LW309 SRI LANKA LAW COLLEGE

Trust Accounts (SLLC)

& Book-Keeping Attorneys –At-Law Final Examination
Lecturer
2021 /2022
Sugath Nandasiri
Chartered Tax Advisor,
B.Sc. Accountancy and Financial Management(SP) USJ,
MBA (Sri Jayewardenepura),
MFE (Financial Economics) Colombo,
PgD ( Business Management) Colombo,
B.A (Peradeniya), MAAT,
Diploma in Banking & Finance (DBF) IBSL,
CIMA Adv. Dip in MA.
 Special Notice.
All students are strictly advised to use
updated learning materials provided by the
lecturer for 2021/2022 Examinations and
disregard previous outdated learning
materials collected from other sources.
 Unit-01
Introduction to Accounting
and Basic concepts.
 • What is Accounting?.
• Types of Business and FSs.
• Accounting Entity.
Unit -01 • Objectives of Accounting.
Introduction • Significance of
Accounting.
to Accounting • Accounting Information.
and Basic • Classification of
Accounting.
concepts.
• Accounting Process.
• Functions of Accounting.
• Business activities &
Accounting.
 Session 1 & 2
Introduction to Accounting and
Basic Concepts.
 Learning Materials
01. Lecture Notes .
02. Additional Readings.
03. Review Questions.
04. Past Questions.
05. Classroom Tests.
Sri Lanka Law College , Attorneys-At-Law :Final Examination, Trust Accounting By Sugath Nandasiri 6
 Syllabus ( Unit -01) 5%
01. - Define Accounting and Basic Concepts.

02. - State the difference between Financial Accounting and

Management Accounting and Accounting process.

03. - Identify the stakeholders involved in a business organization and

their respective information.

04. - Identify the Management Accounting Process and Financial

Accounting Process.
- Explain Financial Accounting Process.

05. - Identify relationship between Business activities and Accounting.

Sri Lanka Law College , Attorneys-At-Law :Final Examination, Trust Accounting By Sugath Nandasiri 7
 Learning Outcomes
After studying this unit, you should be able to ;
• Define “Accounting”
• Explain the main functions of accounting and the relationship
between each function.
• Identify the attributes of Accounting.
• Explain the objectives of Accounting.
• Explain the difference between Financial Accounting and
Management Accounting.
• Identify the stakeholders involved in a business organization and
their respective information.
• Identify relationship between Business activities and Accounting.
 Why should Lawyers know
Accounting. ?

Personal Business Finance

Finance ( legal firm).

Trust
Accounts ? Competitive
Advantage.

Legal profession in
the field of Business
Judgment on a
& Finance Legal Case.
 What is Accounting ?
“Accounting is a process of identifying, measuring and
communicating economic information to permit informed
judgments and decisions by users of information”
American Accounting Association (AAA)

“Accounting is a system that collects and processes (analyses,

measures and records) financial information about an
organization and reports information to decision makers”
Robert Libby and Daniel Short

Sri Lanka Law College , Attorneys-At-Law :Final Examination, Trust Accounting

By Sugath Nandasiri
 What is Accounting ? cont.…

“Accounting is the art of recording, classifying and summarizing in

a significant manner and in terms of money, transactions and
events which are in part at lease , of financial character , and
interpreting the results thereof ”
American Institute of Certified Public Accountants (AICPA)

“Accounting is a service activity. Its function is to provide

quantitative information primarily financial nature about economic
entities that is intended to be useful in making economic decisions
, in making reasoned choices among alternative courses of action”
Accounting Principles Board of AICPA

Sri Lanka Law College , Attorneys-At-Law :Final Examination, Trust Accounting

By Sugath Nandasiri
What is Accounting ? cont.…

• “ Accounting is the entire process of providing relevant economic

information on the business entity to the interested parties (Concerned
Stakeholders) to make appropriate economic decisions.”
- Economic information.
- Business / Accounting entity.
- Accounting process.
- Stakeholders.
- Decision making.
 Nature of a business and its
functions.
• Any economic activity which fulfils human needs and wants is
known as business . It is operated to achieve a certain objective or
goal. Main objective of a business is to make profit while some
organizations are carried out not for profit.
• Businesses can be categorized into three broad categories based on
the nature as follows,
- Production business
- Trading business
- Service business
 Accounting Entity.

• Accounting entity is the entity for which accounting activities

or functions are carried out. Accounting entity may be an
individual, an institute, a state or a nation.
• Accounting functions are carried out on behalf of the
Accounting entity.
Example: Mr.A , ABC partnership , Sri Lankan economy, PQR
PLC or Limited liability company.

