Transcript Chapter # 1

Well Come
To
Principles of Accounting
With:
SHAHI YAR KHAN
Basic Accounting
Recommended Book
Accounting:
The basis for business decisions
Eleventh Edition
By: Meigs William Haka Bettner
Focus of Study
Chapters to be focused…
1,2,3,4,5
Chapter # 1
Accounting:
The Language of Business
Accounting
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The Art of
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Recording
Classifying
Summarizing and
Communicating the results
Of business transactions
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Accounting
Accounting is the art of recording,
classifying,
summarizing
and
communicating the results of the
business transactions.
Accounting also called the language of
business
Accounting
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The Art of
Interpreting the financial activities
Measuring the financial activities
Getting the results from such activities
And communicating these results
Accounting
The Art of interpreting, measuring
and communicating the results of
financial activities.
Accounting
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Is a process
That create
Useful
Financial information
For its users
(basic purpose of Accounting)
The Purpose of Accounting
The basic purpose of Accounting is to
provide information to decision makers that
is useful in making economic decisions.
Accounting Information needed by:

Management
Internal
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Investors
Creditors
Government Agencies
Researchers
Labor
Etc
External
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Types of Accounting

Financial Accounting
General Purpose
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(Profit, loss, assets, obligation etc)
Management Accounting
Helps in Planning and Control

Tax Accounting
Helps in preparation of Income Tax Return etc
Economic Activities
Human Activities
Non-Economic Activities
Economic Activities
Profession
Business
Functions of Accounting System
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In every Accounting System, the economic activities of
the organization are Recoded in the books of
accounts.
Next, the recorded data are Classified in the system to
accumulate sub-total for various types of economic
activities.
Finally, the information is Summarized in Accounting
Repots i.e. designed to meet the information needs of
the various decision makers.
Business
Business is a legal financial activity, for which
on specific education is required and in which
return is also not definite
Financial Statements
A set of Financial Statements consist of four related
accounting reports that summarizes the financial
resources, obligations, profitability and cash
transaction of a business in the few pages
1.
2.
3.
4.
Balance Sheet: Financial resources and obligations
Income Statement: Profitability of business
Statement of Owner’s Equity: Obligation of business
to Owner
Statement of Cash Flow: Cash Transaction of a
Business.
Distinguish b/w Accounting and
Book-keeping
Book-keeping
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It refers to the daily
operation of an accounting
system i.e. Recording and
classifying
It requires little skill of
accounting
Accounting
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It refers to the preparation
of Accounting system
Recording and classifying
the transactions
Summarize the data
Prepare the Final Reports
It requires Professional
Judgment and high skill of
accountancy
GAAP: Generally Accepted Accounting Principles
GAAP are the “ground rules” for financial reporting.
Generally Accepted Accounting Principles provide the
general frame work that determines;
1.
2.
What information is to be included in the financial
statements? &
How these information are to be presented ?
Basic Accounting Concepts
1.
2.
3.
4.
Cost Principle
Objectivity Principle
Monetary Principle
Business Entity Concept
Accounting Equation
Assets = Equities
Assets = Owner’s Equity + Liabilities
This is the characteristic of the Balance Sheet
that Assets always be equal to Liabilities plus
Owner’s Equity
Example of Accounting Equation
Mr. “A” is started the business by investing $ 100,000…
Assets = O/Equity + Liabilities
100,000 = 100,000 +
0
Example of Accounting Equation
Further the business borrows a loan from the bank of $
40,000
Assets = O/Equity + Liabilities
100,000 = 100,000 +
0
40,000 =
0
+ 40,000
---------------------------------------------------140,000 = 100,000 + 40,000
________________________________
Accounting Equation
Assets = O/Equity + Liabilities
$ 80,000 = $ 60,000 + $ ?
80,000
-60,000
20,000
End of Chapter 1
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