Introduction Of Accounting
Download as PPTX, PDF1 like1,595 views
Accounting provides quantitative financial information to stakeholders to help them make informed business decisions. It involves identifying, measuring, recording and communicating economic information. The key financial statements are the income statement, balance sheet, statement of changes in equity, and cash flow statement. These statements provide information on a company's profitability, financial position, cash flows and changes in equity. Accounting plays an important role as the language of business and a decision-making tool.
Introduction Of Accounting
- 2. History and development of accounting recordAncient accounting record:Using system called “stewardship”. The document facilitate the owner to control and identify their asset, which is under the custody of the stewardRenaissance in Italy:Accounting technique using double entry book-keeping was introduced. A system to ensure that financial information was recorded efficiently and accurately.
- 3. Industrial Age:In 19th century the emergence of large corporations, separation of the owners from the managers, makes the businesses reports became more complex. Needs to prepare financial statements to the shareholders.Post Industrial Age:Accounting is a need for decision making – information element.
- 4. What is accounting?Accounting is an information system that provides quantitative, financial information to stakeholders about the economic activities and condition of a businessso that they can make business/economic decisions.
- 5. The different between accounting and bookkeeping:Accounting:“a process of identifying, recording, classifying and summarizing in a significant manner and in terms of money, transactions and events which are, in part at least, of a financial character, and interpreting the result thereof” (AICPA, 1961)Bookkeeping:“ only involves activities of collecting and recording financial data”
- 6. Accounting: DefinitionThe process of identifying, measuring, recording and communicating economic information to permit informed judgment and decisions by users of the information.
- 8. Identifying: Identify those events that are considered as an evidence of economic activity relevant to the businessRecording: Keeping of a chronological diary of measured events in an orderly and systematic mannerCommunicating: Communicate through the preparation and distribution of accounting reports to the interested parties.
- 9. USERS OF FINANCIAL INFORMATIONInternal UsersManagers who plan, organise and run the businesse.g. production supervisors, marketing managers, and directorsOwners of the business
- 10. USERS OF FINANCIAL INFORMATIONcontinuedExternal Users Resource providerse.g. investors, employees, creditorsRecipients of goods and servicese.g. customers, beneficiariesReviewerse.g. regulatory agencies, media, governments, trade unions, special interest groups
- 11. FINANCIAL STATEMENTSIncome StatementReports revenues less expenses for a particular period of timeBalance SheetReports assets and claims to those assets at a particular point in time
- 12. FINANCIAL STATEMENTS continuedStatement of Changes in EquityReports amount of profit for the period and the changes in equityCash Flow StatementReports information regarding cash receipts and cash payments for a particular period of time
- 13. Introduction to Financial StatementsDefinition: FRS 101 (MASB 1)Financial statement is a structured financial representation of the financial position of an enterprise and the transaction undertaken by an enterpriseObjectives and purposes of Financial StatementProvide information about the financial position, performance and cash flow of an enterpriseShow the results of management’s stewardship of the resources entrusted to it Assists users in predicting the enterprise’s future cash flow and the timing and certainty of the generation of cash and cash equivalents.
- 14. Components of FSBalance SheetIncome StatementA statement showing:All changes in equity
- 15. Changes in equity other than those arising from capital transaction with owners and distribution with ownersCash Flow Statement, andAccounting policies and explanatory notes
- 16. Accounting policies and explanatory notesImportant additional notes to define statement prepared e.g accounting policiesAny additional information that is not shown in the financial statement will effect the fairly presentation
- 17. Income StatementWong PTY LTDIncome Statementfor the year ended 31 October 2008Service revenues $10 600Expenses Salaries expense $3 200 Supplies expense 1 500 Rent expense 900 Insurance expense 50 Interest expense 50 Depreciation expense 40 5 740Profit before tax 4 860 Tax expense 2 000Profit after tax $ 2 860
- 18. Statement of Changes in EquityWONG PTY LTDStatement of Changes in Equity (extract)as at 31 October 2008Profit $ 2 860Retained earnings 1/10/08 0Dividends (500)Retained earnings 31/10/08 $ 2 360
- 19. WONG PTY LTDBalance Sheetas at 31 October 2008Assets Cash $15 200 Accounts receivable 200 Advertising supplies 1 000 Prepaid insurance 550 Office equipment 4 960Total assets $21 910Liabilities and equityLiabilities Accounts payable $ 2 500 Interest payable 50 Revenue received in advance 800 Salaries payable 1 200 Bank loan 5 000 Total liabilities $ 9 550Equity Share capital 10 000 Retained earnings 31/10/08 2 360 Total equity 12 360$21 910
- 20. Cash Flow StatementWONG PTY LTDCash Flow Statementfor the month ended 31 October 2008Cash flows from operating activities Cash receipts from operating activities $11 200 Cash payments from operating activities (5 500) Net cash provided by operating activities $ 5 700Cash flows from investing activities Purchased office equipment (5 000) Net cash used by investing activities (5 000)Cash flows from financing activities Issue of shares 10 000 Proceeds from bank loan 5 000 Payment of dividend (5 000) Net cash provided by financing activities 14 500Net increase in cash 15 200Cash at beginning of period --Cash at end of period $15 200
- 21. Accounting Roles:Language of BusinessDecision making toolCreate accountability and controlAs an Information system
- 22. DECISION TOOLKITAre the business operations profitable?Does the business rely mainly on debt or equity to finance its assets?Does the business generate sufficient cash from operations to fund its investing activities?Is the company using its assets effectively?
- 23. DECISION TOOLKIT continuedIs the company maintaining an adequate margin between sales and expenses?Can the company meet its short-term obligations?Can the company meet its long-term obligations?