Sri Lanka Law College , Attorneys-At-Law :Final Examination, Trust Accounting

By Sugath Nandasiri
 Objectives of Accounting.
• Main objective of Accounting is to communicate economic
information about the entity that will enable interest
stakeholders to make economic decision based on such
information.
• Accounting provides economic information regarding the
Accounting Entity through Financial Statements which
includes information about Assets, Liabilities, Equities,
Incomes and Expenses.
Objectives of Accounting cont.…

Other objectives of Accounting

• Controlling economic resources.
• Decision making on resource utilization.
• Calculation of economic result.
• Legal requirement.
 Significance of Accounting

Significance of Accounting

As a Social As a Source of As a Mean of

Phenomenon Information control
 Significance of Accounting…
Accounting as a Social Phenomenon.
Accounting provides vital information in decision making for various parties . More
importantly , investors are provided information regarding their business such as profit or
return on investment, total assets and liabilities and risk associated in the business etc.. As
a result , investors are more confident to invest their money. Accounting supports
investment of the economy to increase. Increasing in investment helps to create more
employment opportunities and increase in income . This economic climate accelerates the
economic development.

Provides Increase in
Increase in Increase in Economic and
Accounting information on Social Development.
investment investment employment
 Significance of Accounting…

Accounting as a mean of control.

Accounting acts as a mean of control by providing useful information to the

managers in a business entity. Managers can make important decision on assets,
liabilities , income and expenses to control and minimize the wastage of resources.
Management accounting and accounting analysis make available more important
information over control of the company.
 Significance of Accounting…
Accounting as a Source of Information.
.
Accounting is a medium of providing information to the internal and
external parties of a business entity. Accounting can be considered as an
information system through which financial information is converted
into financial output called Financial Statements.
A C C O U N T I N G

INPUTS PROCESS OUTPUT

Significance of Accounting…
Accounting as a Source of Information.
A C C O U .N T I N G

INPUTS PROCESS OUTPUT

-
Transactions - Identification. FINANACIAL STATEMENTS
and - Measurement. -Income Statement/ Profit and
- Recording. Loss A/C.
Events -Statement Financial Position /BS
( Financial , Internal & - Classification.
-Statement of Change in Equity.
- Summarizing.
External ) -Statement of Cash Flow.
- Analyzing. -Notes to the Accounts &
- Interpretation. Accounting policies.
 Accounting Information.
Accounting as a Source of Information.
.
“ Data that is accurate and timely, specific and organized for a purpose, presented within a context that
gives it meaning and relevance, and can lead to an increase in understanding and decrease in
uncertainty.” (www.businessdictionary.com)
“ Any fact which enhances the knowledge about something is known as information”
Information is valuable because it can affect behavior, a decision, or an outcome.
For example,
if a manager is told his/her company's net profit decreased in the past month, he/she may use this
information as a reason to cut financial spending for the next month.
A piece of information is considered valueless if, after receiving it, things remain unchanged.

DATA PROCESS INFORMATION

 Accounting Information…

INFORMATION

Quantitative Information Qualitative Information

Operating Activities
Non-Financial Financial Financing Activities
Information Information
Investment Activities
 Accounting Information…
Qualitative Characteristics of Accounting Information
ACCOUNTING INFORMATION

Comparability Cost and

Relevance Reliability &Consistency Clarity Simplicity Completeness
Benefits

Forecast value Accuracy

Feedback value Neutrality/objectivity
Timeliness Verifiability
 Classification of Accounting.
Accounting
Based on the necessity of Based on the Accounting Entities.
Information and parties.

1. Financial Accounting. 1. Personal Accounting.

2. Management Accounting. 2. Business Accounting.
3. Government Accounting.
4. National Accounting.
 Classification of Accounting…

Accounting
Financial Accounting Management Accounting.
Provision of financial information Provision of relevant information
about the past transactions and that will assist and support all levels
events of an entity to the external of management to plan, control,
parties in a manner that will make economic decisions in order to
enable them to make economic fulfill their responsibilities.
decisions.
 Classification of Accounting…

1. The decision makers to whom the information is provided.

2. The nature of accounting information provided.
3. The forms of financial reports prepared.

Financial Accounting Management Accounting

Information to the External Parties Information to the Internal Parties

Historical Information about transactions Present, future and past Information about
and events transactions and events

General Purpose Financial Statements Management Reports and Budgets

 Classification of Accounting…

Differences between FA and MA…

Financial Accounting Management Accounting
FA deals with historical information only. MA deals with historical information as well as
budgeted information.
FA provides information for both internal and external MA provides information to the internal parties only.
parties.
Information is provided for a specific period of time. Information is provided when the requirements come
as per the demand of the mangers.
Accounting concepts, standards, rules and regulations Accounting concepts, standards, rules and regulations
are used in preparing financial reports. are not used in preparing financial reports.
Differences between FA and MA (Some
more differences)…
❖ Users of information.
❖ Forms of financial reports.
❖ Nature of accounting information.
❖ Legal requirement.
❖ Application of information or purpose of information.
❖ Presentation format.
❖ Application of GAAP.
❖ Time frame.
❖Historical and Planned information.
❖ Effect on decision of the entity.
 Stakeholders of an Organization
and their information needs.
Interested Stakeholders Information needs
Owners/ Partners/ Shareholders - Profit and Loss of the business
- Utilization of funds for Different investments
- Financial position of different investments
- To determine the management efficiency
- Liquidity and solvency position
- for further investments
Management / Directors - For various management decision
- measure the result of pervious management decisions
- Resource control
- Information for future plans
- Liquidity and solvency position
Employees - Job security of the employees
- Salary and other benefits
- Protect and control the resources of the business
- Liquidity and solvency
 Stakeholders of an Organization and their
information needs…
Interested Stakeholders Information needs
Government institutions - Income taxes and other statutory payments
- Other legal requirements
- Correct values of national income
- Formulates the economic policies
Lenders /banks - Business performance of the entity
- Loan recovery purpose
- Granting more facilities
Customers - Quality of goods and reasonable price
- Customer loyalty and reputation of the organization
- Consumer protection
Competitors - competitive information
- Imitate product , service and management
- competitive position
General public - Various reasons
 Stakeholders of an Organization and their
information needs…
Accounting inputs

