Introduction to Accounting chap 1, 12th ED

7/23/2019 Introduction to Accounting chap 1, 12th ED

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Chapter One: Accountingin Action

Presented By:Mohammed Sohail Mustafa, CFAAssociate ProfessorBangladesh Institute of Bank Management


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Text Book

Mohammed Sohail Mustafa 2

AccountingPrinciples, 12thEdition International

Student ersion,

!erry !" #eygandt,Paul $" %immel,

$onald E" %ieso

ISB&: '()*1*11)*'+'(*'May 2-1+, .2-1+


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What is Accounting?

Accounting is an information system thatsystematically identify, record, classify, summari/e,measure 0interpret the nancialeconomic acti3itiesof an organi/ation 0 communicate those to the

stakeholders to take 4usinesseconomic decisions"



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Identifcation: TransactionAn accounting transaction, also called a 4usiness

e3ent, is any e6change of economic considerationthat can 4e reasona4ly measured and a7ects therm8s nancial position" In other 9ords, transactions

are e3ents that change the accounting euationduring a period" If assets, lia4ilities, or euity arechanged or a7ected, chances are there is atransaction of some kind" ;o dene any e3ent astransaction< it must ha3e the follo9ing characteristics:E6change 4et9een t9o parties"

Measured in monetary terms"

Impact in the nancial statements of the rm"

Mohammed Sohail Mustafa


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Recording: Journal

!ournal is the 4ook of original entry 9hereall the transactions are recordedchronologically 9ith supporting narration 0

identifyingclassifying the related parties"

Mohammed Sohail Mustafa +


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Classifcation: Ledger

A ledger is an accounting 4ook thatfacilitates the transfer of all =ournal entriesin a chronological seuence to indi3idual

accounts" ;he process of recording =ournalentries into the ledger is called posting"

Mohammed Sohail Mustafa >


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u!!ari"ing: Trial Balance

;rial Balance is a list of closing 4alances ofledger accounts on a certain date and is therst step to9ards the preparation of nancial

statements" It is usually prepared at the endof an accounting period to assist in thedrafting of nancial statements

Mohammed Sohail Mustafa (


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#easure!ent: $inancial tate!ents

?inancial Statements represent a formal record of thenancial acti3ities of an entity" ;hese are 9ritten reportsthat uantify the nancial strength, performance andliuidity of a company" ?inancial Statements re@ect the

nancial e7ects of 4usiness transactions and e3ents on theentity

?inancial Statements represent a formal record of thenancial acti3ities of an entity" ;hese are 9ritten reportsthat uantify the nancial strength, performance andliuidity of a company" ?inancial Statements re@ect the

nancial e7ects of 4usiness transactions and e3ents on theentity

Mohammed Sohail Mustafa )


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Interpretation: $inancialRatios

?inancial statement analysis or nancialanalysis is the process of re3ie9ing andanaly/ing a companyCs nancial statements to

make 4etter economic decisions" ;hesestatements include the income statement,4alance sheet, statement of cash @o9s, and astatement of retained earnings" ;he analysis

includes:Dori/ontal or ;ime Series Analysis"

ertical Analysis"

atio Analysis"

Mohammed Sohail Mustafa '


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I%T&R%AL '&R

Who 'ses Accounting (ata

LO 1


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LO 1

Who 'ses Accounting (ata

&)T&R%AL '&R


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*enerall+ Accepted Accounting,rinciples -*AA,.

;he phrase Fgenerally accepted accountingprinciplesF or FGAAPF consists of three importantsets of rules:

1" ;he 4asic accounting principles and guidelines,2" ;he detailed rules and standards issued 4y

?ASB and its predecessor the AccountingPrinciples Board APB, and

5" ;he generally accepted industry practices"



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Basic Accounting ,rinciples and*uidelines


1" Economic Entity

Assumption"

2" Monetary HnitAssumption"

5" ;ime Period Assumption"

" Distorical ost Principle"

+" ?ull $isclosure Principle"

>" Going oncern

Principle"

(" Matching Principle")" e3enueecognition

Principle"

'" Materiality"1-" onser3atism"


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Other Characteristics o/

Accounting In/or!ation1" #e e6pect the accounting information to

4e relia0le1 2erifa0le1 ando03ecti2e"

2" #e e6pect consistenc+ in theaccounting information"

5" #e e6pect co!para0ilit+ in theaccounting information"

Mohammed Sohail Mustafa 1+


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&thics in Accounting

Ethics in accounting are concerned 9ith ho9to make good and moral choices in regard tothe preparation, presentation and disclosureof nancial information" $uring the 1''-s and

2---s, a series of nancial reporting scandals4rought this issue into the forefront" %no9ingsome of the issues presented in accountingethics can help you ensure that you are

considering some of the implications for theactions that you take 9ith your o9n 4usiness"

Mohammed Sohail Mustafa 1>


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&thics in $inancial Reporting

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,roprietorship ,artnership Corporation

J9ned 4y t9o

or more

persons Jften retail and

ser3ice*type

4usinesses

Generally

unlimited

personal

lia4ility

Partnership

agreement

J9nership

di3ided into

shares of stock Separate legal

entity

organi/ed

under state

corporation la9 Kimited lia4ility

J9ned 4y one

person

J9ner is oftenmanageroperat

or

J9ner recei3es

any prots,

su7ers anylosses, and is

personally lia4le

for all de4ts

$or!s o/ Business O4nership

LO 2


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Accounting &5uation

Mohammed Sohail Mustafa 1'


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Mohammed Sohail Mustafa 2-


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Introduction to Accounting chap 1, 12th ED

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