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Introduction to Financial Accounting

Course leader: Paul Tuck (Winter Term) / Katie Balaam (Summer Term)
One term (15 units)

This course is taken in the first year, in either the Winter or Summer Term. Its aim is to provide students with an understanding of the role of financial accounting in the context of business. This course shows:

• How accountants attempt to keep score, that is, report on the success of the business in terms of profitability (the profit and loss account).
• How to create a statement of assets and claims at a particular point in time (the balance sheet).
• How the business has spent the money it has collected (the cash flow statement).

During the course students are also made aware that these statements are limited in their scope and must be interpreted if one wants to understand the financial position of the business.

Upon completing this course, students will be able to explain and apply accounting concepts that are used in preparing financial statements (the profit and loss account, the balance sheet and the cash flow statement), prepare, interpret and analyse such statements, and be aware of their limitations.

The course covers the following topic areas:

• Users of accounting information; desirable features of an accounting system; purpose and format of the balance sheet.
• The profit and loss account; the measurement of profit; accruals; fixed assets and depreciation.
• Stock valuation; bad and doubtful debts; preparation of accounts of sole trader.
• Types of business; the nature of a limited company; preparation of accounts for a limited company: taxation and dividends.
• Limited companies: shares, revaluations, bonus and rights issues; cash flows for sole traders.
• Cash flow statements for limited companies.
• Analysis and interpretation of financial statements.
• Investment ratios.

This course is assessed by both end of term test (15%) and written examination (85%).

Main text:

• Gowthorpe, Catherine, Business accounting and finance for non-specialists (2nd ed., London: Thomson Learning, 2005). ISBN: 978-1-84480-200-5.

Before purchasing any key texts, we recommend that you check for the latest edition with the Business School.