accounting

Page 1

Course title and details: BACC 1 Introduction to Accounting, Spring 2025, Dr. Jarosław Kujawski, University of Gdansk, Department of Accountancy,
Faculty of Management, Poland, 2025.
Schedule and topics by date:
- 24 FEB: Intro. Accounting principles; Assets and liabilities; Business transactions.
- 10 MAR: Interactive workshop on business transactions.
- 24 MAR: Assets and Equities & Liabilities; Balance Sheet.
- 07 APR: Revenues and Expenses; Profit and Loss Account.
- 05 MAY: Posting Accounts; General Ledger and Subledgers; Trial Balance.
- 19 MAY: Double-entry bookkeeping (1).
- 02 JUN: Double-entry bookkeeping (2).
- 16 JUN: Exam (11:30).
- 05 SEP: Resit (09:45).
Contact: Dr Jarosław Kujawski, jaroslaw.kujawski@ug.edu.pl, ug.financial.analyst.2024@gmail.com.
Assessment overview (Page 2): exam structure and grading scale.

Page 2

Assessment: Written exam with two parts:
- a) 10 multiple-choice test questions.
- b) 10 business transactions to post in accordance with the double-entry rule in the general ledger and sub-ledgers, including necessary trial balances, a balance sheet, and a profit and loss account.
Grading scale (Polish grading references):
- pass (3) = more than 50% of max score
- pass+ (3+) = >60%
- good (4) = >70%
- good+ (4+) = >80%
- very good (5) = >90%
Copyright and course branding: © Dr. Jarosław Kujawski, University of Gdansk, 2025.

Page 3

What is Accounting? Several definitions from classic authorities:
- AICPA, 1953, Accounting Terminology Bulletin No. 1: Art of recording, classifying, and summarizing in monetary terms, transactions/events of a financial character, and interpreting results.
- AICPA, 1970, Statement No. 4: Accounting is a service activity; provides quantitative financial information for economic decision making.
- Eisen, 2007: Accounting is the art of organizing, maintaining, recording, and analyzing financial activities; known as the language of business.
Summary takeaway: Accounting is both a technical discipline (recording, classifying, summarizing, interpreting) and a tool to aid decision making and understand economic reality.

Page 4

Basic regulations concerning Accounting (overview of regulatory landscape):
- European Union: Key directives reflecting annual/consolidated accounts and audits (e.g., 78/660/EEC; 83/349/EEC; 2013/34/EU; 2008/30/EC).
- US regulations: FASB standards and Conceptual Framework; SEC oversight.
- UK regulations: FRS (Accounting Standards Board), SSAPs, Companies Act 2006 (and amendments).
- Polish law: Accounting Act 1994 with amendments; NAS (KSR) standards; IFRS as issued by IASB (IFRS when applicable).
The slide compiles a cross-section of major regulatory bodies and frameworks shaping financial reporting across jurisdictions.

Page 5

Aim of Accounting:
- To present the financial position of a company in accordance with the True and Fair View concept.
Accounting system components (8 items):
1) Adopted rules of accounting – Accounting Policy.
2) Recording financial transactions in books of accounts, chronologically and systematically.
3) Verifying quantities of assets and liabilities regularly.
4) Valuation and disclosure of assets and liabilities.
5) Profit measurement and reporting.
6) Preparation of financial statements.
7) Archiving source evidence.
8) Auditing and publishing financial statements.
Accounting purpose: Identifying, measuring, and communicating economic information to enable informed economic judgments and decisions.

Page 6

Accounting vs. bookkeeping (a schematic comparison):
- Information system for managing an entity vs. transactional recording system.
- Book-keeping focuses on posting accounts; double-entry rule; collecting information; documents flow; GL and sub-ledgers; trial balance.
- Accounting focuses on interpretation, financial statements, managerial reporting, policy setting, and compliance with national and international standards.
- The main outputs are True and Fair View, and the relationship to taxation and reporting standards.
Core terms: General Ledger (GL), Sub-ledgers, Trial Balance (TB), Accounting policy, Financial reporting, Tax considerations.

Page 7

Management Accounting (also called management accounting, managerial accounting; today often performance management):
- Information system for internal decision-making.
- Emphasizes both financial and non-financial information to aid strategic and day-to-day decisions.
- Multilingual terms: English (management accounting), French (comptabilité de gestion, contrôle de gestion), German (Controlling).
A light, illustrative remark: “Houston, we have a problem…” reminding that internal management challenges require robust internal info systems.