Accounting information System

Government Special
reports are provided
Management Special to the government
reports are provided
Financial Statements for general
to the management
purposes.

Management Resource Providers Purchasing Parties Others

Investors
Directors Suppliers Competitors
Government Organizations Financial institutions Customers and Consumers General Public
Employees Professional Institutions
Accounting Process .
Financial Accounting Process.
F I N A N CI A L A C. C O U N T I N G

INPUTS PROCESS OUTPUT

-
Transactions - Identification FINANACIAL STATEMENTS
and - Measurement -Income Statement/ Profit and
- Recording Loss A/C
Events -Statement Financial Position /BS
- Classification
( Financial and -Statement of Change in Equity
- Summarizing
Internal & External ) - Analyzing
-Statement of Cash Flow
-Notes to the Accounts &
- Interpretation Accounting policies
Accounting Process …
Management Accounting Process.
M A N A G E M E N T .A C C O U N T I N G

INPUTS PROCESS OUTPUT

Historical REPORTS
Planning - Budget Statements.
Information
and
Budgeting - Accounting Ratios.
- Overhead Analysis.
Budgeted Controlling - Marginal Cost Information.
Information - Information For
Investment Decision.
 Functions of an Accounting System.

Collection of information
(Identification) Recording Classifying

Analyzing and
Communication Summarizing
Interpretation
 Functions of an Accounting System
cont..
01.Collection of information / Identification of accounting
transactions.
The first function of accounting is to collect or identify financial
transactions or events which will affect assets , liabilities and equities of
an organization.
✓Financial transactions and events are being recorded in source
documents at the time of proceeding.
✓Financial transactions are collected from source documents/prime
documents such as Invoices, Vouchers , Bills , Receipts , Statements.
✓ These documents are written evidence of transactions.
Functions of an Accounting System
cont..
02. Recording .
Financial transactions and events should be recorded systematically in a
consistent way in day books.
✓The process of recording financial transactions in Day Books and posting into
the Ledger and preparation of FS is known as Book-keeping .
✓Subsidiary /day Books are sets of records(Books) which are used to record
identical transactions subject to the nature of business.
✓ Subsidiary /Day Books: Cash Book, Sales day Book, Purchase Day Book, Petty
Cash Book, Sales Returned Day Book, Purchase Returned Day Book , General
Journal
Functions of an Accounting System
cont..

03. Classifying
Accounting information recorded in day books or journals must be
classified into related groups or categories of transactions. Identical and
similar transactions must be put into the similar group. The Ledger
includes following categories of accounts .
✓Assets
✓Liabilities
✓Equities Elements of Financial
✓Revenue /incomes . Statements
✓Expenses
Functions of an Accounting System
cont..

04. Summarizing
To be useful to decision makers, accounting information generally must
be highly summarized. This function involves the preparation of Trail
Balance and Financial Statements.
Main techniques of summarizing are,
✓Trail Balance.
✓Financial statements.
Functions of an Accounting System
cont..

05. Analyzing and interpreting

Financial statements provide information about the Net result and
Financial Position of the enterprise. Net result and Financial Position
should be analyzed and interpreted in such a way of meeting the users
needs. Main techniques of summarizing are,
• Ratio Analysis.
• Financial Statement Analysis.
Functions of an Accounting System
cont..

06. Communication
The main objective of accounting is to communicate financial information
to interested parties to help in the making of specific business decisions.
This is the final stage of an accounting system and the function which
demonstrates the overall responsibility of accounting . Financial
information is transmitted through ,
The General-purpose financial statements.
The Special purpose financial statements.
The Management and performance reports.
Business Activities and Accounting.
Financial Financial and Non-financial
Transactions transactions and events of the
business entity
❖ Operating Activities Change in the values of Assets,
❖Investment Activities Liabilities and Equities of the entity
❖ Financing Activities

Financial Information
Actions
Accounting System
Decision Communication
Makers Recording

Analyzing &
Interpreting Summarizing Classifying
 Q A &

Thank You !
Sri Lanka Law College , Attorneys-At-Law :Final Examination, Trust Accounting
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By Sugath Nandasiri