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Accounting Concepts

The document discusses the importance of accounting and identifies the key users and principles of accounting, including generally accepted accounting principles. It also covers the different forms of business entities, characteristics of proprietorships, partnerships, and corporations, and key elements of the accounting equation like assets, liabilities, and equity. The accounting process involves analyzing transactions, recording them, and preparing key financial statements.

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Zargham Durrani
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87 views20 pages

Accounting Concepts

The document discusses the importance of accounting and identifies the key users and principles of accounting, including generally accepted accounting principles. It also covers the different forms of business entities, characteristics of proprietorships, partnerships, and corporations, and key elements of the accounting equation like assets, liabilities, and equity. The accounting process involves analyzing transactions, recording them, and preparing key financial statements.

Uploaded by

Zargham Durrani
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 20

1-1

C1

IMPORTANCE OF ACCOUNTING
Accounting

Identifying
Select transactions and events

Recording
Input, measure and classify

Communicating
Prepare, analyze and interpret
1-2

C2 USERS OF ACCOUNTING
INFORMATION

External Users Internal Users

•Lenders •Consumer Groups •Managers •Sales Staff


•Shareholders •External Auditors •Officers/Directors •Budget Officers
•Governments •Customers •Internal Auditors •Controllers
1-3

C2 USERS OF ACCOUNTING
INFORMATION

External Users Internal Users

Financial accounting Managerial accounting


provides external users provides information needs
with financial statements. for internal decision-makers.
1-4

C2
OPPORTUNITIES IN ACCOUNTING
1-5

C2

ACCOUNTING JOBS BY AREA


1-6

C4 GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
Financial accounting practice is governed by concepts
and rules known as generally accepted accounting
principles (GAAP).

Relevant Information Affects the decision of its users.

Reliable Information Is trusted by users.

Comparable Is helpful in contrasting


Information organizations.
1-7

C4
SETTING ACCOUNTING
PRINCIPLES

Financial Accounting Standards Board


is the private group that sets both
broad and specific principles.

The Securities and Exchange Commission is the


government agency that establishes reporting
requirements for companies that issue stock to the public.

The International Accounting Standards Board (IASB)


issues International Financial Reporting Standards that
identify preferred accounting practices to create harmony
among accounting practices of different countries.
1-8

C4

INTERNATIONAL STANDARDS

The International Accounting Standards Board (IASB), an


independent group (consisting of 16 individuals from many
countries), issues International Financial Reporting Standards
(IFRS) that identify preferred accounting practices.

IASB
1-9

C4

INTERNATIONAL STANDARDS
1 - 10

C4 PRINCIPLES AND ASSUMPTIONS


OF ACCOUNTING

Revenue Recognition Principle


1. Recognize revenue when it is earned. Cost Principle
2. Proceeds need not be in cash. Accounting information is based on
3. Measure revenue by cash received actual cost. Actual cost is
plus cash value of items received. considered objective.

Full Disclosure Principle


Matching Principle A company is required to report the
A company must record its expenses
details behind financial statements that
incurred to generate the revenue reported.
would impact users’ decisions.
1 - 11

C4

ACCOUNTING ASSUMPTIONS

Now Future
Going-Concern Assumption Monetary Unit Assumption
Express transactions and events in
Reflects assumption that the business
monetary, or money, units.
will continue operating instead of being
closed or sold.

Business Entity Assumption Time Period Assumption


A business is accounted for Presumes that the life of a company can
separately from other business be divided into time periods, such as
entities, including its owner. months and years.
1 - 12

C4

FORMS OF BUSINESS ENTITIES

Sole
Sole Partnership
Partnership Corporation
Corporation
Proprietorship
Proprietorship
1 - 13

C4

CHARACTERISTICS OF BUSINESSES
Characteristic Proprietorship Partnership Corporation
Business entity yes yes yes
Legal entity no no yes
Limited liability no* no* yes
Unlimited life no no yes
Business taxed no no yes
One owner allowed yes no yes

* Proprietorships and partnerships that are


set up as LLCs provide limited liability.
1 - 14

C4
CORPORATION

Owners of a corporation are called


shareholders (or stockholders). Shareholders are
not personally liable for corporate acts. When a
corporation issues only one class of stock, we
call it common stock (or capital stock).
1 - 15

A1 TRANSACTION ANALYSIS AND


THE ACCOUNTING EQUATION

Accounting Equation

Assets = Liabilities + Equity


1 - 16

A1

ASSETS
Cash
Accounts Notes
Receivable Receivable
Resources
owned or
Vehicles controlled by Land
a company

Store Buildings
Supplies
Equipment
1 - 17

A1

LIABILITIES

Accounts Notes
Payable Payable

Creditors’
claims on
assets
Taxes Wages
Payable Payable
1 - 18

A1

EQUITY
Owner’s
Claims on
Assets
1 - 19

P1
TRANSACTION ANALYSIS
EQUATION
The accounting equation MUST remain in
balance after each transaction.

Assets
Assets = Liabilities
Liabilities + Equity
Equity
1 - 20

P2

FINANCIAL STATEMENTS
Let’s prepare the financial statements reflecting the
transactions we have recorded.

1.Income Statement
2.Statement of Owner’s Equity
3.Balance Sheet
4.Statement of Cash Flows

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