Page 8

Financial vs Management Accounting (comparison):
- Users: Financial accounting serves external users (investors, banks, tax authorities); Management accounting serves internal managers.
- Regulation: Financial is regulated by local and international standards; management uses flexible internal models.
- Time horizon: Financial primarily ex post (historical, point-in-time) and periodic; management uses ex ante information (budgets/forecasts) and flexible time spans.
- Scope: Financial data vs. broad performance metrics (non-financial measures, e.g., market share, quality).
- Responsiveness: Financial statements meet external reporting requirements; management reports are tailored to internal centers and decision needs.

Page 9

Further distinctions in Financial vs Management Accounting:
- Valuation approaches: Historical cost is common for many assets; management may use alternative valuation to support decisions.
- Reporting focus: Financial reporting focuses on financial data; management reports include non-financial data (e.g., market position, delivery timelines).
- Cost management: Uses various costing approaches to produce cost, revenue, and margin data necessary for internal decision making.
- Reliability and standards: External reports must meet reliability, fairness, and going concern standards; internal reports emphasize timely, actionable data.
The slide emphasizes how valuation, information type, and reporting orientation differ between the two branches.

Page 10

Accounting in Management Information System (MIS):
- MIS is IT-aided information management used for both financial reporting (Financial Accounting / Financial Reporting) and management accounting (Performance Management).
- Includes data on clients (CRM), on demand trends, production (MRP II, ERP), stock, purchases, sales (MRP II, ERP), and macroeconomic environment.
Source attribution: Based on course materials from Dr. Przemysław Lech.

Page 11

Cash in / Cash out; Cash Flow; Liquidity; Main Financial Statements.
Key idea: Cash flow and liquidity are central to understanding a company’s ability to meet obligations and fund operations.
The slide hints at the main financial statements (to be elaborated in subsequent pages).

Page 12

Main Financial Statements (Abstract): Balance Sheet (BS), Profit & Loss (P&L), and Cash Flow (CF).
These are the core documents for presenting a financial position, performance, and cash movements.

Page 13

The accounting equation (the dogma):
- Assets = Liabilities + Equity
- In standard form: $A = L + OE$ where OE stands for Owners’ Equity.
The slide presents the fundamental balance between resources and sources of those resources.
It may also remind students that Assets can be conceived as the ownership of resources, while Liabilities and Equity are the claims against those resources.

Page 14

Asset and liability classifications (typical balance sheet layout):
- Assets split into Long-term (non-current) assets and Current assets.
- Liabilities split into Long-term liabilities and Current liabilities.
- Equity components may include owners’ capital (shareholders’ equity).
Balance sheet identity (illustrative): LA + CA = OE + LL + CL, noting this aligns with the standard A = L + OE formulation when reorganized per convention.
This page reinforces the conceptual framework of assets being financed by liabilities and/or owners’ equity.

Page 15

Expanded forms of the accounting equation and its interpretation.
Emphasis on the balance between assets and the sources of funds (owners’ capital and liabilities).
The page notes the potential cognitive challenge of grasping the equation, hinting at the need for a flexible, multi-perspective understanding.

Page 16

Kujawski’s “Rule of the Sun” analogy:
- The company is treated as the center of the universe; other entities revolve around it.
- Assets are controllable by the company; liabilities or payables are owed to others; receivables are owed from others.
- The metaphor emphasizes the perspective of the company in accounting (heliocentric view).

Page 17

Asset categories (outline):
- A. Long-term assets
- I. Intangible assets
- II. Tangible fixed assets
- III. Long-term receivables
- IV. Long-term investments
- V. Long-term deferrals
- B. Current assets
- I. Inventory
- II. Short-term receivables
- III. Short-term investments
- IV. Short-term deferrals
- C. Called up share capital
- D. Own shares

Page 18

Intangible assets (A. I):
- Acquired by the entity (not produced in-house); long-term; used in business;
- Examples: R&D expenditures, Goodwill, Licenses, Software, Patents, Brands, Know-how, Rights to inventions, concessions, rights to inventions, etc.
- Advances for intangible assets are included.

