PRINCIPLES

OF
ACCOUNTIN
G1 Meaning and Scope
SEYRAM KAWOR
of Accounting

http://sites.google.com/site/kazookawor
seyramkawor@gmail.com

Slides by
Seyram Kawor
 Lecture Overview

• Evolution of accounting
• Meaning and definition of accounting
• Distinction between bookkeeping and accounting
• Financial, management and cost accounting
• Users of accounting information
• Accounting concepts and conventions
• Framework for the preparation and presentation of
financial statements (IFRS)

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 Evolution of Accounting
Accounting has been called the
financial language of business. This is
because it is the system which
measures business activities and
processes such activities into reports
and communicates the results to
management and other users.

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 Evolution of Accounting

As early as 8500 B.C., accounting already

existed.
Clay tokens which correspond to such
commodities like sheep, clothing or bread were
used in the Middle West in keeping records.
The tokens were replaced by wet clay tablets.

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 Evolution of Accounting
During the thirteenth to the fifteenth centuries,
there was advancement in account keeping
methods in trade flourished places such as
Florence, Venice and Genoa; thanks to the
merchants and the bankers of such time.
However, the system of accounting was primitive
as the concept of equality for entries was
absent.

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 Evolution of Accounting

Double entry records first came out during 1340

A.D. in Genoa.
In 1494, the first systematic record keeping was
formulated by Fra Luca Pacioli, a Franciscan
monk and one of the most celebrated
mathematicians to this day.
Fra Luca Pacioli is considered as the father of
accounting.
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 Evolution of Accounting

Due to the industrial revolution which was

characterized by great changes in working
and business transactions the double entry
system of accounting paved way to the
specialized field of accounting called cost
accounting in order to meet the need for
the analysis of various costs.

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 Evolution of Accounting

In addition, since there was a development

of the corporate form of organization,
there was a need for a separate and
independent report to provide reasonable
assurance as to the reliability of
management's financial representations.

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 Evolution of Accounting

Today, accounting has moved towards the

information age. At present, there have been
tremendous advancements in accounting to
meet the needs brought about by information
technology.
Those duties that required manual, tedious and
time-consuming methods can now be done
using computers which make work faster, more
reliable, accurate and precise.
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 Evolution of Accounting
Businesses can now be transacted virtually
making it faster and hassle free. Business
people transacting their businesses without
even facing one another have become possible
all because of information technology.
With the advancement of businesses, accounting
has also advanced to meet the needs of
businesses at this day.

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 Evolution of Accounting

There has been a great quantity of

applications and elements of accounting
that meet up the various needs of
businesses. As they often point out, as a
smart businessman, one must breathe in
information technology to keep up with
the trend and stay competitive.

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 Evolution of Accounting
An emerging trend in accounting is the
gradual shift from mechanical accounting to
financial reporting. This has been attributed
to the use of computers in accounting.
As noted above those duties that required
manual, tedious and time-consuming
methods can now be done using computers.

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 Definition and Meaning of
Accounting
Accounting is the process of recording,
analysing, summarising and reporting
business transactions to meet user’s needs.
It is simply the provision of relevant and
reliable financial information relating to
an entity for decision making and control
purposes by interested persons.

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 Definition and Meaning of
Accounting
Accounting has been defined as the art of
collecting, analysing, recording,
summarising, presenting and interpreting
financial and operating data expressed in
terms of money for use by management of
economic entities and other interested
parties in making decisions or for control
purposes.

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 Definition and Meaning of
Accounting
The American Institute of Certified Public
Accountants, (AICPA) also defines
accounting as the art of recording,
classifying and summarising in a
significant manner and in terms of money,
transactions and events which are in part
at least, of a financial character, and
interpreting the results thereof.

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 Definition and Meaning of
Accounting

Accounting may also be defined as a

system for recording and reporting
business transactions, in financial
terms, to interested parties, as a basis
for performance assessment, decision-
making and control.

