Class: 5th Sem.

Course Code: HSS 461

Course Title: Accounts & Finance

Class Day: Wednesday Timing:

2:30pm to 04:30am

Lecture / Week No. 1

Instructor Name: Asim Iqbal

BAHRIA UNIVERSITY
Computer & Software Engineering Department
 Topic: General Discussion

• Student Introduction and identifying the level of students

• Discussion on Assignments, Quizzes, project and other rules
of class.

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Table Of Contents
S.R# Contents Page #
1. Define accounting vocabulary 9
2. Define the users of financial information 11
3. Describe the accounting profession and the organizations that govern it 15
4. Identify the different types of business organizations 21
5. Delineate the distinguishing characteristics and organization of a proprietorship 24
6. Apply accounting concepts and principles 30
9. Reference 35
Accounting and the Business Environment
Chapter 1

4
 Learning Objectives
Define accounting vocabulary
Define the users of financial information
Describe the accounting profession and the organizations
that govern it
Identify the different types of business organizations
Delineate the distinguishing characteristics and
organization of a proprietorship

5
 Learning Objectives
Apply accounting concepts and principles
Describe the accounting equation, and define assets,
liabilities, and equity
Use the accounting equation to analyze transactions
Prepare financial statements
Use financial statements to evaluate business performance

6
 1
Define accounting vocabulary

7
 Accounting is “the language of business.”

• The information system that:

– Measures business activity
– Processes the data into reports
– Communicates the results to decision makers
– Presents information in monetary terms

8
 2
Define the users of
financial information

9
 Decision Makers

Individuals Businesses Creditors

Investors Taxing Authorities

10
 Two Fields of Accounting
Financial Accounting Managerial Accounting
Provides information for external Focuses on information for internal
decision makers decision makers
– Investors Managers
– Creditors Business Owners
– Taxing Authorities
Competition
Suppliers

11
 S1-2: USERS OF FINANCIAL INFORMATION
Suppose you are the manager of Greg’s Tunes. The company needs a
bank loan in order to purchase music equipment. In evaluating the loan
request, the banker asks about the assets and liabilities of the business. In
particular, the banker wants to know the amount of the business’s
owner’s equity.
Requirements:
1. Is the banker considered an internal or external user of financial
information?
The banker is an external user.
2. Which financial statement would provide the best information to
answer the banker’s questions?

The balance sheet would include assets, liabilities and

equity.
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 3
Describe the accounting profession and the
organizations that govern it

13
 The Accounting Profession
• Lucrative career with many opportunities
• Certified Public Accountants (CPAs)
Pass qualifying exam
Meet education and/or experience requirements
• Licensed professional accountants who serve the
Certified Public general public
Accountants, or CPAs

Certified Management
• Certified professionals who work for a single
Accountants, or CMAs company.

14
 Governing Organizations
• Financial Accounting Standards Board
FASB • A privately funded organization, formulates accounting standards.

• Securities and Exchange Commission

SEC • U.S. governmental agency that oversees U.S. financial markets.

• American Institute of Certified Public Accountants

AICPA • Private organization of public accountants

• Generally Accepted Accounting Principles

GAAP • Main U.S. accounting rule book

• International Accounting Standards Board

IASB • Publishes the International Financial Reporting Standards, the
international accounting rule book
15
 Ethics in Accounting and Business

Investors and creditors want

reliable financial information

Conflict of Interest

Companies want to attract

investors
16
 Audit
• SEC requires companies to have financial statements examined by
independent accountants
– Auditors will provide an opinion on financial statements, if possible
• Recent accounting scandals hurt investor confidence
– U.S. Government passed the Sarbanes-Oxley Act (SOX)
• Criminal offense to falsify financial statements
– Also created the Public Companies Accounting Oversight Board
(PCAOB)
• Watchdog of accounting profession