Page 19

Goodwill (A. I. 2):
- Definition: Excess of purchase price over fair value of net assets acquired in an acquisition.
- Net assets = total assets − liabilities; Fair value refers to the acquired net assets.
- Example depicted: Company X is purchased for 140; net assets fair value sum is 100 (Buildings 70, Equipment 30, People/market position implied); Goodwill = 40.
Concept: Goodwill arises only in acquisitions; it is an intangible asset representing future economic benefits from synergies, brand, customer relationships, etc.

Page 20

Tangible fixed assets (A. II):
- Fixed assets: land, buildings, premises, machinery, motor vehicles, other fixed assets.
- Fixed assets under construction and advances for fixed assets under construction.
- Definition: Tangible long-term assets with useful life > 1 year, used in operations; not held for resale in ordinary course.

Page 21

Receivables (Debtors):
- Receivable: legal right to obtain money from another entity; legally enforceable claim.
- A. Long-term assets: Long-term receivables (over 12 months) other than trade receivables.
- B. Short-term assets: Short-term receivables, including Accounts receivable (trade debtors) payable within 12 months, and Other receivables (e.g., court claims).

Page 22

Long-term investments (A. IV):
- Components: Property; Intangible assets; Long-term financial assets (shares, bonds, debentures, loans to others); Other long-term investments.
- Investment definition: Assets acquired to hold for earning economic benefits from appreciation, interest, dividends, or eventual resale.
- Distinction: Long-term investments are not used in day-to-day operations; may be held for future resale; typically maturing after 12 months or beyond.

Page 23

Current assets – Inventory (B. I):
- Tangible current assets; categories:
  1) Materials (raw/indirect materials)
  2) Work in progress
  3) Finished goods
  4) Merchandises (stock-in-trade)
  5) Advances for deliveries
Inventory serves as a bridge between purchase and sale; valuation methods and management of inventory levels are critical for cost of goods sold and profitability.

Page 24

Short-term investments (B. III):
- Definition: Receivables or securities expected to be realized/sold within 12 months of the balance sheet date or original purchase date.
- Components: Short-term financial assets (shares, securities, loans, cash equivalents) and Other short-term investments.

Page 25

Called-up share capital (C) and Own shares (D):
- Called-up share capital: shares declared but not yet contributed in cash.
- Own shares: treasury shares, shares repurchased by the company.
- These are negative values in equity accounts representing amounts not yet contributed or repurchased.

Page 26

Equity and Liabilities classified (overview):
- A. Equity:
- I. Share capital; II. Supplementary capital; III. Revaluation reserve; IV. Other reserve capital; V. Previous years' profit (loss); VI. Net profit (loss); VII. Write-off on net profit during the financial year.
- B. Liabilities and Provisions for Liabilities:
- I. Provisions for liabilities; II. Long-term liabilities; III. Short-term liabilities; IV. Accruals.
This page sets up the main structural components used on balance sheets.

Page 27

Equity definitions in more detail (A. I–VII):
- I. Share capital: ordinary or preference shares, at nominal value.
- II. Supplementary capital: excess of market value above nominal value; issued under legal provisions.
- III. Revaluation reserve: increases in value of long-term assets.
- IV. Other reserve capital: funds for special purposes or risk mitigation.
- V. Previous years’ profit (loss): undistributed profits or losses from earlier years.
- VI. Net profit (loss): profit or loss generated during the financial year.
- VII. Write-off on net profit: deduction/charges against profits during the year.
Retained profit: undivided net profit retained in the business.

Page 28

Provisions for liabilities (B. I):
- Definition: A present legal obligation with an uncertain timing or amount; may be long- or short-term.
- Examples:
- Provision for deferred income tax (future tax obligations).
- Provisions for pensions and retirement obligations.
- Other provisions (e.g., audit/consultancy fees; court claims; performance bonuses).

Page 29

Liabilities; Payables (Creditors) (B. II–IV):
- Definitions and scopes:
- Long-term liabilities: maturing > 12 months, excluding accounts payable.
- Short-term liabilities (B. III):
  - a) Accounts payable (trade creditors)
  - b) Current portions of long-term loans
  - c) Debt securities issued
  - d) Tax, customs, social insurance, and other liabilities accrued but not yet paid
  - e) Payroll liabilities (accrued wages)
  - f) Special funds
  - g) Other payables (e.g., returns claimed in court)
- Accruals (B. IV): accrued expenses; prepayments are the opposite deferrals.
Accruals vs prepayments: accruals record expenses before payment is made; prepayments are payments before the related expense is recognized.