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 Definition and Meaning of
Accounting
The definitions above are similar in that they contain the
essential elements involved in the process of
accounting. These are:
• Recording of transactions and events which also
involves collecting and analysing data;
• Summarising and presenting information to end users;
• Interpreting results.
• Accounting information is usually expressed in
monetary terms, and used for decision making by
interested persons.

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 Bookkeeping and Accounting
The aspect of accounting which is
concerned with the recording of business
transactions is what is usually termed as
bookkeeping.
When accounting first evolved, transactions
and events were being recorded in books;
thus, the term bookkeeping.

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 Bookkeeping and Accounting
Bookkeeping comprise collecting, analyzing and
recording transactions and events in monetary
terms, to users to make economic decisions.
Accounting goes beyond bookkeeping to include
classifying, summarizing, presenting and
interpreting financial information to users to
make economic decisions.

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 Bookkeeping and Accounting
Bookkeeping is a very important component
of accounting since it is concerned with
the work of entering data into accounting
records and afterwards maintaining such
records properly.
But obviously, there are differences between
bookkeeping and accounting.

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 Differences between bookkeeping and
accounting

Bookkeeping is a subset of accounting.

It involves only the recording aspect
of accounting.
Accounting goes on further to include
summarising, presenting and
interpreting results.

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 Differences between bookkeeping and
accounting

The one who does the work of bookkeeping

is called a bookkeeper. In today’s business
language, he or she may be called an
accounts clerk.
However, the one who does the work of
accounting is called an accountant or an
accounts officer.

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 Differences between bookkeeping and
accounting

No special skill or training is required to

do the work of bookkeeping, even
though some guidance may be needed.
This is not so with accounting.
One needs to be properly trained in order
to work as an accountant.

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 Differences between bookkeeping and
accounting

There are no strict rules and

regulations regarding the work of
bookkeeping.
However, with accounting, many
principles, rules and regulations
govern its practice.
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 The Accounting Process

According to Marriot et. al. (2003), the

Accounting Process involves two main aspects:
recording business transactions and reporting
financial information.
Recording business transactions involves
identifying and recording transactions and
events which also involve collecting
(documentation) and analysing data.

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 The Accounting Process

Reporting financial information

involves summarising and presenting
information to end users; thus,
preparation of a trial balance and
presentation of financial statements to
users for decision-making.

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 The Accounting Process
The accounting process or cycle can also be
viewed as an accounting system. A system
designed to record accounting transactions and
events of an entity, and account for them in a
way that complies with its policies and
procedures.
The basic elements of the accounting system are
identifying, measuring, collecting, recording,
and reporting transactions.

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 The Accounting Process
The stages in the accounting process can be summarised as follow
s:
• Collecting source documents
• Analysing transactions
• Recording the transactions in the journals
• Posting the transactions recorded from the journals to the
ledgers
• Balancing off accounts in the ledgers and extracting a trial
balance
• Preparing financial statements using the trial balance after
considering end-of-period adjustments
• Interpreting the financial statements using ratio analysis.
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 ACCOUNTING CYCLE OR SYSTEM
Sales invoice Purchases invoice Cash receipts & payments Credit note

Sales day book Purchases day book Cash book Return inwards and outwards day
books

Sales ledger Purchases ledger Cash book General ledger

(debtors account) (Creditors account) (cash & petty cash book) (real and nominal account)

TRIAL BALANCE

Profit and loss account Balance sheet

 Purpose of Accounting
The main purpose of accounting is to provide
quantitative information expressed in terms of
money to users to make economic decisions.
This implies that the work of accounting should
lead to the provision of information that is
useful for decision making.
The accounting information should help the
housewife take a decision as to how much
foodstuffs should be bought.

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 Purpose of Accounting
It should also help the employee to take a
decision as to whether to remain in the
employment of an organisation or to look
elsewhere.
It should also help the manager to assess the
performance of an organisation, and in so
doing, decide on courses of action that will help
maintain or improve current performance of the
business.

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 Purpose of Accounting
The information that accounting provides is
usually quantitative and monetary in nature.
The information is expressed in figures and
currency terms.
The implication is that those valuable information
about an entity which are not quantitative in
nature, must be ignored. Accounting
information therefore does not give us a
complete picture of an organisation.

