Chapter 1
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This document provides an overview of basic accounting concepts and principles discussed in Chapter 1. It defines accounting as the process of recording, classifying, summarizing, and communicating the results of financial transactions. The three main purposes of accounting are to interpret financial activities, measure financial results, and communicate information to decision-makers. Accounting information is needed by both internal management and external investors, creditors, and other stakeholders. Financial statements, the balance sheet, income statement, statement of owner's equity, and statement of cash flows, are the primary reports used to communicate accounting information.
Chapter 1
- 1. Well Come To Principles of Accounting With: SHAHI YAR KHAN
- 2. Basic Accounting Recommended Book Accounting: The basis for business decisions Eleventh Edition By: Meigs William Haka Bettner Focus of Study Chapters to be focused… 1,2,3,4,5
- 3. Chapter # 1 Accounting: The Language of Business
- 4. Accounting The Art of Recording Classifying Summarizing and Communicating the results Of business transactions
- 5. Accounting Accounting is the art of recording, classifying, summarizing and communicating the results of the business transactions. Accounting also called the language of business
- 6. Accounting The Art of Interpreting the financial activities Measuring the financial activities Getting the results from such activities And communicating these results
- 7. Accounting The Art of interpreting, measuring and communicating the results of financial activities.
- 8. Accounting Is a process That create Useful Financial information For its users (basic purpose of Accounting)
- 9. The Purpose of Accounting The basic purpose of Accounting is to provide information to decision makers that is useful in making economic decisions.
- 10. Accounting Information needed by: Management Internal Investors Creditors Government Agencies External Researchers Labor Etc
- 11. Types of Accounting Financial Accounting General Purpose (Profit, loss, assets, obligation etc) Management Accounting Helps in Planning and Control Tax Accounting Helps in preparation of Income Tax Return etc
- 12. Economic Activities Human Activities Non-Economic Activities Economic Activities Profession Business
- 13. Functions of Accounting System In every Accounting System, the economic activities of the organization are Recoded in the books of accounts. Next, the recorded data are Classified in the system to accumulate sub-total for various types of economic activities. Finally, the information is Summarized in Accounting Repots i.e. designed to meet the information needs of the various decision makers.
- 14. Business Business is a legal financial activity, for which on specific education is required and in which return is also not definite
- 15. Financial Statements A set of Financial Statements consist of four related accounting reports that summarizes the financial resources, obligations, profitability and cash transaction of a business in the few pages 1. Balance Sheet: Financial resources and obligations 2. Income Statement: Profitability of business 3. Statement of Owner’s Equity: Obligation of business to Owner 4. Statement of Cash Flow: Cash Transaction of a Business.
- 16. Distinguish b/w Accounting and Book-keeping Book-keeping Accounting It refers to the daily It refers to the preparation operation of an accounting of Accounting system system i.e. Recording and classifying Recording and classifying It requires little skill of the transactions accounting Summarize the data Prepare the Final Reports It requires Professional Judgment and high skill of accountancy
- 17. GAAP: Generally Accepted Accounting Principles GAAP are the “ground rules” for financial reporting. Generally Accepted Accounting Principles provide the general frame work that determines; 1. What information is to be included in the financial statements? & 2. How these information are to be presented ?
- 18. Basic Accounting Concepts 1. Cost Principle 2. Objectivity Principle 3. Monetary Principle 4. Business Entity Concept
- 19. Accounting Equation Assets = Equities Assets = Owner’s Equity + Liabilities This is the characteristic of the Balance Sheet that Assets always be equal to Liabilities plus Owner’s Equity
- 20. Example of Accounting Equation Mr. “A” is started the business by investing $ 100,000… Assets = O/Equity + Liabilities 100,000 = 100,000 + 0
- 21. Example of Accounting Equation Further the business borrows a loan from the bank of $ 40,000 Assets = O/Equity + Liabilities 100,000 = 100,000 + 0 40,000 = 0 + 40,000 ---------------------------------------------------- 140,000 = 100,000 + 40,000 ________________________________
- 22. Accounting Equation Assets = O/Equity + Liabilities $ 80,000 = $ 60,000 + $ ? 80,000 -60,000 20,000
- 23. End of Chapter 1 Your views will be highly appreciated
Editor's Notes
- #13: by: SHAHI YAR KHAN