Page 1 Introduction To Accounting. Page 2 JOIN KHALID AZIZ MA ECONOMICS EXTERNAL COACHING CLASSES....

Introduction To Accounting

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• MICRO ECONOMICS, STATISTICS & MACRO ECONOMICS.

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• ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM.

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Outline

• The nature of firm;

• The value of accounting;

• The Evolution of accounting;

• Accounting: A bird view

Opening Story

• Everyone here is supposed to know the Outlaws of the Marsh;

• Question I: – Who plays the role of “CFO”

of the Marsh Mountain Liang?

• There are two;

Opening Story

– Some other positions related to accounting;

Opening Story

• Question II:– Why does the Marsh

Mountaion Liang need such positions as CFO and Chief Controller?

– We must know that the title of SHUIHUZHUAN is also translated as All Men are Brothers.

The Value of Accounting

• Why does accounting exist in every organization?

• I explain this question in another way: what kind of unique value does accounting possess?– The value must be fundamental and the

society could not go without;

• Another way to explain: Darwinism;– Natural selection and the fittest survive;

The Nature of Firm

• Although every organization needs accounting, we just talk about enterprise accounting for simplicity;

• What is the nature of firm?

• We discuss about human nature first;

The Nature of Man

• Ethic Man;– Human Nature: Virtue vs. Evil;– Confucis vs. Hsun Tzu

• Economic Man;– There is no ethics concept in

Economists’ dictionary;• It is not from the benevolence of the

butcher, the brewer, or the baker that expect our dinner, but from their regards their own interest. (Adam Smith);

The Nature of Man

• We need a compound analytical tool;– Maslow and the Hierarchy of Needs: the

most common tool;

• Michael Jensen and William Meckling– REMM

• Resourceful,• Evaluator,• Maximizer,• Model.

The Nature of Firm

• Classical theories;– A device to capture transaction costs;– A nexus of contracts;– Agency theory;– Economic Darwinism;– ,,,,

• REMM perspective:– A coalition of economic men;

The Nature of Firm

• On the coalition of economic men:

• Why does REMM join a firm?– Maximization of his own interests;

• When does REMM quit from a firm?– Seek different chance to maximize his own

interests;

• When we define human being as REMM, we have to solve the fundamental issue:– How does REMM trust each other?


• Without trust, we could not have even a family, let alone a firm;

• REMMs have to find efficient ways to develop and maintain trust;– They know that they have to;– The problem is how;


• Historically, REMMs have created and experimented numerous ways;– Accounting is proven to be cost-effective;

• It is suitable to all kinds of firms,• No matter of their size,• No matter of the geographic locations;• No matter of ownership;

The Evolution of Accounting

• Now that accounting is connected with human nature and trusting issue, we may trace the history of accounting to the early days of human beings, or Primitive Society;– the Incas and Quipu;

• Sumer and CUNEIFORM

• Phoenician and ALPHABET


• Why do our ancestors invent Alphabet?– To build trusting via enhanced memory;– This is the right value of Accounting.

• Chronology of spelling by Steve Bett;– 3200 BC Writing developed as an extension of the

accounting system in Babylon;

• A British accounting scholar claimed:– Phoenician invented ALPHABET

for the sake of accounting.


• The primitive stage of accounting;– A tool to help to maintain the trusts;– Alphabet, numeric and organizational

control;


• The birth of double-entry bookkeeping;– A. C. Littleton on the birth of DEB;

• Another story– The Crusaders (1095-1270);– Italian commodity economy, developed bank

business;

• DEB: the symbol of accounting science;


• From Bookkeeping to Financial Accounting– Capital market: accounting information is

widely circulated;– The most common users: outside of the

reporting entity;– GAAP: the symbol of the conversion;

• Financial Accounting is also called External Accounting;


• Industrial revolution and modern mass manufacturing process;– Business profiting model is changed;

• Originally, buy low, sell high;• Now, buy raw materials, manufacture into products

and sell out;• The determination of the cost of manufactured

products is essential in profit determination;

– Cost Accounting is “invented”;


• From cost accounting to management accounting;– More complicated business activities;– Dynamic and keep-changing environment;– Much larger business scale;

• Decision making:much more complicated;

• Management Accounting is“invented”;


• From commodity market to capital market;

• The developing of capital market raises two issues:– Effective ways to raise and allocate capital;– Trust crisis;

• We have Corporate Finance and Auditing subjects respectively.

