Learning Objectives – 11 October

Recapitulate of last class

Accounting Assumptions

Accounting Principles

Accounting Concepts / Conventions

Quiz

Next Learning Objectives

Recap of Last Class
Elements of Accounting / Financial Statements

Types of Financial Statements

Accounting Equation
Accounting Concepts
Business entity: This concept assumes that, for
accounting purposes, the business enterprise &
its owners are two separate independent entities

Money Measurement: All business transactions

must be in terms of money. An event which
cannot be expressed in terms of money is not
recorded in the accounting books.
Accounting Concepts …
Going Concern: A business will continue to carry
on its activities for an indefinite period.

Accruals Basis of Accounting:  Expenses are

reported when it occurs, not when cash is paid.
Revenue / Income is reported when earned.

Cash Basis of Accounting is the practice of

recording income when cash is received &
recording expenses when the expense is paid
Accounting Concepts …
Prudence: also known as conservatism.
Do not overestimate the amount of revenues recognized or
underestimate the amount of expenses.

Substance Over Form: the economic reality of transactions

must be recorded rather than just their legal form.

Completeness: All information, both favourable and un-

favourable must be reported.
Accounting Conventions
Convention: way in which something is usually
done.

Historical cost convention requires all

transactions to be recorded at the original cost.

Accounting period convention breaks time into

periods such as weeks, months, quarters & years
Characteristics of Financial Statements
Relevance: Relevant financial information is
capable of making a difference in the decisions
made by users.

 Faithful representation: Financial reports

represent economic activities. To be useful,
financial information must represent relevant
economic activities but it also must truly
represent. To be true / faithful it should have be
complete, neutral, and free from error.
Enhancing Qualitative Characteristics
 Comparability: Information about a company is more useful if it
can be compared with similar information about other companies &
with similar information about same entity for another period

 Verifiability:Means that different knowledgeable and independent

observers can confirm / prove.

 Timeliness: means having information available to decision makers

in time to be capable of influencing their decisions

 Understandability: Classifying, characterizing, and presenting

information clearly and concisely makes it clear / reasonable.
Next Learning Objectives
Introduction to Book-Keeping

Rules of Debit & Credit

Double Entry System for Assets, Liabilities &

Capital

Double Entry System for Income & Expenditure