Page 30

Accruals (B. IV) details:
- 1) Negative goodwill: a special case where price paid is below fair value of net assets acquired.
- 2) Example: accrued electricity charges – recognize as an accrual to match revenue with the period.
- 3) Other cases: accrued telephone bills, accrued bank interest, etc.
The concept emphasizes matching revenues and expenses and timing differences.

Page 31

Reiterates the structure of long-term vs current assets and liabilities, and the equity components (A. LONG-TERM ASSETS; B. CURRENT ASSETS; A. EQUITY; B. LIABILITIES AND PROVISIONS FOR LIABILITIES).
Balance sheet format reference: Polish official horizontal layout as at … with company name; CALLED UP SHARE CAPITAL and OWN SHARES in the balance sheet layout.

Page 32

Classified assets (British style):
- A. Noncurrent assets (Long-term assets): I. Land; II. Buildings and Equipment; III. Assets acquired by capital lease; IV. Intangible assets; V. Long-term investments; VI. Other non-current assets.
- B. Current assets (Short-term assets): I. Inventories; II. Accounts Receivable; III. Short-term marketable securities; IV. Cash and cash equivalents; V. Prepaid expenses; VI. Deferred tax assets.

Page 33

Classified capital (British style):
- A. Owners’ equity: I. Common stock; II. Preferred stock; III. Additional paid-in capital; IV. Treasury stock; V. Retained earnings; VI. Accumulated other comprehensive income (loss).
- B. Noncurrent liabilities: I. Long-term debt; II. Deferred tax liabilities; III. Other noncurrent liabilities.
- C. Current liabilities: I. Short-term debt; II. Current maturities of long-term debt; III. Accounts payable; IV. Unearned revenue or deferred credits; V. Payroll taxes and other withholdings; VI. Other accrued liabilities.

Page 34

Balance sheet template layout: Total assets = Total equity and liabilities; Balance sheet format with sections for long-term assets, current assets, equity, noncurrent liabilities, current liabilities; polish naming conventions.

Page 35

Proprietor’s capital (sole proprietorship):
- The owner runs the business; initial capital provided by owner; drawings reduce capital.
- Example: A simple T-account style illustration showing cash, capital, drawings, and profit. The slide demonstrates that opening capital equals cash in business, and prompts understanding of capital maintenance in proprietorships.
Key concept: Drawings reduce the owner’s equity; profits increase it.

Page 36

Continued discussion of Proprietor’s capital:
- Retained profit is the portion of profit kept in the business after drawings.
- The example shows cash balance, capital contributed, and retained profit; retained profit belongs to the owner but remains in business until withdrawn.

Page 37

Partners’ capital (partnership):
- When two or more owners form a business, capital contributions are recorded for each partner (e.g., Smith, Owen).
- The slide presents a simplified illustration of a partnership with multiple capital accounts, drawings by partners, and changes in cash balances.

Page 38

Partners’ capital (continued):
- A balance sheet style illustration showing partner capital accounts and retained profits; partners withdrawing money may reduce cash while retained profits remain within the partnership.

Page 39

Corporation owners’ capital (equity):
- A limited company is a separate legal entity; ownership is via shares; dividends are determined by profits and policy.
- Example diagram shows cash increasing with paid-in capital, net profit, and possible dividends; the balance between cash and equity accounts is illustrated.

Page 40

Corporation owners’ capital (continued):
- Emphasizes that dividends can be paid if profits exist; no personal drawings from the company by owners; dividends depend on the board’s policy.
- Stock terms: common stock, preferred stock, additional paid-in capital, etc., are all components of shareholders’ equity.

Page 41

Ownership terminology: The slide maps terminology across English/Polish/other conventions for equity components (paid-in capital, common stock, preferred stock, additional paid-in capital, etc.).

Page 42

Revenue and earnings definitions:
- Revenue: inflows of economic benefits during the period from ordinary activities, increasing equity other than contributions by equity participants.
- Recognized when it is probable that future benefits will flow to the entity and can be measured reliably; measured at fair value of consideration received or receivable.
- Primary sources: sale of goods, rendering of services, use by others of entity assets yielding interest, royalties, and dividends.