Accounting Accounting FirmsFirms

FirmFirmFirmFirmFinancial statementsFinancial statements

investorsinvestorsFinancial Accounti

ng

Financial Accounti

ngAuditin

gAuditin

gFinance

Finance

Management

Accounting

Management

Accounting

Corporate Finance and Auditing


• Accounting will evolve with the development of economy and technology;– The invention of computer and its

adoption into accounting practice;• Reduces time, effort and cost of

record-keeping;• Improves clerical accuracy;• Changes the way we store, process and

summarize large masses of data;


– Website and Internet;• dissemination of accounting information:

easy and no increment cost;

– Internet based financial reporting system;• Extensible Business Reporting Language (XBRL) was

developed to provide users with an efficient and effective means of preparing and exchanging financial information over the Internet.

• Extensible Assurance Reporting Language (XARL) was designed to enable assurance providers to report on the integrity of information distributed over the Internet and help users and companies place warranted reliance on such information

– Events accounting: may be re-introduced under internet environment;


• SOX and its impact on accounting;– Enron filed for bankruptcy protect in

December 3, 2001;– WorldCom reported billions of false profit in

June, 2002;– Sarbanes-Oxley Act of 2002 was signed by

President Bush and becamea law in June 30, 2002;

– It mainly focuses on accounting;

The Boundary of Accounting

• Accounting: a boundless discipline;

• What should accountants supposed to do?– For instance, the job description of CFO;– The job description of chief controller;– No definite definition;– No generally accepted principles;

• You may use knowledge freely as soon as you find the underlying regularity;

Summary

• The nature of firm: contemporary interest coalition of REMM;

• REMMs have to find cost-effective ways to build trust;

• Accounting is proven cheap and reliable;• Accounting is evolving with economy and

technology, etc;– Four main branches: Financial accounting,

management accounting, corporate financeand auditing;

– Computer and internet: already changedaccounting significantly;

ATTENTION COMMERCE STUDENTS

– ACCOUNTING(FINANCIAL & COST) OFACCOUNTING(FINANCIAL & COST) OF

– ICMAP STAGE 1,2,3,4 (NEW CLASSES)ICMAP STAGE 1,2,3,4 (NEW CLASSES)

– CA..MODULE B,C,DCA..MODULE B,C,D

– PIPFA (FOUNDATION,INTERMEDIATE,FINAL)PIPFA (FOUNDATION,INTERMEDIATE,FINAL)

– ACCA-F1,F2,F3,F8 & P7ACCA-F1,F2,F3,F8 & P7

– BBA,MBABBA,MBA

– B.COM(FRESH),M.COMB.COM(FRESH),M.COM

– MA-ECONOMICS..O/A LEVELSMA-ECONOMICS..O/A LEVELS

– KHALID AZIZ…..0322-3385752KHALID AZIZ…..0322-3385752

– http://finance.groups.yahoo.com/group/cost-http://finance.groups.yahoo.com/group/cost-accountants/accountants/

– ACCOUNTING(FINANCIAL & COST) OFACCOUNTING(FINANCIAL & COST) OF

– ICMAP STAGE 1,2,3,4 (NEW CLASSES)ICMAP STAGE 1,2,3,4 (NEW CLASSES)

– CA..MODULE B,C,DCA..MODULE B,C,D

– PIPFA (FOUNDATION,INTERMEDIATE,FINAL)PIPFA (FOUNDATION,INTERMEDIATE,FINAL)

– ACCA-F1,F2,F3,F8 & P7ACCA-F1,F2,F3,F8 & P7

– BBA,MBABBA,MBA

– B.COM(FRESH),M.COMB.COM(FRESH),M.COM

– MA-ECONOMICS..O/A LEVELSMA-ECONOMICS..O/A LEVELS

– KHALID AZIZ…..0322-3385752KHALID AZIZ…..0322-3385752

– http://finance.groups.yahoo.com/group/cost-http://finance.groups.yahoo.com/group/cost-accountants/accountants/

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