a dedicated cash book for daily internal petty/small
payments.
• Based on Imprest System - An amount (Cash float or Imprest)
advanced to petty cashier to meet payments for a period.
• The petty cashier accounts for the amount received and is reimbursed
for the total payments made to make up the float.
• Vouchers are used to support such payments and which gives details
of the payment and the expense to charge, and payment
authorisation.
 Value Added Tax (VAT)
• An indirect tax levied on the sale of goods and services.

• A cumulative tax collected at various stages of a product life.

• The full tax is paid by the final consumer but paid to VAT Service
at different stages.

• VAT is charged on goods and services by VAT - Registered

Businesses, at a standard rate or at a zero rate .

• Currently, the standard rate of VAT is 15% plus 2.5% for NHIL,
totalling 17.5%, plus COVID levy 1%, totalling 18.5%.
 Value Added Tax (VAT)
• VAT charged on goods and services sold by a business is called
Output VAT.

• VAT paid on goods and services bought in by a business is

called Input VAT.

• If the O/VAT exceeds the I/VAT, the difference is paid to VAT

service.

• If the I/VAT exceeds the O/VAT, the difference is a refund to the

business.
 Value Added Tax (VAT)
• There are instances where VAT cannot be recovered - Non
registered persons, Registered but exempted activities, non
deductible inputs.

• In accounting for VAT, some businesses keep one account for

input and output VAT(VAT Account) whiles others maintain
separate accounts for Input VAT and Output VAT.

• Vat on Sales is entered in Output VAT Account

• VAT on Purchases is entered in Input VAT Account

• With Cash Discount, VAT is on amount less cash discount.

 Break Puzzle

You are driving a bus from Accra to

Cape Coast. In Accra, 20 people get on
board, in Cape Coast, 19 get off.

What is the name of the driver?

Stop crying out loud! Don’t you
remember your own name?

It was YOU!!
THE THEORY OF
DOUBLE ENTRY AND
LEDGER
 Lesson Objectives
• Explain the Accounting Equation
• Explain the relationship between the AE & SFP
• Describe the effect of transactions on the SFP
• Skills to draw up SFP from given information
• Explain the Double entry system and the rules for the
elements of the Financial Statements
• skills in the use of double entry principles
• Knowledge of Accounts and the classes
• Knowledge of Ledger and the Divisions
• Skills in making entries in the Accounts
 The Accounting Equation (AE)
• Assets owned by a business are acquired through
owners or outsiders.

• Contribution from the owner is referred to as owner’s

equity or simply, capital.

• Contributions from outsiders are referred to as

Liabilities.

• Thus at any point in time, the total assets of a

business equals Capital, or equals the capital and
liabilities.
 The Accounting Equation
• It is a fundamental accounting equation
•
• Expresses the relationship between assets of the
business on one side, and the liabilities and capital
that acquired them on the other side. A = C+L

• As an equation, it can be re-written, making each

variable a subject of the equation, i.e. C=A-L; L=A-C.
 The Accounting Equation
• As earlier stated the Statement of Financial Position
(Balance Sheet) is a pictorial presentation of the
accounting equation.

• Anytime a transaction occurs, it affects the financial

position of the business, i.e. the SFP.

• Illustration-Effects of Transactions on the STP

 THE THEORY OF DOUBLE ENTRY
• When a transaction occurs, elements of the financial
statements are identified and changes occur in them, e.g.
assets, expenses, liabilities, gains, capital, etc.

• Every transaction has two aspects to it, the dual effect- one
giving and another receiving, an inflow and outflow, an
increase and a decrease.

• Both aspects must be recorded in the books through the

double entry system.

• The Double Entry Theory states that for every debit entry
there must be a corresponding credit entry and vice-versa.
 THE THEORY OF DOUBLE ENTRY
• The double entry rule is applied in Accounts which are kept
in a ledger.

• Thus postings are made from the journals to accounts in the

ledger.

• An Account is a dedicated record of increases and

decreases in a specific item of asset, liability, capital, gains
expenses etc, and the balance if any.