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 Functions (uses) of Accounting

The end result of the accounting process is the

provision of relevant accounting information
for useful decision making. The following are
some of the functions or uses of accounting
information:
• Accounting information provides analysed and
summarised information on business activities.

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 Functions (uses) of Accounting

• It also facilitates the efficient allocation of

scarce resources.
• It enables us to meet the requirements of the
law.
• It shows the accountability of the affairs of an
entity through the preparation and presentation
of financial statements to owners of the entity.

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 Functions (uses) of Accounting

• It assists in the control of business

transactions.
• It provides information on persons or
objects of an entity.
• It helps in ensuring accuracy in
recording of business transactions.
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 Branches of accounting

There are three main branches of accounting,

namely:
• Financial Accounting
• Management Accounting
• Cost Accounting
• Other branches of accounting are taxation and
auditing.

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 Financial accounting

Financial Accounting is concerned with

recording business transactions and
reporting financial information
through financial statements such as
the profit and loss account and the
balance sheet.

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 Management Accounting

Management Accounting is concerned with

generating accounting information for use by
management in carrying out the management
functions of planning, organizing, directing,
leading and controlling. It also provides
management with information for forecasting,
controlling and evaluating cost.

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 Cost Accounting

Cost Accounting is concerned

with the provision of cost
information for product costing,
stock valuation and for
planning and control.

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 Qualities of Accounting Information

Accounting information aims at

enabling users to make economic
decisions. Accounting information
must therefore be useful for decision
making. The overriding quality of
accounting information is therefore
decision usefulness.
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 Qualities of Accounting Information
According to the framework of the International
Financial Reporting Standards (IFRS), 2007,
there are four principal qualitative characteristics
of accounting information, namely:
• comprehensibility (understandability),
• relevance,
• reliability, and
• comparability.

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 Qualities of Accounting Information

The information must be useful in terms of its

content and its presentation. For accounting
information to be useful for decision making in
terms of it content, it must contain the
following primary qualities:
• Relevance
• Reliability

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 Relevance
Relevance implies that the information
under consideration bears directly on
the decision to be made. The
information helps the user in his
decision-making. Relevant accounting
information should possess predictive
value, feedback value and timeliness.

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 Relevance

Predictive value refers to that part of the

information which helps the user to estimate
and evaluate present and future events.
Feedback value refers to the ability of the
information to help the user to correct or
confirm past evaluations. Feedback value is
also referred to as confirmatory value.

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 Relevance

Timeliness of the information is also a

very crucial ingredient in the
relevance quality. Timeliness requires
that the information should be
received on time to be relevant for
decision making.

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 Reliability
Reliability implies that the information can
be depended upon to make decisions
because the facts and figures contained in
the information are objective and
verifiable.
Reliable accounting information should be
neutral, complete, faithfully represented,
and free from material bias.

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 Qualities of Accounting Information

For accounting information to be useful

for decision making in terms of its
presentation, it must contain the
following secondary qualities:
• Comparability and consistency.
• Understandability.

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 Comparability
Comparability means that accounting
information should be such that users can
compare the financial statements of an
entity overtime to identify trends in
financial position and performance. The
information should therefore allow for two
or more periods’ data to be compared on a
reasonable basis.

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 Consistency
Consistency refers to the accounting
information being prepared on the same
basis period after period. Once the basis of
preparing the financial statements is
maintained, there will be some form of
consistency, and hence meaningful
comparison can be made between or
among different periods.

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 Understandability

Understandability means that accounting

information should be in a form which is
understandable by user groups. But
understandability in itself is user-specific.
This implies that even though accounting
information must be presented in a form which
is understandable by a user, the user must also
have reasonable knowledge in business and
accounting.
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 Materiality
There is a threshold quality of accounting
information which is referred to as materiality.
Accounting information is material if its
omission or misstatement could influence the
economic decisions of users. For example, a
stapler machine can last for about five years,
but because its value is relatively insignificant
or immaterial, it would not be treated as a fixed
asset, but rather as an expense.

