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Lecture 1

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5 views

Lecture 1

Uploaded by

sfatima
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
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Principles of

Accounting
What is Accounting?
Accounting

“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 least, of a financial
character, and interpreting the result thereof”
Purpose of Accounting

• The primary objective of accounting is to provide useful


information for decision-making to stakeholders such as
owners, management, creditors, investors, etc. Various
outcomes of business activities such as costs, prices, sales
volume, value under ownership, return of investment, etc.
are measured in the accounting process. All these
accounting measurements are used by stakeholders
(owners, investors, creditors/bankers, etc.) in course of
business operation.
Basic Accounting Terminologies
Transaction:

A business activity which involves exchange of


money or money’s worth between parties. The
event can be measured in terms of money and
changes the financial position of a person e.g.
purchase of goods would involve receiving material
and making payment or creating an obligation to
pay to the supplier at a future date
Goods/Services

Goods/Services are tangible article or commodity in


which a business deals. These articles or
commodities are either bought and sold or produced
and sold. At times, what may be classified as
‘goods’ to one business firm may not be ‘goods’ to
the other firm.
Profit and Loss

• Profit: The excess of Revenue Income over expense is


called profit. It could be calculated for each transaction or
for business as a whole.
• Loss: The excess of expense over income is called loss. It
could be calculated for each transaction or for business as
a whole.
Asset

An asset is anything you own that holds monetary


value. That means things like your house, your car, your
mobile phone. Assets refer to everything a company owns,
from cash to equipment to intellectual proprety.
Types of Assets

• Current assets
• Fixed or Non current assets
• Tangible assets
• Intangible assets
• Operating assets
• Non-operating assets
Current Assets

A current asset, also known as a liquid asset, is any resource a


company could use, turn into cash, or sell within a year. This includes
cash in the bank, goods ready to be sold. 7 types of current assets
• Cash and cash equivalents
• Marketable securities
• Accounts receivable
• Inventory
• Supplies
• Prepaid expenses
• Other liquid assets
Fixed or Non-Current Assets

Non-Current Assets are resources with a longer life span,


usually more than a year. They cannot be easily converted
into cash within a short timeframe. Non-current assets
include property, manufacturing equipment, long-term
investments, and patents and trademarks.
Tangible assets

Tangible assets are physical and measurable assets that are


used in a company's operations. Assets such as property,
plant, and equipment are tangible assets. Tangible assets
form the backbone of a company's business by providing the
means by which companies produce their goods and
services. Tangible assets can be damaged by naturally-
occurring events
Intangible assets

Intangible assets are nonphysical assets used over the long


term. Intangible assets are often intellectual assets.
Intangible assets add to a company's future worth and can
be far more valuable than tangible assets.
Intangible assets include:

• Patents: A legal right to an invention given to a person or entity without


interference from others who wish to replicate, use, or sell it. Patents are
granted by governing authorities.
• Trademarks: a recognizable phrase or symbol that denotes a specific
product and differentiates a company
• Franchises: A type of license that a party (franchisee) buys to allow
them to have access to a company's brand and sell goods under its name
• Goodwill: represents the value above and beyond a target company's
assets that another company pays when acquiring the target company
• Copyrights: represents a form of intellectual property that protects
original works of authorship.

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