Page 43

Expenses and losses definitions:
- Decreases in economic benefits during the period in the form of outflows or depletions of assets or incurrence of liabilities that reduce equity (excluding contributions).
- Includes costs of sales, wages, depreciation, etc. Losses are decreases in economic benefits that may occur in or outside normal operations.

Page 44

Classification of revenues and expenses (brief framework):
- Revenue side: Operating Revenue; Financial Income; and categories such as Sales Revenue and Other Operating Income/Gain; sales of goods, merchandise, materials.
- Expenses side: Operating Expenses; Financial Costs; Cost of Sales; Other Operating Costs/Loss; Cost of Products Sold; Cost of Merchandise Sold; Cost of Materials Sold.

Page 45

Other Operating Income/Cost (OOI and OOC):
- OOI examples: gain on disposal of intangible assets; gain on disposal of PPE; reversal of impairment; one-off income; government grants; donations.
- OOC examples: loss on disposal of intangible assets; impairment; one-off costs; royalties; grants and donations given.

Page 46

Financial Income/Cost (FI/FC):
- FI: interest income, gains on FX adjustments, finance lease income, dividends from associates, etc.
- FC: interest costs, pension-related interest, finance lease costs, FX losses, borrowing costs, bank fees, discounted liabilities.

Page 47

Cost classification 1–4 (intro):
- 1) Costs by Nature (nature of expense).
- 2) Costs by Objects (cost objects; products/services; direct costs plus allocation of overheads).
- 3) Costs by Function (operating costs, development costs, etc.).
- 4) Variable vs Fixed (capacity) costs.
- 5–7 continue more classifications (not fully enumerated here but include Direct vs Indirect costs).
The slide emphasizes multiple dimensions for costing used in managerial accounting.

Page 48

Costs by Nature (detailed):
- Examples include depreciation and amortization; materials and energy; outsourced services; taxes and charges; payroll; social security; other costs by nature (labor-related costs, insurance, travel, etc.).
- Distinguishes costs by nature and notes that the breakdown should be detailed and aligned with reporting needs.
The P&L is presented with a nature-based classification.

Page 49

Costs by Objects (detailed):
- Cost objects could be products (e.g., sawn timber, tissue paper, paperboard, etc.).
- Direct costs traced to objects; indirect costs allocated to objects (overheads).
- G&A and other period costs are not allocated to cost objects; treated as period costs.

Page 50

Direct vs Indirect costs (Cost classification 2):
- Direct costs are traced to objects; indirect costs are allocated.
- This lays the groundwork for product costing and profitability analyses.

Page 51

Costs by Function / Function of Expense (Cost classification 3):
- Direct costs include direct materials and direct labor.
- Indirect costs (overheads) include indirect materials, indirect labor, factory utilities, depreciation, maintenance, manufacturing overheads, etc.
- Non-manufacturing overheads (sales, admin) are not allocated to cost objects.
- Example subcategories: Direct energy; Direct tooling; Indirect energy; Indirect contractors; Indirect tooling.

Page 52

Production costs and related cost terminology:
- Production costs include purchase of goods (e.g., wood) and all direct/indirect costs (including depreciation and payroll) associated with revenue for the year.
- Research and development costs: attributable direct/indirect costs; R&D expensed as incurred; development costs capitalized when product is technically and commercially viable.
- Sales and distribution costs: costs for selling and distributing goods, promotional campaigns, staff, impairments, sponsorships, advertising, depreciation.
- Administration costs: management/administration, personnel, premises, office costs, depreciation.

Page 53

Profit and Loss Account (P&L) – structure by function:
- Net Sales (NS) minus Cost of Goods Sold (COGS) = Gross margin (GM).
- GM minus Selling & Distribution Expenses (S&D) and plus/minus Other Operating Income (OOI) and R&D yields Earnings Before Interest and Tax (EBIT).
- EBIT minus Financial Income (FI) and Financial Expenses (FE) yields Earnings Before Tax (EBT).
- EBT minus Corporate Income Tax (CIT) yields Earnings After Tax (EAT).
This page provides the classic step-down P&L chain used in many textbooks.

Page 54

P&L by nature vs by function:
- By nature: the main captions include operating costs categorized by their nature (e.g., depreciation, payroll, materials, etc.).
- By function: group costs by function (production, sales, admin) and present main captions like NS, COGS, GM, OPEX, EBITDA, EBIT, EBT, CIT, EAT.
The slide emphasizes relationship between outputs and the captions on the P&L.