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 Limitations of Accounting
Information

Accounting information ignores non-

monetary information.
Accounting information may not contain all
the qualitative characteristics that make it
useful for decision making. In reality there
is usually a trade off among the qualities.

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 Limitations of Accounting
Information
Accounting information is expressed in terms of
money but money as a unit of measurement is
unstable.
There are sometimes contradictions among some
of the concepts underlying the preparation and
presentation of accounting information. For
example, revenue recognition and prudence.

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 Limitations of Accounting
Information
Accounting information may be subject to human
error and/or manipulation.
Financial accounting information reports past or
historical data which may not be relevant for
future decision making. The historical
information may not also show the real
purchasing power of accounting information.

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 Users of Accounting Information

It is easy to assume that the only

users of accounting information
are shareholders - since it is a
requirement of company law that
shareholders must receive periodic
annual reports.
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 Users of Accounting Information

However, in reality there are many users of

accounting information. Generally, users
of accounting information are the
managers of an entity, shareholders,
suppliers, loan creditors, the government,
employees, financial analysts and
advisors, and the general public.

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 Management group – Board of
Directors, Managers.
Management here refers to those
who oversee the affairs of the
business entity. This group of
users need accounting information
to assess their stewardship over
the affairs of the business entity.

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 Management group – Board of
Directors, Managers.

They will need accounting information

from the trading and profit and loss
account and from the balance sheet to
undertake the management functions
of planning, organizing, directing and
controlling.

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 Equity interest group – existing, potential and past
shareholders (owners), partners, sole proprietors.

This group of people who are the

owners of a business entity are
interested in whether or not the
business is profitable, and whether
there are enough financial
resources for the payment of
dividends.
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 Equity interest group

The information contained in the income

statement and balance sheet will help them
to know the profitability of the business
and the amount of dividends to expect.
This will enable them to decide whether to
maintain, increase, reduce or sell their
shareholdings or equity interest.

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 Equity interest group
Members of the equity interest group can be
described as investors who are concerned about
the risk and return in relation to their investments.
They require information to decide whether they
should continue to invest in a business or not.
They also need to be able to assess whether a
business will be able to pay dividends, and to
measure the performance of the business'
management.

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 Equity interest group
The key accounting information for an investor is
therefore:
• Information about growth - sales, volumes
• Profitability (profit margins, overall level of
profit)
• Investment (amounts invested, assets owned)
• Business value (share price)
• Comparative information of competitors.

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 Business contact group – customers, trade
debtors, trade creditors, expense creditors,
suppliers, competitors
Members of this group require information
about the ability of the business to survive and
prosper.
As business contacts outfits of the entity's
products, they have a long-term interest in the
entity's range of products and services. They
may even be dependent on the business for
certain products or services.

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 Business contact group
Customers and trade debtors are particularly
interested in sales growth, new product
development, credit policy and investment in
the business entity’s production capacity.
Suppliers and trade creditors require information
that helps them understand and assess the short-
term liquidity of a business. Is the business able
to pay short-term debt when it falls due?

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 Business contact group
Creditors will, therefore, be looking for
information on cash flow, management of
working capital, payment policy.
Creditors who have supplied goods on credit
to the business will want to know whether
the business will be able to pay for the
goods, and the probability of delay in
payment.
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 Loan creditor group – debenture holders,
bankers, lenders, other loan and finance
providers.
Banks and loan providers who lend money
to a business require information that
helps them determine whether loans and
interest will be paid when due.
They are basically concerned with the
entity’s ability to meet its debt obligations
as and when they fall due.

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 Loan creditor group
They will also be interested in the
future viability or profitability of the
business since the possibility of the
business failing to make repayments
of loans and other debt obligations
may have adverse consequences on
the lenders and creditors.

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 Loan creditor group
The key accounting information for
lenders is therefore cash flow,
security of assets against which
the lending may be secured and
investment requirements in the
business.
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 Government – tax authorities, registrar of companies,
government departments and agencies, local
authorities.