• Accounts are normally kept in a ‘T’ form, with the left hand
side known as the debit side and the right hand known as
credit side. Provides the date, particulars, L/F and amount
of the transaction.
 Double Entry Rules
Assets/Expenses/Loses Liabilities/Capital/Gains

• Increases = Debits • Increases = Credit

• Decreases = Credits • Decreases = Debit
 The Ledger and Its Divisions
• An account – individual accounting record of increases and
decreases in a specific asset, liability or owners equity.
• A ledger is a collection of the various accounts kept by the
business.
• For order and ease of reference, ledgers are kept according
to account types.
• Ledgers are kept for Sales on Credit, Purchases on Credit,
cash transactions and general purpose ledger for all other
transactions.
• Sales Ledger – Contains accounts of debtors
 The Ledger and Its Divisions
• Purchases Ledger – Contains the accounts of
creditors

• Cash Book – Contains cash and bank accounts

• General Ledger – Contains all other accounts not

included in the above.
 ClassesofAccounts

• Personal Accounts
• for natural persons and businesses the entity deals with
• suppliers with credit balances (Creditors) – accounts payables
• debtors with debit balances (Debtors) – accounts receivables
• capital accounts
• loan accounts
• drawings accounts

• Impersonal Accounts
• for items other than individual persons and institutions
• subdivided into:
• nominal accounts - for things existing only in name, no physical
existence, e.g. incomes, gains, profits or losses, expenses.
• real accounts – for assets – tangible or intangible – non-current assets,
inventory, cash in hand, cash at bank.
 Recording Transactions and
Balancing Off Accounts
• When a transaction occurs, the two accounts involved
must be identified by name and T accounts opened for
them.

• The account needing debit entry must be identified and

the entry made. Same with account for credit entry.

• Balance off the Account by comparing the total of the

debit entries to the total of the credit entries. The side with
the greater amount determines the balance on the
account.
 ALZHEIMERS’ EYE TEST

Count every “F” in the following text:

FINISHED FILES ARE THE RESULT OF YEARS OF

SCIENTIFIC STUDY COMBINED WITH THE
EXPERIENCE OF YEARS …

How many “F” did you count?

3 …… 4 ……….
There are 6.

The brain cannot process “OF”

Let’s go back and check!

Amazing!!
THE TRIAL BALANCE,
CORRECTION OF ERRORS
AND SUSPENSE ACCOUNT
 Trial Balance: Meaning & Purpose
• A list of all ledger account balances with debit balances in
one column and credit balances in another column.

• A list of accounts and their balances at a specific time

• TB is to check the arithmetical accuracy of the ledger

postings - the equality of debits and credits after posting.

• The total of debit balances must be equal to the total of

credit balances, given that the double entry rules have
been followed accurately.
 Uses and Limitations of TB
• The trial balance is a check to ensure that:
a)Same amount is entered as debit and credit.
b)Debit and credit postings have been made into the
account.
c)The account balances have been accurately
determined.

• If therefore the TB totals agree, it implies the addition,

subtraction and extraction of balances are correct
 Uses and Limitations of TB
• The TB thus help to reveal some kind of errors if made in
the accounts, for necessary corrections to be made.

• Serves as summary of account balances for the

preparation of Final Accounts(CIS and SFP)

• It should however be noted that even though the TB may

agree, there could be errors which are not disclosed by
the TB.

• TB is a memorandum listing of ledger balances and not

based on double entry.
 Accounting Errors
• Errors are material misstatements in financial statements
and/or the underlining accounting records of an entity

• Where the errors are committed intentionally, they are

termed as fraud

• Two types of error:

• Type 1 – errors not disclosed by the trial balance
• Type 2 – errors disclosed by the trial balance

• Remember IAS 8 – Accounting policies, changes in

accounting estimates and errors
 Errors not disclosed by the TB
• Error of original entry - incorrectly posted into the ledger right at the on set.

• Error of omission - a transaction not recorded into the books of original entry at
all.

• Error of commission - posting into the wrong account of similar type/same class.

• Error of principle - posting into wrong class of account

• Compensating error - same error made in debit and credit entry, thus cancelling
out.

• Complete reversal of entry - account to debit is credited and account to credit is

debited.

