ACCT6174 - Introduction to

Financial Accounting
Week 1
Accounting In Action
&
The Recording Process
ACCT6174 - Introduction to
Financial Accounting
Week 1
Accounting In Action
 Objectives
1. What is Accounting?
2. The Building Blocks of Accounting
3. The Basic Accounting Equation
4. Using the Accounting Equation
5. Financial Statements
6. The Account
7. Steps in the Recording Process
8. The Recording Process Illustrated
9. The Trial Balance
 What is Accounting?
Accounting consist of three activities:
1. identifies,

2. records, and

3. communicates
 User of Accounting Information

• Internal Users: External Users:

- Management - Suppliers
- Finance Division - Customers
- HR Division - Creditors
- Government
- Marketing Division - Investors
- Employee
 Accounting Standards
1. International Accounting Standards Board (IASB) for International
Financial Reporting Standards (IFRS)
2. Financial Accounting Standards Board (FASB) for Generally Accepted
Accounting Principles (GAAP)
 Building Blocks of Accounting
Measurement Pricipals

• Cost Principle (historical cost principle) dictates that companies

record assets at their cost.

• Fair Value Principle states that assets and liabilities should be

reported at fair value (the price received to sell an asset or settle a
liability).
 Building Blocks of Accounting
Assumptions

• Monetary Unit means that accounting records only transaction data

that can be expressed in money terms.

• Economic Entity requires that activities of the entity be kept separate

and distinct from the activities of its owner and all other economic
entities.
 Forms of Business Ownership
There are 3 forms of business:
1. Proprietorship
• Owned by one person
• E.g. small service-type businesses
• Owner receives any profits, suffers any losses, and is personally
liable for all debts
 Forms of Business Ownership
2. Partnership
• Owned by two or more persons, there will an agreement
• E.g. retail and service-type businesses
• Unlimited personal liability for the owners
 Forms of Business Ownership
3. Corporation
• Ownership divided into shares
• Regulated by corporate law
• Separate legal entity (separation between company and
shareholders)
• Limited liability
 Basic Accounting Equation

Assets Liabilities Equity

Assets : Resources a business owns that will provide future service or

benefit
Liabilities : Claims and obligations against assets
Equity : Residual of assets and liabilities
 Basic Accounting Equation

Revenues are the inflow or result from business

activities.
Expenses are the cost of assets consumed or
services used to earn revenue.
Dividend is contribution to shareholders
Basic Accounting Equation
 Transactions
What is transaction?
a business’s economic events need to be recorded by accountants.
Not all events should be recorded by Accountants. Only for events that
has a dual effect on the accounting equation.
For example:
1. Buy computer – record
2. Meeting – no need to record
 Financial Statements
Companies prepare financial statements which consist of:
1. Statement of Profit of Loss
2. Statement of Retained Earnings
3. Statement of Financial Positions
4. Statement of Cash Flow
ACCT6174 - Introduction to
Financial Accounting
Week 1
The Recording Process
 The Account
Account is to record the increases and decreases in a specific asset,
liability, equity, revenue, or expense item.
Debit on “Left”, Credit on “Right”
Double entry system means each transaction must affect two or more accounts
to keep the basic accounting equation in balance.
 The Account
Normal Balance is on the increase side
 Summary of Debit/Credit Rules

• Relationship among the assets, liabilities and

equity :
 Steps in Recording
1. Analyze the transactions and business documents (e.g. bills, checks,
invoices)
2. Journal
Discloses the complete effects of a transaction and provides a
chronological record of transactions.
 Steps in Recording
Illustration:
On January 1, shareholders’ invested $15,000 cash in the
corporation in exchange for share of stock, and Sun Co. purchased
computer equipment for $7,000 cash.
Journal:
Dr. Cash 15,000
Cr. Share Capital – Ordinary 15,000
Dr. Equipment 7,000
Cr. Cash 7,000
Steps
Posting –
process of
transferring
amounts from
the journal to
the ledger
accounts.
 Steps in Recording
3. General Ledger
Steps in Recording
4. Trial Balance
 Reference
Weygandt J., Kimmel P., Kieso D. Financial
Accounting IFRS Edition. 04. John Wiley & Sons
(Asia). 2019
Thank You