Businesses are also subject to a wide range

of government regulations, particularly,
the payment of taxes. The Internal
Revenue Service would be interested in
how much profits have been made by the
business in order to calculate the taxes
payable and also for planning purposes.

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 Government
The Registrar of Companies also needs the
audited financial statements of companies
as a statutory requirement.
The Statistical Department will need
information in the financial statements for
national income computation, and other
statistics.

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 Employee group – existing, potential and
past employees, trade union.

Employees and trade unions require

information about the stability and
continuing profitability of the business.
They are crucially interested in
information about employment prospects
and the maintenance of pension funding
and retirement benefits.

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 Employee group

They are also interested in the pay

and benefits obtained by senior
management so as enable them to
be effective during collective
bargaining processes.

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 Employee group
Employees will, therefore look for information on:
• Revenue and profit growth
• Levels of investment in the business
• Overall employment data (numbers employed,
wage and salary costs)
• Status and valuation of company pension
schemes / levels of company pension
contributions

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 Employee group

Good working conditions and job security are the

main concerns of employees. They are
therefore interested in the profitability and long
term survival of the business. Once profits from
operations are increasing, they will have good
grounds to agitate for better conditions of
service such as increase in wages and salary,
promotions, and retirement benefits.

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 Employee group

The trade union will be interested in

the balance sheet for indicators
that will show that the business
will continue to exist and provide
employment.

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 Analyst-advisor group – financial and investment
analyst, journalists, economists, statisticians,
researchers, lecturers, students, stockbrokers.

Financial and investment analysts are an

important user group - specifically for
companies listed on a stock exchange.
They require very detailed financial and
other information in order to analyze the
competitive performance of a business and
its sector.

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 Analyst-advisor group
Much of this is provided by the detailed
accounting disclosures that are required by
authorities such as the Ghana Stock Exchange
and the provisions of the International Financial
Reporting Standards (IFRS).
However, additional accounting information is
usually provided to analysts via informal
company briefings and interviews.

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 General Public – taxpayers, consumers,
political parties, pressure groups, social
commentators, community groups.

Interest groups, formed by various

groups of individuals who have a
specific interest in the activities
and performance of businesses,
will also require accounting
information.
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 The Nature of Financial Statements
Financial statements are the
financial reports through which
financial information is reported.
Financial statements show the
results of the stewardship of
management.

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 The Nature of Financial Statements
It is through financial statements that
management display accountability of
management of resources entrusted to them.
The general objective of financial statements is
to provide information about the financial
performance, financial position, and changes in
financial position of an enterprise that is useful
to a wide range of users in making economic
decisions.

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 A complete set of financial statements
comprise:
• an income statement (profit and loss a/c);
• a balance sheet;
• a statement of changes in equity;
• a cash flow statement;
• a value added statement; and
• notes comprising a summary of significant
accounting policies and other explanatory
notes.
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 The Income Statement
The income statement provides information
about the performance of the business
which comprises the return obtained by
the enterprise on the resources it controls.
It is a financial report used to determine the
profitability of the business entity for a
period of time, usually a year.

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 The Income Statement
It is usually in the form of a Trading and Profit
and Loss Account which is prepared for a year
to determine the net profit or loss of an entity.
The income statement contains the revenues and
gains, less the expenses and losses, which will
reveal either a net profit or loss, or a break
even. It is prepared based on the double entry
system of bookkeeping.

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 The Balance Sheet
The balance sheet is a representation of the
assets, liabilities and capital of an entity as
at a given date.
Literally speaking, a balance sheet is a
document or a ‘sheet’ which contains
balances of assets, liabilities and capital
which must ‘balance’ at a point in time.

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 The Balance Sheet
These balances must agree (or ‘balance’) to
the extent that the assets must equal the
liabilities plus capital, hence, the
Accounting equation: Assets = Liabilities
+ Capital.
In other words, the value of assets must
equal the sum of the values of liabilities
and capital.
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 The Balance Sheet
A balance sheet therefore shows the financial
position of an entity at a given point in time. It
should be noted that the balance sheet is not
prepared based on the double entry principle of
accounting.
Rather, it is a list of balances arranged according
to whether they are assets, liabilities or capital,
to depict the financial position of a business at a
point in time.