Page 55

Transaction types and their effects on the accounting equation (Assets vs Liabilities) are illustrated as a 4-step example:
1) +A, +L
2) -A, -L
3) (illustrative placeholder)
4) -A1 + A2 - L1 + L2
This page appears to set up a generic framework for thinking about double-entry postings and the effect on assets and liabilities.

Page 56

Recording transactions (core documents and processes):
- Each transaction must be recorded based on source documents.
- Books of accounts: Journal (G/J), General Ledger (G/L), Subsidiary Ledgers (S/L), Trial Balance (TB).
- Source documents: outside external (suppliers/customers), outside internal (invoices, remittance advices), internal (payroll, internal notes).
- The page emphasizes the linkage from source documents to journals to ledgers to TB and then to financial statements.

Page 57

Accounting source documents: essential components include ID/code, transaction partners, description/value, signature, and recording instructions.
The purpose is to ensure traceability and auditing of the transaction recording.

Page 58

General Journal entry and Combined General Journal + General Ledger entry:
- GJ: date, debit entry, credit entry, and brief description.
- GJ+GL: include entry number; narration; transfer from journal to the ledger; debit and credit with proper accounts.
The page outlines the mechanics of posting entries in double-entry bookkeeping.

Page 59

Posting accounts and chart of accounts:
- Chart of accounts maps accounts with unique numbers/codes for quick location in the ledger.
- Posting accounts include: Assets, Liabilities, Capital, Revenues, Expenses.
- Sub-ledgers (e.g., Accounts Receivable Subledger) complement the general ledger.
The slide ends with a prompt: which source documents are posted to posting accounts?

Page 60

Types of posting accounts and sub-ledger concepts:
- Nominal accounts: GL accounts that reflect earnings and expenses (revenues and expenses).
- Real accounts (Asset/Liability/Equity): carry balances; close to zero at period end.
- Contra-accounts: offsetting accounts that reduce the balance of a related account (e.g., accumulated depreciation vs. asset).
- Control accounts: summarized balances in GL with detailed sub-ledgers underneath.
Sub-ledgers example: Accounts Receivable sub-ledger ties to Accounts Receivable control account.

Page 61

Personal vs. impersonal accounts:
- Personal accounts: trade debtors, trade creditors, debenture holders, investors (individuals/entities).
- Impersonal accounts: Nominal (Revenue, Expense, Purchases) and Real (Cash, Stocks, Fixed assets).
There should be a separate account for each person or entity; balances must be knowable; transfers to P&L at period end; real assets appear on the Balance Sheet.

Page 62

Balance sheet mechanics: distinction between BS and P&L accounts; balances in BS accounts are carried forward; P&L accounts are closed into an Income Summary or equity at year-end; revenues and expenses are transferred to P&L; next year starts with zero-balance Revenue/Expense accounts.

Page 63

Contra-accounts (detailed):
- Types: Contra-assets, Contra-liabilities, Contra-sales, and Contra-purchases.
- Characteristic: offset the balance of a regular account; must be linked to a regular account; the net value is the difference between the regular account and its contra-account.

Page 64

Example of accumulated depreciation as a contra-asset account example:
- Fixed assets purchase value: 30,000
- Accumulated depreciation: 10,000
- Net book value: 20,000
The slide illustrates how contra-asset accounts reduce asset balances to present net values on the balance sheet.

Page 65

Example of contra-sales and AR interactions:
- Sales revenues: 30,000
- Less: Sales discounts: 1,000 (contra-sales posting account: Sales discounts)
- Net sales: 29,000
- AR posting account: 30,000; discounts reduce revenue in the net figure.
- This demonstrates how contra accounts are used to reflect price concessions.

Page 66

Another contra-asset example for intangible assets: Accumulated Amortisation against Intangible Assets; similar to depreciation for tangible fixed assets.
Illustrates how depreciation and amortization reduce asset carrying values over time.

Page 67

Trial Balance working (TB):
- The totals of debit and credit balances in the ledger must agree in TB.
- Debits must equal credits; if not, double-entry mistakes exist.

Page 68

Errors in Trial Balance (two categories):
- Errors that do not affect TB balance (Errors of principle, Omissions, Compensatory errors, Original entry errors).
- Errors that affect TB balance (Duplication, Other principle errors, Single-entry errors).
The slide outlines diagnostic categories for TB imbalances and misposted entries.

