 Hey guys, it's MJ the student's Actory and this is subject CT2 chapter 7, which is the introduction to accounts and What I'm hoping to achieve in this talk is just give you a very brief introduction to accounting And you may have heard of accountants. They are the arch enemies to Actory's Because they think they know more about finance than we do But they are mistaken. We are the the dominant profession when it comes to finance But what accountants are very good at is understanding the accounts and the counts form almost the backbone of Accompany and What they do is it's from accounts that we see financial information In a way that is presented to shareholders or various parties to help them make decisions So without further ado, let's jump in to what accounts are And I think the best way to do it is to carry on our example So example, we have bought a factory and we're manufacturing shoes What we decide to do or what is quite a smart thing to do is to keep an account of All the various financial transactions that are happening. So let's say I buy the factory for 10 million rand I write that in my journal Let's say I employ 10 people and I'm paying them 30,000 random month each. I list that as an expense Let's say people buy a hundred pairs of shoes every day. I list that as an income and What will I start doing is I start writing down all the financial transactions that my business does and What it's going to be done is going to be done on a well I'm going to publish publish these accounts Each year in order to report back to to my shareholders and I want to show them at the end of the day I think the most important number is how much profit has been made So what the accounts do is they say these were the expenditures or the cash flows going out of the business What was my income or the cash flows coming into my business? Looking at the two doing some accounting calculations and adjustments and I arrive at my profit Hopefully it's a profit if the income exceeds the expenditure Otherwise, it's going to be a loss and the main users of accounting information are equity investors loan creditors employees and business contacts Equity investors they're very interested in this because they want to see this This shoe factory once 10 million, but they're not generating any profit. Why should I why should I invest with them? Or the loan creditors will say wow these guys are making a healthy profit every single year It will be safe for us to lend their money to build another factory Because then they'll make even more shoes and they've got quite a good business model going on Employees I mean we've got here that employees use the accounting information I guess they want to see how secure their job is if I'm working at a shoe factory And they're making a loss every single year Then I need to start thinking wow I might need to find another job soon because this factory might close down and Also now with business contacts if I'm a sports company and I need a whole bunch of shoes made for my sports team and I come across Two various companies each company says they can make the shoes for me I look at their accounts the one company or they're making a healthy profit the other one They're losing money, so I know that there's less counter-party risk by going with the company that is making a profit Although I could become a little bit sneaky and say to the company that's losing money Well, I want a discount and you better take it on because I see you don't have any other contracts going on so I Want I want the shoes almost a cost price, which the company might agree to just to cover its other expenses So it can get a little bit sneaky sneaky another user of the accounts could be You know regulators they want to make sure that the shoes are being made in You know the correct way. I mean look regulation is probably gonna be more plays a bigger role in say insurance and financial industries, but they could be some sort of regulating governing body around the other industries and What so what let's say my company I've got my company and I start need to making the various accounts What are the various types of accounts that I need to make? Well the one is the balance sheet So the balance sheet as the name suggests it has to balance at the end And you've got your your assets your liability and your equity You then got your profit and loss accounts. This is showing all your various cash flows and What you're gonna find is sometimes it's not possible or becomes messy if you try putting all the details on these account So sometimes you'll have notes and then you'll have detailed disclosures explaining all that type of stuff The chief directors of the business might write a report saying this is this was a tough year for the company for example We perform badly because it wasn't good market conditions. However, we've taken XYZ actions in order to rectify the situation and we're very confident for the year ahead So the director might write something of that Of that form and then if it's a public trader company or even some private trader companies get this as well Is they'll get an auditors? Auditors are our accountants South Africa your chartered accountants of South Africa and They come in and they go through your accounts They read through your books and they make sure that you've recorded everything correctly because It's quite easy to just say oh We bought the factory at this amount instead or oh we actually sold this amount of shoes when you didn't and you could Crook the books so that it appears like your business is making a profit because remember on the stock exchange You could have an investor who's in another country or in another town and he's not seeing your shoe factory every single day he's relying on this piece of information and He knows that you have an incentive to crook the books to make it look better than what it is So he'll feel much more at ease if a third party who's independent Comes in and make sure that the books are performed correctly And this is where you've got this is what a lot of accountants do for Ernest and young PWC KPMG what they do is they rent out Accountants they go to these big companies. They check the books They make sure everything's okay, and then they sign off And when it comes to accounting, I mean, there's there's different types of doing there's different ways of doing accounting So the accountants have got together and they have published certain standards like how we're gonna treat The sale of an asset or what do we do when income is received in advance all these various things? And this is maybe a little bit of homework for you guys to go and do is that there are 10 important accounting concepts that you want to get your your head around They are money measurements cost materiality consistency business entity Realization accruals dual aspect prudence and going concern so go through those those 10 concepts learn their definitions and Yeah, I hope this has been a great little introduction To the world of accounting stay subscribed as we will be talking about chapter 8 soon