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 The Cash Flow Statement
The cash flow statement is a financial report
prepared to show the movement or
changes in the financial or cash position of
an entity.
The objective of this statement is to
communicate to the user, information
about the inflows and outflows of cash.

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 The Cash Flow Statement

A cash flow statement therefore shows how

cash has been generated and used by an
organization. It is useful in providing the
user with an additional perspective on the
performance of an enterprise by indicating
the amounts and principal sources of its
cash inflows and outflows.

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 Elements of Financial Statements
The three major financial statements explained
above contain the following elements:
• Income (revenue or gains);
• Expenses (or losses);
• Assets;
• Liability; and
• Equity interest (capital).

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 Income
This refers to increases in economic benefits
during the accounting period in the form
of inflows or enhancements of assets or
decreases of liabilities that result in
increases in equity, other than those
relating to contributions from equity
participants.

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 Income
Income can be in the form of revenue or gains.
They both result in inflows of resources that an
entity receives.
However, whiles revenues result from the major
operations of the business entity, gains results
from other transactions that are incidental to the
major activities carried on by the entity.

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 Income
A typical example of revenue is
sales. Examples of gains
include discount received,
interest received and
commission received.

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 Expense
This refers to decreases in economic
benefits during the accounting period
in the form of outflows or depletions
of assets or incurrence of liabilities
that result in decreases in equity, other
than those relating to distributions to
shareholders.

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 Expense

An expense can be in the form of a

normal business expense or a loss.
Both result in outflows of resources
that an entity uses up. Like revenue,
expenses result from the main
operations of the business entity.

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 Expense
And like gains, losses do not result from the
main operations of the business.
Example of expenses includes purchases,
salary, electricity and water bills, rent and
rates.
Examples of losses include bad debts and
discount allowed to customers.

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 Asset
An asset is a resource controlled by the
entity as a result of past events and from
which future economic benefits are
expected to flow to the entity.
Assets are divided into non-current assets
(fixed assets) and current assets. Non-
current assets are assets acquired for use
in the business and not meant for resale.

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 Asset

The benefits to be derived from the use

of these assets span more than one
year.
The costs incurred in acquiring non-
current assets are usually significant
and substantial.

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 Asset

Examples of non-current assets include

land and building, furniture and
fixtures, motor vehicles, plant and
machinery.
Current assets, on the other hand, are
assets acquired for resale or meant to
be converted into cash.
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 Asset

Benefits derived from current assets

span within one accounting period
(one year).
Examples of current assets include
stocks, debtors, cash at bank, and
cash in hand.
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 Liability
A liability is a present obligation of the
entity arising from past events, the
settlement of which is expected to result in
an outflow from the entity of resources
embodying economic benefits.
Liabilities refer to the external claims
against the resources controlled by the
business.

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 Liability

They are divided into short-term (or current)

liabilities and long-term liabilities.
Short-term liabilities are the obligations which
fall due within one accounting period.
Examples of Short-term liabilities include
creditors, expenses owing, bank overdraft, and
bills payable.

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 Liability
Long term liabilities are the
obligations which must be settled
beyond the accounting period.
Examples of long term liabilities
include long term loan and
debentures.

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 Equity interest (Capital)
This is the residual interest in the
assets of the entity after deducting
all its liabilities.
It can be described as the internal
claims against the resources
controlled by the business.

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 Equity interest (Capital)
It is the obligation owed to the
owners of the entity.
It is obtained by deducting all
liabilities from all assets.
It is therefore the residual interest of
the owner(s) of the entity.

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 Regulatory Framework of
Accounting
The regulatory framework of accounting is a
general term used to describe the:
• laws,
• principles,
• rules and regulation
that govern the recording of business transactions
and the reporting of financial information.

