Introduction to Accounting

ASU323
Principles of Accounting

Dr. Mohamed Kohail

Associate Professor - Structural Eng. Department
Postgraduate Programs Coordinator
Faculty of Engineering – Ain Shams University

m.kohail@eng.asu.edu.eg
➢ Accounting is the language of business.
➢ It is the system of recording, summarizing, and analyzing an economic
entity's financial transactions.
➢ Effectively communicating this information is key to the success of every
business.
The data supplied by accountants used to answer the following types of questions:
‼ Is the company profitable?
‼ Is there enough cash to meet payroll needs?
‼ How much debt does the company have?
‼ How does the company's net income compare to its budget?
‼ How much income does each division generate?
‼ Should the company invest money to expand?

Accountants must present an organization's financial information in clear, concise

reports that help make questions like these easy to answer. The most common
accounting reports are called financial statements.
An asset is something of value the company owns.
Tangible assets:
1. current assets (cash, accounts receivable, inventory, and prepaid expenses);
2. property, plant, and equipment;
3. and long‐term investments.
Intangible assets not physical substance, but they may, nevertheless, provide
substantial value to the company that owns them. Like patents, copyrights,
trademarks, and franchise licenses.
Liabilities are the company's existing debts and obligations owed to third parties.
Examples include amounts owed
▪ to suppliers for goods or services received (accounts payable),
▪ to employees for work performed (wages payable),
▪ and to banks for principal and interest on loans (notes payable and interest
payable).
Owner's equity represents the amount owed to the owner or owners by the
company. Algebraically, this amount is calculated by subtracting liabilities from
each side of the accounting equation.

Owner's equity also represents the net assets of the company.

The objectives of financial reporting are to provide information that:
1. Is useful to existing and potential investors and creditors and other users in
making rational investment, credit, and similar decisions;
2. Helps existing and potential investors and creditors and other users to assess the
amounts, timing, and uncertainty of prospective net cash inflows to the enterprise;
3. Identifies the economic resources of an enterprise, the claims to those
resources, and the effects that transactions, events, and circumstances have on
those resources.
The basic financial statements are:
1. income statement,
2. statement of owner's equity,
3. balance sheet,
4. and statement of cash flows.

The income statement, statement of owner's equity, and statement of cash flows
report activity for a specific period of time, usually a month, quarter, or year.
The balance sheet reports balances of certain elements at a specific time.
The income statement, which is sometimes called the statement of earnings or
statement of operations, is prepared first.
It lists revenues and expenses and calculates the company's net income or net loss
for a period of time.
Net income means total revenues are greater than total expenses.
Net loss means total expenses are greater than total revenues.
The statement of owner's equity is prepared after the income statement.
It shows the beginning and ending owner's equity balances and the items affecting
owner's equity during the period.
These items include investments, the net income or loss from the income
statement, and withdrawals.
Because the specific revenue and expense categories that determine net income or
loss appear on the income statement, the statement of owner's equity shows only
the total net income or loss.
The balance sheet shows the balance, at a particular time, of each asset, each
liability, and owner's equity.
It proves that the accounting equation (Assets = Liabilities + Owner's Equity) is
in balance. The ending balance on the statement of owner's equity is used to report
owner's equity on the balance sheet.
The statement of cash flows tracks the movement of cash during a specific
accounting period.
It assigns all cash exchanges to one of three categories (operating, investing, or
financing) to calculate the net change in cash and then reconciles the accounting
period's beginning and ending cash balances.
As its name implies, the statement of cash
flows includes items that affect cash.