• Error of Duplication - same amount posted twice, both debit and credit.
 Errors disclosed by the TB
• Errors that affect the agreement of the trial balance:

Single Entry - double entry rule not applied

Error in Posting - same amount entered twice as debit or credit

Error of Transposition - different amounts entered for the

same transaction

Omission of a Balance - an account balance not extracted into

the TB
 Errors disclosed by the TB

Error in Addition – overcast/undercast

Extraction Error - wrong amount to TB, or correct amount to

wrong side of trial TB

• These errors once detected must be investigated and

corrected.
 The use of Suspense Account
When TB disagrees and errors are not immediately
detected, a suspense account is opened to take care of
the difference whiles time is taken to trace the error.

• If the debit side is short, Suspense A/C is debited.

• If the credit side is short, Suspense A/C is credited.

• Note: Suspense a/c is a temporary measure. The error

must be investigated, corrected and suspense account
closed.
 Adjustment of Net Profit / Loss
• Errors may affect reported profit/loss

• When errors are found corrected, reported profit/loss

must be adjusted to correct the effect of the errors.

• Errors must be carefully analysed to determine their effect

on the financial reports.
BANK RECONCILIATION
STATEMENTS
 LEARNING OBJECTIVES
• To define and explain bank reconciliation (BR)
• To understand the purpose of BR
• To identify and explain reasons for differences between bank
statements and cashbook
• To correct cashbook errors and/or omissions
• To prepare bank reconciliation statement (BRS)
• To derive cashbook and bank statement balances from given
information
• To identify bank balance to be reported in the final accounts
 Definition and Purpose of BR
• All bank transactions recorded in the bank column of the cash
must agree with entries on the bank statement

• BR involves the comparison of a bank statement balance with

the cashbook (bank column) balance of the business.

• The purpose is to ascertain the difference between the two

balances and the causes of the differences and to account for
them.

• This is done to ensure that all transactions kept with the bank are
all recorded and posted into the appropriate books of accounts.
 Causes of Differences
• Errors by the business entity and/or the Bank

• Transactions with the business bankers by clients not known

to the business - direct transfers

• Instructions to the bank by the business not accounted for in

the books - standing orders.

• Timing differences
• Cheques to suppliers not presented to the bank
• Cheques received and deposited with the bank but not cleared.

• Dishonoured cheques by the bank

 Adjusted Cashbook
• Once the differences are identified, the business needs to
correct the cashbook.

• Done by recording the transactions in the bank statement that

are not in the cash book

• Correcting errors and omissions by the business

• Once these are done, the cashbook become adjusted

 The Bank Reconciliation Statement
• Once the cashbook is adjusted, the BRS is prepared

• BRS with adjusted cashbook will reflect the transactions in

the cashbook but not in the bank statement

• BRS without adjusted cashbook will reflect items missing in

both the bank statement and the cashbook

• Note:
• Omissions and errors in the cashbook but not in the bank
statement are corrected in the adjusted cash book
• Omissions and errors in the bank statement but not in the cash
book are corrected in the BRS
 BANK RECONCILIATION STATEMENT
Adjusted Cash balance Bank Balance to
to Bank Balance Adjusted Cash Balance

Balance per ACB Bal Per Bank Statem’t

x x
Add Unpresented Cheques x Add Uncredited Chqs x
Less Uncredited Cheques Less Unpresented Chqs (x)
(x) Balance Per ACB xx
Balance Per Bank Statement xx
ACCOUNTING FOR NON-
CURRENT ASSETS
AND DEPRECIATION
 Lesson Objectives
• Distinguish b/n Capital and Revenue Expenditure