Page 69

The accounting cycle overview:
- The process of maintaining books: from Journal to Ledger to Trial Balance to Final Report.
- Stages: Journal, Ledger, Trial Balance, Final Report.
- Emphasizes the flow of original transactions and source evidence through the process.

Page 70

A Sales example workflow:
- Sales transaction recorded in Sales Journal; Accounts Receivable sub-ledger updated; GL updates; TB verification; final reporting.
- Emphasizes cross-checks between sub-ledger and GL balances (AR subledger to AR control account in GL).
- Overdue AR reporting is an example of a managerial report.

Page 71

General ledger accounts (nominal accounts) arranged as a matrix of assets, liabilities, equity, etc. (illustrative layouts):
- A. Long-term assets (I–VI) and B. Current assets (I–VI).
- A. Equity accounts (I–VI) and B. Noncurrent liabilities; C. Current liabilities (I–VI).
The page uses a matrix-like diagram to show how accounts are organized.

Page 72

Posting T-accounts – fundamentals:
- Account side labels: Debit (Dt.) and Credit (Ct.).
- Opening balances, posting, closing balances, and footings.
- Example shows the format of a T-account with opening balance, debits, credits, and closing balance.

Page 73

Paged: Pagina posting account (loose-leaf account): a look at monthly postings.
Key features: Debit entries for current month; year-to-date totals; closing debit balance; year-to-date credit totals; closing credit balance.

Page 74

Worked example of posting accounts (Bank account and Bank loan example):
- Debit and credit sides illustrate how transactions move across asset and liability accounts.
- Demonstrates the two-sided nature of each entry in double-entry bookkeeping.

Page 75

Summary slide: Double-entry bookkeeping rules:
- Every transaction is posted to at least two accounts and on opposite sides (Dr and Cr) for the same amount.
- Example pairs: Asset accounts and Liability accounts; Cash in bank vs. Bank loan; Inventories vs. Supplier payables.
Emphasizes that accounts are recorded in a balanced way across the accounting equation.

Page 76

Division of posting accounts (categories of assets):
- Tangible assets split into: Land, Buildings, Machinery, Vehicles, Equipment, and other fixed assets.
- This page sets the stage for organizing posting accounts by asset type.

Page 77

Division of posting accounts – illustration of asset subledgers and their controls:
- Vehicles, Buildings, Machinery, Equipment, and other fixed assets connect to fixed-asset control accounts and subledgers.
- Mentions memo/bracket entries in subledger context (bracket entries, memorandum accounts).

Page 78

Example balance sheet style sequence showing Equity vs Assets:
- Demonstrates equity transactions affecting cash and/or inventory; equity T-accounts and equity changes across periods.
- Shows equity transactions in a format that highlights how equity changes with asset movements.

Page 79

Equity, assets, liabilities – continuing example:
- Demonstrates the interaction of equity accounts with asset accounts; shows how retained earnings interact with other equity components.
- Indicates that dividends and earnings affect the composition of equity.

Page 80

Division of Capital accounts (equity) and Retained earnings interactions:
- Illustrates retained earnings as a component of equity, and how increases in earnings increase equity while decreases due to losses or distributions.

Page 81

Profit & Loss Control Account and Income Summary mechanics:
- The Profit & Loss Control Account summarizes revenues and expenses.
- Income Summary is used to transfer balances into P&L accounts at year-end.
- Revenues are entered on the credit side; expenses on the debit side in a standard arrangement; the net result transfers to Retained Earnings.
End-of-year transfer: net profit increases equity; net loss reduces equity.

Page 82

Generally Accepted Accounting Principles (GAAP) overview:
- Aim of financial reporting is to inform external users about the company’s financial position.
- Primary outside users are long-term investors.
- Financial accounting is a historic record of transactions; main aim is profit measurement (revenue minus expenses).
- Realization principle: revenue is recognized when earned; measurement uses consistent rules; local GAAP variants exist (US, UK, German, Polish, etc.).
Polish GAAP influenced by the Accounting Act 1994; cross-jurisdictional references.

Page 83

Accounting Principles (1): List of 19 principles including: Accrual basis, Matching, Business entity, Monetary measurement, Historical cost, Going concern, Realization, Prudence, Consistency, Materiality and disclosure, Substance over form, Periodization, True and fair view, Understandability, Comparability, Reliability, Relevance, Timeliness, Cost-effectiveness.
Note: Principles are underlying assumptions that guide accounting records and statements.

