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

The Art of Recording Classifying Summarizing and Communicating the results Of business transactions

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

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

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 Investors Creditors Government Agencies Researchers Labor Etc

Internal

External

Types of Accounting

Financial Accounting
General Purpose
(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

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.

Balance Sheet: Financial resources and obligations Income Statement: Profitability of business Statement of Owners Equity: Obligation of business to Owner Statement of Cash Flow: Cash Transaction of a Business.

3.

4.

Distinguish b/w Accounting and Book-keeping

Book-keeping

Accounting

It refers to the daily operation of an accounting system i.e. Recording and classifying It requires little skill of accounting

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 = Owners Equity + Liabilities This is the characteristic of the Balance Sheet that Assets always be equal to Liabilities plus Owners 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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