17
 Standards of Professional Conduct

AICPA IMA
Code of Standards of
Professional Ethical
Conduct Conduct

Sets standards
Guides CPAS for private
in their work accountants

18
 4
Identify the different types
of business organizations

19
 Types of Business Organizations

Proprietorship Partnership Corporation

LLC and LLP Not-for-profit

20
 Comparison of Business Forms
Proprietorship Partners Corporation LLC, LLP Not-for-Profit

Proprietor: Partners: Two Stockholders:

Owners Members None
One Owner or more usually many

Limited by
Life of Limited by owner's
owner’s choice Indefinite Indefinite Indefinite
Organization choice or death
or death

Fiduciary
Liability of Partners are
Proprietor: Owner Stockholders not Members are not liability
owners for personally
is personally liable personally liable personally liable of board
business debts liable
members

21
 5
Delineate the distinguishing characteristics
and organization of a proprietorship

22
 Proprietorship Characteristics
Separate Legal Entity

• Distinct from owners

No Continuous Life/Transferability of Ownership

• The life of business is limited by the owner’s choice or the owner’s death

Unlimited Liability of Owner

• Owner has unlimited liability for the business’s debts

23
 Proprietorship Characteristics
(continued)
Unification of Ownership and Management

• Owners manage the business

Business Taxation

• Not a separate taxable entity

• Income flows directly to the sole owner’s tax return, where he or she pays self-employment and
income tax

Government Regulation

• Minimal regulation is an advantages

24
 Organization of a Corporation
• Incorporators obtain charter from the state
• Charter authorizes corporation to:
Issue stock
Conduct business in accordance with state law
• Incorporators agreed to a set of bylaws
Bylaws are the rule book that guides the corporation.
• Corporations begins to exist when stock is issued
Stockholders vote on who will serve on Board of Directors

25
Structure of a Corporation

26
 S1-4: TYPES OF BUSINESS ORGANIZATION
Chloe Michaels plans on opening Chloe Michaels’ Floral Designs.
She is considering the various types of business organizations and
wishes to organize her business with unlimited life and limited
liability features. Additionally, Chloe wants the option to raise
additional equity easily in the future. Which type of business
organization will meet Chloe’s needs best?

A corporation has all the requirements of Chloe’s request. A corporation

has an unlimited life, shareholders have limited liability and additional
stock can be sold to raise additional equity.

27
 6
Apply accounting concepts and principles

28
 GAAP
• Generally Accepted Accounting Principles
Guidelines that govern accounting
Based on a conceptual framework
– Goals include:
Provide useful information for investment and lending decisions
Must be relevant, reliable, and comparable

29
 Accounting Principles
Faithful
Entity
Representation
Concept
Principle

Cost Going- Stable

Concern Monetary Unit
Principle Concept Concept

30
 Accounting Principles
Entity Concept
• A business is separate from its owners

Faithful Representation Principle

• Accounting information is complete, neutral, and free from material
error
Cost Principle
• Assets are recorded at purchase price

31
 Accounting Principles
(continued)

Going-Concern
• Assumption that business will remain in operation
for the foreseeable future
Stable Monetary Unit Concept
• In the U.S. amounts are recorded in dollars
• The dollar is considered a stable unit of measure
32
33
 Copyright

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or
otherwise, without the prior written permission of the publisher. Printed in the United States of
America.

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.

References / Resources

1. https://www.google.com/search?client=firefox-b-&q=Accounting+and+the+Business+Environment
2. https://www.google.com/search?client=firefox-b-d&q=Two+Fields+of+Accounting
3. https://www.google.com/search?client=firefox-b-d&q=USERS+OF+FINANCIAL+INFORMATION
4. https://www.google.com/search?client=firefox-b-d&q=The+Accounting+Profession
5. https://www.google.com/search?client=firefox-b-d&q=Ethics+in+Accounting+and+Business
6. https://www.google.com/search?client=firefox-b-d&q=Types+of+Business+Organizations
7. https://www.google.com/search?client=firefox-b-d&q=Organization+of+a+Corporation
8. https://www.google.com/search?client=firefox-b-d&q=The+Accounting+Equation

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