• Distinguish b/n Capital and Revenue Receipts

• Explain Depreciation and causes

• Differentiate depreciation from Depletion and Amortisation

• State and describe methods of Depreciation

• Calculate annual depreciate charge using various methods

• Make ledger entries for acquisition, depreciation and disposal

of non-current assets
 Capital and Revenue Expenditure
• Capital Expenditure
• Incurred to obtain a long term advantage for the
business
• Incurred to acquire non-current asset, or add to the
value to an existing non-current asset to improve its
earning capacity
• Includes all cost incurred to get a non-current asset
ready for use
• Examples: costs of acquiring non-current asset,
installation, patent and copy rights
• Not charged to income statement, but written off over
a period of time.
 Capital and Revenue Expenditure
• Revenue Expenditure
• Arises out of regular business transactions/for the
purpose of the trade of the business
• Incurred to maintain the existing earning capacity of
non-current asset
• Simply termed expenses
• Examples: administrative expenses, cost of sales,
repairs expenses
• Charged to income statement provided they relate to
the accounting period.
 Capital and Revenue Receipts
• Capital Receipts
• Proceeds from the sale of non-trading assets-i.e. non-
current assets and long term investments as well as
receipts that are not from the trading activities of the
business
• Examples: loan raised and additional capital from
owners and shareholders.
• Cash received different from capital profit or loss
(Capital income)
• Profit or loss from the sale of non-current assets are
included in income statements.
 Capital and Revenue Receipts
• Revenue Receipts
• Any receipt which is not capital.
• Normally derived from sale of trading assets, provision of service,
interest and dividends received from investments for cash.

Why the distinction?

 Depreciation
• Can be defined from different angles

• From income generation point - spreading the cost of a non-

current asset over its estimated useful economic life to reflect
its use to generate income (Matching)

• From usage perspective - measure of wearing out ,

consumption and reduction in the useful economic life of a
non-current asset arising from use, effluxion of time or
obsolescence through technology or market changes
 Depreciation
• A challenged view - replacement cost

• Depreciation is governed by IAS 16 - Property Plant and

Equipment and is defined as the allocation of depreciable
amount of an asset over its estimated useful life.
 Causes of Depreciation
• Wear and Tear – Physical loss of value through usage
• Obsolescence – loss of value/usefulness because of
technological changes/new models available
• Inadequacy – loss due to organisational growth or increase in
demand
• Time Factor – for assets acquired for limited/specific time.
Examples are copyrights, patent rights, leaseholds properties
• Depletion – for assets of wasting nature. Examples are
mines, quarries, oilfields. As extraction continues, the stock of
assets get depleted.
Depreciation/Depletion/Amortisation
• Depreciation of cost of tangible non-current assets
• Examples: Motor Vehicles, Equipment, furniture and
fittings etc.

• Depletion – allocation of cost of wasting

assets/natural resources.
• Examples: oil wells, mines, quarries etc.

• Amortisation – allocation of cost of intangible

assets.
• Examples: patents, copyrights
THE FINAL ACCOUNTS OF A
SOLE PROPRIETOR AND
ADJUSTMENTS
 LESSON OBJECTIVES
• Define Sole Proprietorship and its characteristics

• Determine periodic profits using 2 approaches

• Prepare TPL and Balance Sheet from Trial Balance

• Identify and make adjusting entries for incomes and expenses

– Accruals and Prepayments
• Explain BD and Provisions for BDD, and how to adjust them.

• Calculate and provide for depreciation in the final accounts

 SOLE PROPRIETORSHIP
• SP/ship is a form of business entity owned and managed by
one man.
• Management is rested in one person, the owner, but may
employ people as work force.
• The simplest form of business and may trade under the
owners name or a name chosen by him.
• The final accounts of a sole proprietor comprise the trading,
profit and loss account and the balance sheet.
 Advantages and Disadvantages
Advantages Disadvantages
• Ease of set up • Unlimited liability- Risk and
• Rewards in the form of losses borne by owner
profits are all enjoyed by • Challenges in raising capital
the sole proprietor • Maintaining the overall
• Free hand to manage direction of the business
• Death of the owner
• Ease of dissolution
• Tax disadvantage – some
• Few legal restrictions
expenses are not tax
• Taxes paid by owner and deductible from the
not the business business.
 APPROACHES TO INCOME DETERMINATION
• Assets and Liabilities Approach
• Balance sheet approach
• Compares opening and closing balance sheets of the entity to establish
profit or loss
• Compares changes in net assets (Capital) from one period to the other
• Any additional capital or drawings must be adjusted to determine profit or
loss

• Revenue and Expenses Approach

• Net income = (Revenue + Gains) - (Expenses + Losses)
• Income > expenses = Net profit
• Expenses > incomes = Net loss
• Presented in the form of an income statement
• Statement of profit or loss and other comprehensive income
 The Income Statement
• Prepared to ascertain the net profit or net loss

