FINANCIAL ACCOUNTING

Some Basics
Learning Objectives

■ What is the difference between Book Keeping and Accounting

■ What is the purpose of Accounting
■ Understand Accounting System
■ GAAP and IAS
■ Basic Accounting concepts
■ Accounting Equation

Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 Slide 1

 Bookkeeping Definition

■ Part of accounting
■ The art of recording business transactions in
accounting books
■ In some systematic manner

Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 Slide 2

 Objectives of Book-Keeping

■ Provide systematic and permanent records of business

transactions
■ The periodical results that is profit or loss readily and
accurately ascertainable
■ Provides useful data for better management

Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 slide 3

 Accounting Definition

■ Accounting is the art of recording,

classifying, summarizing and
communicating the results of the business
transactions.
■ Accounting also called the language of
business
Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 slide 4
 Accounting
The Art of
■ Recording
■ Classifying
■ Summarizing and
■ Communicating the results
■ Of business transactions

Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 slide 5

 Basic Purpose of Accounting
■ Is a process
■ That creates
■ Useful
■ Financial Information
■ For its Users
■ The basic purpose of Accounting is to provide
information to decision makers that is useful in
making economic decisions
Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 slide 6
 Functions of Accounting

■ Record Keeping function

■ Protect Business properties
■ Legal requirement function
■ Communicating the results

Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 slide 7

 Accounting Information Needed By;

■ Owners Internal
■ Management

■ Investors
■ Creditors
■ Government External
■ Researchers
■ Employees

Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 slide 8

 Distinguish between Book-Keeping
and Accounting
Book-Keeping Accounting
 It refers to daily recording  It refers to the preparation of
and classification of Accounting System (AS)
business transactions  Recording and Classification of
 It requires little skills of transactions
accounting  Summarize the data
 Prepare final reports
 It requires Professional
Judgment and high skills of
accountancy
Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 slide 9
 Types of Accounting

■ Financial Accounting
General Purposes (Profit, Loss, financial position)
■ Management Accounting
Helps in Planning and Control
■ Tax Accounting
Helps in preparation of Income Tax Returns
Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 Slide 10
 Accounting System (AS)

■ It consists of the personnel, procedures, technology and records

used by an organization
To develop accounting information and,
To communicate this information to decision makers
►AS varies from organization to organization, However the basic
purpose is same
►to meet the organization’s needs for information as efficient as
possible

Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 Slide 11

 Factors Affecting Accounting System

■ Need for accounting information

■ The resources available for operation of the
system.

■ The AS must be Cost Effective

That is information produced should less than cost of producing
information
Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 Slide 12
 Accounting System

Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 Slide 13

 Functions of Accounting System

■ Recording and Interpreting

Recording of business transactions in books of accounts
■ Classification
Bundling of similar transactions in appropriate heads, which permits
management to collect information quickly for further use.
■ Summarizing and Communication
Sum up all information contained in Accounting reports which are useful to
decision makers.

Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 Slide 14

 GAAP and IAS

GAAP are the “ground rules” for financial

reporting. Generally Accepted Accounting
Principles provide the general framework that
determines;
■ What information is to be included in the
financial statements? &
■ How these information are to be presented ?
Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 Slide 15
 GAAP and IAS

■ The phrase GAAPs refer to the accounting concepts in

use in the USA. However,
■ the principles in use in Canada, Great Britain and in a
number of countries are quite similar
■ Financial Accounting Standard Board (FASB). This is an
independent rule making body consisting of 7 members and it
is the authority of GAAP.

Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 Slide 16

 The Basic Accounting Concepts

The concepts include the basic assumptions upon which accounting is

based. It includes,
■ Business Entity concept
■ Going Concern Concept
■ Monetary Concept
■ Cost Concept
■ Dual Aspect Concept
■ Accounting Period concept
■ Accrual concept
Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 Slide 17
 The Accounting Equation

■ By adding up what accounting records say

belongs to business and deduct what business
owes, we identify the business worth.
■ The whole financial accounting based on this
simple idea, known as Accounting Equation.
Resources Supplied by Owner = Resources in the Business

Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 Slide 18

 The Accounting Equation

■ Resources supplied by owner is called Capital

■ The actual resources in the business are called Assets
Assets = Capital
■ Usually in businesses, peoples other than owners
have supplied some of the assets. Which named as
Liabilities

Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 Slide 19

 The Accounting Equation

Now, the equation becomes Assets – Liabilities = Capital

■ By, simple manipulation,
Assets = Liabilities + Capital

Resources: What they are = Resources: Who supply them

(Assets) (Capital + Liabilities)

Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 Slide 20

 Example of Accounting Equation

Mr. “A” is started the business by investing $ 100,000…

Assets = Capital+ Liabilities
100,000 = 100,000 + 0

Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 Slide 21

 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
________________________________

Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 Slide 22

 Accounting Equation

Assets = Capital+ Liabilities

$ 80,000 = $ 60,000 + $ ?

80,000
-60,000
20,000

Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 Slide 23

 Thank You

Anwar Mughees ALam/ BS(CS)-9AB/FIN100/Spring 2022 25