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Introduction to Financial Accounting

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Course Contents

Definitions

The Need to Keep Accounts

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Financial Accounting

A discipline concerned with collecting accounting

data, classifying the data and summarizing intoreports.

Financial accounting reports are designed for thepublic to facilitate economic decisions. These usersare both internal and external to the organization.

The collection of accounting data is with respect tospecific accounting entity and specified time.

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Management Accounting

A discipline concerned with the techniques of

providing information to the management inorder to help the management to makedecisions.

Management Accounting in addition to using

accounting data it borrows information fromother discipline such as economics andquantitative methods .

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Management Accounting

Management Accounting provides

information relevant for Controlling the current activities of an organization

Planning its future strategies

Measuring and evaluating performance

Optimizing the use of its resources

Reducing subjectivity in the decision making process

Improving internal and external communication

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Financial Management

A discipline concerned with effective and efficientacquisition of resources as well as the use orallocation of these resources.

Relevance of Financial Management to FinancialManager It is a tool for analyzing the cost effectiveness of sources of

funding of their business organization

Managers are able to allocate the resources in the projectsin a cost effective way

Managers can secure sources of funding at the right timewhen resources are required.

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Auditing

A discipline concerned with the examination of , and

expression of opinion on, the financial statements ofan organization .

It involves examination of certain evidence tosupport findings and making an independent reportthereon.

Involves the examination of completed books ofaccounts and giving an opinion or a report on thefinancial statements.

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Taxation

The discipline concerned with the study of laws that impose taxresponsibility upon individual citizens or corporate entity.

Since tax responsibility can affect future business operations incase non observance or ignoring these laws it is important formanagers to be aware of the tax environment in which theirbusiness are operating.

Managers are in power to enforce conformity to tax laws if onlyare aware of their organizations tax obligations.

Non compliance to tax laws might attract serious penalties andinterest which might jeopardize organization cash flows

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Why Keep Accounts?

The history of keeping accounts can be traced back to the

merchants of Venice in the11th century. They found that it became difficult to control their businesses

without writing down all the transaction they had contracted,who they owed money to and who owed them money.

Good financial records are the basis for good financialmanagement of an organization.

Keeping accurate records promotes integrity accountability andtransparency.

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There are many reasons for ORGs to keep proper accounts:-

Access information for decision making.

Information from the accounts helps managers and others to

make decisions about the organization. Without it, it is difficult to make sound financial decision about

the organization's future direction.

Avoid suspicion of dishonesty.

ORGs especially need to be seen to be scrupulous in their

handling of money. Those responsible for the financial affairs are in a vulnerable

position if the organization fails to produce accounts that can beinspected by interested parties.

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Legal requirement.

All organizations are set up within a particular legalframework, e.g. as company limited by guarantee oras un incorporate body.

The law requires accounts to be produced as oneway of safeguarding stakeholders interests.

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Accountability.

Every organization has a moral duty to account forits operations to stakeholders.

An ORG must demonstrate that it is using financialresources for the purpose for which they wereintended, and in the interests of its various

stakeholders.

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Donors relationships.

Donors, being among the major stakeholdersin most ORGs, need to be furnished withaccounts so they can assess whetheroperations are being carried out as outlinedin partnership agreement.

Donors use accounts for making decisionson whether to support or continue to supporta project.

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Exercise 1

ABC Ltd is a company Based in Tanzania. The Company started businessoperation since 1971. The Company has a Business Manager who is assistedwith the Chief Accountant to manage Business affairs of the Company. Since

then AXY Authorized Accountants and Auditor has been auditing the firm andthe firm has been issued with clean auditing reports. However, recently theRevenue and Tax Authority conducted Tax Investigation Audit and came upwith the report which created doubts as to whether Auditing was conductedprofessionally. The Revenue Authority subjected the company to a tax liabilityof $300m due to non tax compliance of various taxes over the past 5 Years.The report angered the Companys Board of Directors and the Board decidedto change the Auditors.

Discussion Questions

1. Determine whether the decision of the Board was correct2. What was the role of the Auditors in this scenario?3. What do you think were the reasons for non compliance to tax laws?4. What is your recommendation to ensure that the company is not experiencing

the same problem in the future?

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Exercise No 2

XYV Ltd is a new Telecommunication Company registered inTanzania. The Board of Directors of XYV will be holding its first

annual general meeting at the end of this month. As a ChiefExecutive Director of one of a reputable company in Tanzaniayou have been appointed to be one of the board members ofXYV Ltd. One of the agenda of this meeting is to appoint theExternal Auditors of the Company.

Required

1.Advice the Board as to what factors should be considered

in selecting the Auditing Firm of XYV Ltd.2. What are the procedures need be followed before the new

auditing firm starts its work.

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Exercise No 3

Kimberly Resources is a Manufacturing firm producing andselling plastic products in your country. The firm is considering

its employee remuneration package for the next financial year.Despite of the increased competition in the industry thecompany is still doing very well in terms of profitability and itscash flow. As one of the manager of this company assist thecompany in designing a better remuneration package for its

junior staff that is likely to motivate the staff without jeopardizing

the company operations taking into consideration the existingtax laws in your country. What other assumptions will you takeinto consideration?

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THE END