• Prepared based on the accrual/matching concept

• Revenue less cost of sales = Operating profit

• Operating profit less operating expenses = net profit or loss

• Accounting standards applicable: IAS 1, IAS 2, IAS 8, IAS 10,

IAS 12, IAS 16, IFRS 16, IFRS 15, IAS 19, IAS 20, IAS 23,
IAS 37.
 The Income Statement
• It must show:
• The name of the reporting entity
• The title of the account/statement being prepared
• The accounting period for which the profit/loss is determined

• Information for the preparation of the income statement is

derived from the trial balance extracted at the end of the
accounting period
A SIMPLE FORM OF INCOME STATEMENT
• Sales xxx
• Less Cost of Sales (xxx)
• Gross Profit xxx
• Add other Income xxx
• Less Operating Expense (xxx)
• Net Profit/Loss xxx
 The Statement of Financial Position (SOFP)
• Balance Sheet
• A sheet of balances of assets, liabilities and capital of the entity at a
particular point in time
• Shows the financial position of the business entity at a point in time –
Statement of financial position
• A pictorial presentation of the Accounting Equation: Assets = Capital +
Liabilities
• Implies balance sheet total of assets must agree with the total of capital
and liabilities
• Can be presented in different forms, such as Total Assets, Net Assets,
and Net Current Assets
• Not a double entry account but based on double entry principles
 Elements of the SOFP
• Assets – resources owned and controlled by the business as
a result of past events and from which future economic
benefits are to flow to the entity.

• Non-current Assets (Fixed) – acquired for use in the

business, not for resale, benefit to be derived span more than
one accounting period, cost of acquisition substantial and
significant.

• Current Assets – acquired for resale or to be converted into

cash. Benefits span within one accounting period.
 Elements of the SOFP
• Liabilities
• Present obligations arising from past events, settlement of which result in an
outflow of resources with economic benefits.
• External claims against the resources controlled by the business entity.

• Non-Current liabilities(Long Term)

• obligations which must be settled beyond one accounting period

• Current Liabilities (Short Term)

• obligations which fall due within one accounting period.

• Equity Interest (Capital)

• Residual interest in the assets of the entity after deducting all liabilities.
• The internal claims against the resources controlled by the business
 Adjustments to Final accounts
• Why Adjustments?

1. Periodicity issues
2. All items not captured in the trial balance
3. Errors discovered after TB is extracted
4. Some items are only dealt with at the end of the
accounting period, e.g. stock, depreciation
5. Consider IAS 2, IAS 10, IAS 37
Adjustments - Accruals and Prepayments
• Accrued expenses
• Incurred within the period in review but not paid for
• Treated as expense liabilities to be paid later.
• Dr. P & L a/c; Cr, Accrued Expenses a/c
• Present as current liability in the SOFP.

• Accrued Income
• Income earned within the period but the actual cash not yet
received
• Treated as current assets
• Cr. P & L a/c; Dr Accrued income a/c
Adjustments - Accruals and Prepayments
• Prepaid Expenses
• Payments made for expenses for which benefits have not
been enjoyed during the period.
• Dr. Prepaid Expenses a/c, Cr. P & L a/c
• Treated as current asset in the SOFP

• Income received in advance (Unearned Income)

• Income received or advances received during the period for
which goods or services has not yet been provided
• Dr. P & L a/c; Cr. Income received in advance a/c (customer
deposits)
• Treated as current liability in the SOFP
Bad Debt and Provision for Doubtful Debts
• Bad Debts
• Debts that are deemed irrecoverable for various reasons
• client is gone bankrupt
• Debt is very old and negligible
• Dispute over an invoice or part of the invoice
• Debt is considered uncollectible as a matter of policy

• Written off as expense in the P & L a/c

• Dr. Bad debt a/c and Cr. Accounts receivable a/c, to write off
debt
• Dr. P & L and Cr. Bad debt a/c, to write off against income
Bad Debt and Provision for Doubtful Debts
• Bad debt is an expense against profit and a liability against assets
(debtors – accounts receivables)

• Provision for doubtful debts is a provision (expense liability) made

against profit which eventually reduces assets (debtors)

• There is always risk associated with selling goods or rendering services

to customers on credit.

• Provisions are made in the FS as a way of anticipating risk and

reducing its effects on the business

• Remember prudence concept and IAS 37

• 2 Types
• Specific provisions (treated similar to bad debts)
• General provision (estimates based on probability not possibility)