Welcome to the first module of this course. In this module, I shall explain to you what accounting is, how it contributes to the health and growth of a business and, in turn, the society. I shall also elaborate on the various forms of business setups and how limited liability companies become the mainstream business concerns for corporate governance practices. Let us begin by looking at the nature of accounting using an example of a business operation activity. The process starts with an economic transaction taking place in a business. By being economic, the transaction must be measurable in monetary units. For example, it can be sale of 100 computers with a total value of one million dollars, payment of salaries of 35,000 to an employee at month-end, or purchase of inventory worth $300,000 with cash payment to be made after one month. When the economic transaction take place accountant must first identify whether it is relevant to the business such that it arises directly or indirectly from the business operation. What does that mean? Consider two situations where a company borrowed money from a bank and do one of the followings. First situation: company used the loan money to buy a car for the owner. Second situation: company used the loan money to buy a truck for delivering goods to its customers. Now, which of the situations is more related to the business operations? The second situation is clearly relevant to the business because delivery of goods is part of the selling activities from which company generates revenues. What about the first situation? Buying a car for the owner's use is not relevant to the business unless the owner is employed by the company, say as the CEO, and the car is provided as part of the remuneration package. When an economic transaction is identified, accountant should then record it in the books of the company. To do so, details such as the nature of transaction, items of transaction, and monetary values will all have to be put on the company's records. Suppose that on one day the owner wishes to see how everything is doing with his business and asks to see some information. As the accountant, what will you do? The accountant has all the records in the books to present to the owner, but as you can imagine, simply presenting the records will not work because there are so many details all tangled up in the records. There's no way the owner can see any meaning from browsing through the series of transactions. Some organization data will therefore have to be done by way of summarizing them in a meaningful way. In accounting, the transaction items are usually classified into five categories, being named as the elements of financial statements. They include; asset, liability, equity, revenue, and expense. Referring to the previous example, the purchased truck and the related bank loan must both be recorded in the company's books and categorized as one of the five elements of financial statements. The truck should be categorized as asset and a bank loan as liability. The above recording process will be repeated for each transaction by using different names for items involved and assigning them to each of the five elements as stated. When all items are summarized into the five elements, accountant will put them together in reports such that people who are interested in knowing the company, including the owner, may go through the report and compare the figures and draw inferences about the financial situations of the company. The reports are prepared with prescribed formats set by professional accounting bodies and these are generally referred as published financial statements. As you can imagine, the components of commonly used financial statements consists of the five elements. They constitute the essential means of communicating financial information of a company to interested parties. That concludes what accounting is. Accounting is a process of identifying, recording, summarizing economic transactions, and reporting them to decision-makers according to their needs.