Page 84

Head Principles (1): Accrual basis – revenues recognized when earned; expenses recognized when incurred; asset/liability impacts on the balance sheet when revenue or expense occurs.
Revenue recognition rules (A): Revenue is earned when products are delivered or services provided; realized when cash is received; realizable when cash is reasonably expected.
Accrual basis means recording transactions as they occur, regardless of cash movements; period matching of revenue and cost.

Page 85

Head Principles (2): Matching revenues with expenses – expenses relate to revenues in the same period; if a cost relates to future periods, it should be spread accordingly; if future benefit cannot be determined, charge to expense immediately.
Matching principle elaboration: (a) no revenue without cost and no cost without revenue; (b) revenues and costs matched; (c) identified with a specific period; (d) profits measured as difference between revenue and cost in the same period; (e) ensures realistic profit measurement.

Page 86

Head Principles (3)–(5):
- (3) Business entity principle: personal assets of owners are separate from the business.
- (4) Monetary principle (money measurement): financial statements express activities in monetary terms; assets and liabilities are assigned values; some non-monetary attributes are not captured.
- (5) Historical cost: tradeable stocks valued at the price paid; finished goods at manufacturing cost; fixed assets at original cost plus necessary acquisition/installation costs.
This page reinforces the foundational monetary measurement approach and historical cost basis.

Page 87

Head Principles (6) Going concern; (7) Realization, (8) Prudence, (9) Consistency (and related sub-points):
- Going concern: assume entity will continue; if liquidation, disclose assets/liabilities at realizable values and inform capital providers.
- Realization: revenue earned when sale occurs; cost associated with sale; profit equals difference between revenue and cost.
- Prudence: recognize revenue and profits conservatively; recognize losses; assets valued at lower of cost and net realizable value; liabilities valued at full amounts; avoid overstating assets or income.
- Consistency: same treatment across periods; changes require disclosure and justification; for listed companies, auditor approval may be needed.

Page 88

Additional principles: Prudence/Conservatism details with practical examples (NRV for receivables, prudent valuation of liabilities).
Examples of conservatism in practice: valuation of receivables at NRV; valuation of payables at full due amounts; materiality considerations and disclosure requirements.

Page 89

Principles (10) Materiality and disclosure:
- Financial statements should disclose all material items; materiality is a matter of judgment; amounts are often rounded or expressed in thousands.

Page 90

Principles (11) Substance over form and (12) Periodization:
- Substance over form: transactions are recorded and interpreted according to economic reality, not just legal form.
- Periodization: life of an entity is divided into periods (accounting year; quarters; months); transactions identified with specific periods; financial statements presented periodically.

Page 91

Additional list of principles (13) True and Fair View; (14) Understandability; (15) Comparability; (16) Reliability; (17) Relevance; (18) Timeliness; (19) Cost-effectiveness (note: order and wording may vary by slide).
True and Fair View: financial statements should present a true and fair view of the company’s financial position and performance.

Page 92

Consolidated statements example ( Telefónica S.A. 2012 IFRS):
- Illustrates that consolidated statements are prepared from the accounting records of the parent and its subsidiaries.
- Uses IFRS accepted by the EU; emphasizes true and fair view across a group.

Page 93

General VAT (Value Added Tax) rules (overview):
- Output VAT: VAT on sales invoices issued by seller to buyers.
- Input VAT: VAT on purchase invoices from suppliers.
- VAT liability: Output VAT minus Input VAT.
Practical implications of VAT in terms of timing and recognition across financial statements, CIT, and working capital considerations.

Page 94

VAT credit example (Input VAT on outsourced services):
- Illustrates the concept of Input VAT credit against Output VAT for a given period.
- Shows an example bookkeeping entry: VAT on purchase invoice and liability to suppliers.

Page 95

VAT credit sale example (Output VAT):
- Illustrates the accounting for Output VAT on sales invoices and corresponding Accounts Receivable.
- Demonstrates the dual impact on revenue recognition and VAT liability.

Page 96

VAT workings (summary):
- Consolidated VAT computations and their impact on financial statements; practical VAT calculations and journal entries.
- The slide marks the end of the material with VAT-related workings.
End of notes.