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Hi, welcome to the first lesson in this course today, we will learn about the finance from one side

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accounting and bookkeeping.

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So by the end of today's lesson, you should be able to distinguish between these three related topics.

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Let's start with an example from a small business.

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So here we have a barbershop and a.

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In a one day, we noticed all these activities, so if you look at these these all activities, these

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are events and these in the business are called transactions.

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So a transaction is an activity or an event where the business interact with an external party.

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So in the first example, the business is interacting with the customers.

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Second one will be with the supplier and so on and so forth.

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Now, some of these transactions will have a financial impact.

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So they will have monetary impact.

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They will impact the business financially.

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These transactions are called financial transactions.

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So in any business, what I need you to start to think now is what of the types of financial transactions

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this business will be involved in?

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And once you know that, it's easy to understand that accounting is just the process of identifying,

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measuring and communicating these financial transactions.

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So what accounting does is just identify.

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So accountants will say, OK, this is financial transaction.

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This is not a financial transaction.

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If it is a financial transaction, then the account, the need to measure it.

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So what its value?

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It needs to be given a monetary value.

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It has to be assigned with a value ten pound, two hundred pound, fifty pound, two hundred dollars,

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whatever.

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It has to be given a value.

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It has to be recorded in a system and it needs to be communicated.

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So accounting is just the process of doing that.

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Accounting is the process of identifying the financial transaction, measure it recorded and communicate

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these transactions to the users of these transactions.

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And that's why it's commonly known that accounting is the language of businesses.

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So accounting is the language of business because it communicates

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record.

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Please post the financial statements for each business.

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Now, what is the purpose of accounting?

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As we said, accounting is there to identify and record the financial transactions of any business and

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actually accounting try to answer too many questions.

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How much profit did the business make?

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And what is the value of the business?

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So the first question will be answered through what we call the income statement.

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This is will be our next topic, next lecture.

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And the second question, which addresses the what is the value of the business?

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This is also the through the balance sheet, which something we will study and lecture three.

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So these are the purposes of accounting in terms of types of accounting, we have two main types.

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The first one is what we call financial accounting.

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The second one is the management accounting.

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Now, financial accounting has two stages.

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The first stage is about the recording.

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So in this stage, all financial transactions on day to day basis will be recorded, it will be measured

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and identified and recorded.

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This process under the financial accounting is what we call book keeping.

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So the bookkeeping is only that part of financial accounting related to recording financial transactions.

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Once these transactions are recorded at the end of the period, at the end of the month, at the end

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of the quarter, at the end of the year, the business may decide to prepare the financial statements.

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So this is the second stage within financial accounting.

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Now, remember, financial statements are basically reports.

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So these are reports prepared by the business in order to show maybe the cash movement.

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So this is a through the cash flow statement, the financial position of the company.

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This is a through the balance sheet financial performance of the company.

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And this is a through the income statement.

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And we will have one designated lecture for each of these three statements.

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Now, management accounting, as the name may suggest, is the accounting and using the accounting skills

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for the management of the business.

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So it's how we utilize accounting skills to manage the business.

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And it has three objectives.

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It does help with planning, decision making and control.

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If we look at one exercise of that, which is the budget at the beginning of each year, most of the

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large companies, they will prepare a budget and the budget is simply just a list of all the expenditures

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of the business and the income of the business.

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OK, so one way is to utilize that budgeting for planning.

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So once we do the budget, that means we include what we plan to purchase, what we plan to sell, how

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much we plan to produce, and then we make the decisions on all of these planning that we addressed.

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And finally, we do the control and the control usually done through, for example, with the budget

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by looking at the actual number versus the projected number.

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So beginning of the year, you projected you will sell two hundred thousand point end of the year.

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You sit down and you look at your actual sales if it's below the two hundred thousand.

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But then you start to ask the question, why was that?

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And this is what we mean by control now.

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So if bookkeeping is just about recording the day to day business transaction, if accounting is the

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bookkeeping and the preparation of a financial statement, what is the finance now?

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Finance is the management of the accounts of the business.

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So in the income statement you have the first account is revenue, which is the sales, the turnover.

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Now finance will be how to manage this revenue, how to increase it, how to improve it, how to improve

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the quality of the revenue.

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So this is all will be under the finance.

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Let's apply that to our example of Mark Bulba.

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Let's throw in some numbers and let's see what we mean by bookkeeping.

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So at the end of the day.

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Mark or his accountant should have registered.

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All these transactions where there is a financial impact.

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So one account will be impacted is the cash and if you look at the cash, you will notice that cash

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increased by hundreds hundred how we when we have 24 customers who paid cash.

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So that's two hundred and forty.

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And he paid twenty five pound for, let's say, supplies.

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That's the second on the job.

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And he paid a hundred and fifteen pound in salaries.

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So the total hundred and forty, so two hundred and forty minus one hundred and forty that will leave

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a cash increase of hundred pound.

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Obviously you look at the revenue, the main point to notice here, we included the revenue from Iran,

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although we did not receive the cash for it.

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And this is what we call matching principles.

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So we recognize revenue when we deliver the service of the product.

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So since Mark already delivered the service of cutting the hair for RAM, we need to include that and

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recognize that in the revenue.

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So that will be the bookkeeping side.

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Accounting side is obviously where we keep registering all these transactions on day to day basis.

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And at the end of the month we prepared the financial statements to see how much profit we made, what

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is the value of the business and how was the cash position of the business.

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And finally, the finance side will be what to do with these accounts.

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So if we notice that revenue is not doing well, what can we do to improve that?

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Shall we run a marketing campaign, for example, if we notice that the cash is too high, how to manage

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the cash?

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Shall we open a new branch?

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Shall we redecorate the current branch?

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Shall we invest this cash in any other business to bring more diversification?

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So all these questions about managing the accounts, making them more effective, comes on the finance.

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So this is the end of today's lecture.

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I hope you enjoy it.

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And I look forward to see you in the next lecture, which will be about the income statement.

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So I'll see you then.

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Thank you very much.