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Lecture Week 1_Modified

accounting

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Ahmed El Hadidi
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14 views

Lecture Week 1_Modified

accounting

Uploaded by

Ahmed El Hadidi
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Principles of Accounting (2)

College of Management and Techology in Alexandria

1
Lecture Week 1
Introduction to Accounting

2
Learning Objectives

1. Reviewing basic accounting concepts


2. Introducing merchandising operations
3. Discussing types of inventory systems
4. Identifying the basic elements of income statement for
merchandising operations
5. Discussing transportation terms and transfer of inventory
ownership for merchandisers

3
What is Accounting?
Accounting

Inputs
(Transactions)

Processing
(Summarizing and Recording)

Outputs
(Financial Statements)

4
Users of Accounting
Information
External Users Internal Users

•Creditors •External Auditors •Managers •Sales Staff


•Shareholders •Customers •Officers/Directors •Budget Officers
•Tax Agencies •Internal Auditors •Controllers

5
Users of Accounting
Information

External Users Internal Users

Financial accounting Managerial accounting


provides external users with financial uses financial statements and other
statements. inputs to provide information needs for
internal decision-makers.
6
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.
7
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

8
Firm’s Financial Position
A business’s financial position can be described through

Accounting Equation

Assets = Liabilities + Equity

9
Assets

Cars Resources owned Land


or controlled by a
company
intended to
provide future
benefits

Equipment Buildings

Cash

10
Liabilities

Accounts Notes
Payable Payable

Creditors’ claims on
assets
(Creditors’ rights)

Taxes Wages
Payable Payable

11
Equity

Owner’s Claims on
Assets
(Owners’ rights)

12
The Accounting equation

The accounting equation MUST remain in balance after each transaction.

Assets = Liabilities + Equity

13
Types of Company operations
There are 3 basic types of company operations:
1. Services Companies : providing customer services
for profit.
2. Merchandisers : buying products and re-selling them
for profit.
3. Manufacturers: creating products and selling them
for profit.

14
Service Companies
Service organizations sell time to earn revenue.
Examples: Accounting firms and law firms

15
Merchandising Operations
Merchandising Companies buy Products for resale

Manufacturer Wholesaler Retailer Consumers

16
Main Activities of Merchandising companies
Merchandising companies’ main activity is buying goods for
resale to customers in order to earn revenue.

Goods or products purchased for resale are called


“merchandise inventory”.

17
Operating Cycle for a Merchandiser
Begins with the purchase of merchandise and ends with
the collection of cash from the sale of merchandise.

18
Inventory Systems

19
Inventory Systems

Perpetual systems Periodic systems


continually update accounting records
accounting records for relating to merchandise
merchandising transactions are
transactions updated only at the end
of the accounting
period

20
Merchandising Operations and Inventory Systems
Income Measurement
Not used in a
Sales Less
service business
Revenue

Cost of Equals Gross Less


Goods Sold Profit

Cost of goods sold is the total Operating Equals Net


Expenses Income
cost of merchandise sold (Loss)
during the period.

21
A multiple-step
income
statement
format shows
detailed
computations
of net sales
and other
costs and
expenses, and
reports
subtotals for
various
classes of
items.
22
Freight Costs

Ownership of goods
passes to buyer when
public carrier accepts
goods from seller.

Ownership of goods
remains with seller until
the goods reach buyer.

Freight costs incurred by the seller are an operating expense.

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EN
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References
• Wild, J., Shaw, K., Chiappetta, B. and Samaha, K., 2017. Fundamental
Accounting Principles. 2nd ed. McGraw-Hill Education.
• Weygandt, J., Kimmel, P. and Kieso, D., 2019. Accounting Principles
IFRS Version. Global Edition. Wiley.

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