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 Regulatory Framework of
Accounting
• Generally Accepted Accounting Principles
i.e. Accounting Standards e.g.
International Financial Reporting
Standards (IFRS).
• Acts of Parliament e.g. The Companies
Code of 1963, Act 179.
• Other relevant legal requirements e.g.
stock exchange regulations.
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 GAAP
Generally accepted accounting
principles (GAAP) refer to the rules,
accounting standards, accounting
concepts, conventions, principles,
bases and policies usually followed by
accountants in measuring, recording
and reporting transactions.

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 Accounting concepts and conventions

Accounting concepts and conventions are the

set of rules, principles, postulates,
conventions and methods applied in the
measuring and recording of business
transactions and reporting financial
information. They are applied in the
accounting process or accounting
procedures.
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 Accounting bases
Accounting bases are the methods used for
applying fundamental accounting concepts to
financial transactions and events when
preparing and presenting financial statements.
e.g. method of depreciation. The particular
accounting bases adopted by an organization
will form its accounting policies; that is the
specific accounting bases adopted and
consistently followed by an entity in the
preparation of its financial statements.

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 Accounting policies
Accounting policies are in the opinion of
management, appropriate to the entity’s
circumstances and best suited to prepare and
present its financial information.
In Ghana, companies are required to disclose their
accounting policies in their annual accounts, in
accordance with the provisions of the Companies
Code of 1963, Act 179. Policies on depreciation
and valuation of stock must be disclosed.

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 Assumptions

The accounting concepts are referred to as

assumptions. This is because they are the
basic theoretical ideas devised to support
accounting practice.
They are the underlying assumptions for the
preparation and presentation of periodic
financial statements.

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 Going concern/Continuity

This concept assumes that a business will

continue to be in normal operational
existence for the foreseeable future.
It is also implied that the business
enterprise does not intend to curtail its
operations significantly.

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 Prudence/Conservatism

This concept states that revenue and profits are

not anticipated, but are recognized in the profit
and loss account only when it can be realized
with reasonably certainty.
Provision is also made for all known liabilities
(expenses and loss). In other words,
underestimate profits and anticipate losses.

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 Accrual/Matching
This concepts states that revenue and
expenses are accrued or recognized as
they are earned or incurred, not when
money is received or paid.
Revenue earned must be matched against
expenses incurred in the profit and loss
account of the period to which they relate.

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 Consistency/Comparability
This concept states that there should be
consistency of accounting treatment of
similar items within each accounting
period and from one accounting period
to another. Similar items should be
accorded similar accounting
treatments. e.g. treatment of
depreciation.
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 Business Entity concept
A business is an entity which is separate and
distinct from its owners and from other units.
The business is an artificial person.
This means that the assets and liabilities of the
business are separate and distinct from that of
the owners of the business.
The business can enter into contracts and can sue
and be sued.

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 Money measurement concept

Accounting deals with only items to

which monetary values can be
attributed.
Thus, revenue, expenses, assets,
liabilities and capital are expressed
in terms of money.
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 Materiality concept
In accounting only items which are significant are
given treatment in the books of accounts.
Information is material if its omission or
misstatement could influence the economic
decisions of users taken on the basis of the
financial statements.
Materiality is a relative concept. It is dependant
on the size of the entity.

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 Duality concept

For every transaction there are two

aspects, the giving and receiving
aspects which must be identified,
measured and recorded as the
debit and credit sides of the
transaction.
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 Revenue Recognition or Realization

Revenue is recognized, realized

or earned when goods are sold
to the customer, and not when
money is received from the
customer.

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 Objectivity
Financial information must be prepared
and presented without any subjective
judgments or personal feelings.
There must be supportive
documentation to every transaction in
order to make them verifiable.

