General accounting

Introduction to Financial accounting 1

Session 10

Review of the whole accounting syllabus

General accounting
- General principles, the need to keep accounts in a firm
- Accounting rules
- Accounting techniques : transactions, journal, posting, accounts, ledgers
- Trial balance
- Adjustments to have a representative Income statement of what went on exactly during the accounting period
- Year-end documents : Trading Account, P&L, Balance sheet
- Manufacturing account : to get something akin to the Trading account of a Trading firm (COGP = Purchases)
  - In a trading firm the goods sold are the goods purchased with no transformation
  - In a manufacturing firm the purchases are Raw materials, they are transformed into WIP and FG
  - There are then three types of stocks
- More topics pertaining to general accounting :
  - Limited liability companies vs unlimited liability (small) firms
  - First use of accounting data : comparisons with other years and with competitors, the use of ratios
  - Annual reports
  - Miscellaneous topics

Cost accounting (also called Managerial accounting)
- Going (yes) into more details within accounts
- Making up more useful "Dash boards" to manage the firm

General accounting :
- Legally required
- Published
- Too general to be useful for management
- Turned toward the past
Cost accounting :
- Not legally required
- Not published
- (Fine enough to be) useful for management
- Turned toward the future
  - Plans, budgets
  - Comparison of reality with budget
  - Analysis of discrepancies, causes
  - Actions, corrective actions
  - etc.

Company accounts :

Differences between a large corporation and a small soletrader
Capital : many shareholders vs one owner
Liability : limited liability vs unlimited liability
- The 1855 british Act allowing the setting up of limited liability companies
- All western countries followed soon
- Meiji
- Before 1855
- The 17th century East Indies Trading Co
- Entrepreneurs, shipyards, shipshandlers, suppliers of british goods
- Going to India. And back with Spices, Indian cloths
- Passing the Cape of Good Hope
- Possible wreckage
- Unlimited liabilities of the entrepreneurs
- The Lloyd's
- The compass
- Mastering working metal
- The birth of the Industrial Revolution around Bristol
- The need for large amounts of capital to launch industrial projects (mines, textile mills, machinery plants, railways, buildings canals, etc.)
- The unwillingness of the entrepreneurs to risk their entire wealth
- The attitude of the Lloyd's
- The discussions in the British Parliament
- The landowners
- The revolutionary idea that wealth cannot only come from land
- The second revolutionary idea that people should be allowed to borrow money without being liable to refund it entirely
- It turned out it created the wealthiest empire in the world
- Until about WWII or the independance of India
- Similar questions will arise in the next 10 to 20 years concerning the future richest country in the world
  - The need for legal, social, and political changes
The limited liab act : redistribute the risk
Authorized share capital
XXX Plc. : publicly owned limited liability companies
YYY Ltd. : privately owned limited liability companies
Shares, debentures, and bank loans
Preference shares
Premium
Disclosure of information, legal requirements
Directors = officers of the company
The shareholders rights
Taxation (to be paid within nine months after the end of the accounting period)
So long as it's a creditor account
Dividends : it's a creditor account too, so long as it hasn't been paid (no more drawing account)

A full fledged example