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 Periodicity

Financial statements are prepared for a given

period of time.
This means that the financial statements should
be prepared to reflect the accounting year in
which the operations of the business entity
corresponds.
The accounting year in Ghana is usually January
1 to December 31 of every year.
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 Historical cost
The values of assets, liabilities,
capital, revenue and expenses
are recorded in the books of
accounts at their original cost at
which they are acquired, earned
or incurred.
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 Substance over form
Accounting transactions should be recorded and
presented in accordance with their substance
and financial reality, and not merely with their
strict legal form.
For instance, when a fixed asset is acquired on
hire purchase basis, legally, the fixed asset does
not belong to the entity but because of the
substantial and financial nature of the
transaction, the fixed asset can be included in
balance sheet of the entity.
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 Full Disclosure

In the presentation of financial

statements, every information that is
relevant and material which could
influence the economic decisions of
users taken on the basis of those
financial statements must fully be
disclosed.
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 Framework for the Preparation and
Presentation of Financial Statements
Currently, the main and single set of accounting
standards applicable in Ghana as well as
globally is the International Financial Reporting
Standards (IFRS). The IFRS which was
previously known as the International
Accounting Standards (IAS) are a
comprehensive set of accounting rules and
guidelines applied in the preparation and
presentation of financial statements.

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 Framework for the Preparation and
Presentation of Financial Statements

As of January 2009, the following IFRS

were in issue:
• IFRS 1 First-time Adoption of IFRS
• IFRS 2 Share-based Payment
• IFRS 3 Business Combinations
• IFRS 4 Insurance Contracts
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 Framework for the Preparation and
Presentation of Financial Statements
• IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations
• IFRS 6 Exploration for and Evaluation of
Mineral Resources
• IFRS 7 Financial Instruments: Disclosures
• IFRS 8 Operating Segments
• IAS 1 Presentation of Financial Statements
• IAS 2 Inventories
• IAS 7 Cash Flow Statements

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 Framework for the Preparation and
Presentation of Financial Statements

• IAS 8 Accounting Policies, Changes in

Accounting Estimates and Errors
• IAS 10 Events after the Reporting Date
• IAS 11 Construction Contracts
• IAS 12 Income Taxes
• IAS 16 Property, Plant and Equipment

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 Framework for the Preparation and
Presentation of Financial Statements
• IAS 17 Leases
• IAS 18 Revenue
• IAS 19 Employee Benefits
• IAS 20 Accounting for Government Grants
and Disclosure of Government
Assistance
• IAS 21 The Effects of Changes in Foreign
Exchange Rates
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 Framework for the Preparation and
Presentation of Financial Statements

• IAS 23 Borrowing Costs

• IAS 24 Related Party Disclosures
• IAS 26 Accounting and Reporting by
Retirement Benefit Plans
• IAS 27 Consolidated and Separate
Financial Statements
• IAS 28 Investments in Associates

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 Framework for the Preparation and
Presentation of Financial Statements
• IAS 29 Financial Reporting in
Hyperinflationary Economies
• IAS 31 Interests in Joint Ventures
• IAS 32 Financial Instruments:
Presentation
• IAS 33 Earnings per Share
• IAS 34 Interim Financial Reporting
• IAS 36 Impairment of Assets
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 Framework for the Preparation and
Presentation of Financial Statements

• IAS 37 Provisions, Contingent Liabilities

and Contingent Assets
• IAS 38 Intangible Assets
• IAS 39 Financial Instruments: Recognition
and Measurement
• IAS 40 Investment Property
• IAS 41 Agriculture

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 Framework for the Preparation and
Presentation of Financial Statements
• the objective of financial statements;
• user groups of financial statements;
• assumptions underlying financial statement
preparation;
• the qualitative characteristics of financial statements;
• the elements of financial statements; their definition,
recognition and measurement; and
• the concepts of capital and capital maintenance.

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 Careers in Accounting
Careers available in accounting include bookkeeper,
accountant, financial accountant, management
accountant, cost accountant, budget analyst, tax
accountant, public sector accountant, government
accountant (controller and accountant-general), tax
advisor, insurance brokerage, investment advisor,
auditor, internal auditor, financial analyst, advisor or
consultant, banker, stock broker, finance manager,
accounting educationist and administrator, bursar,
project manager, general manager, among others.

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 THANK
YOU

Thank you
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