Introduction Of Accounting
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Introduction Of Accounting

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Introduction Of Accounting Introduction Of Accounting Presentation Transcript

  • LECTURE 1: INTRODUCTION
  • History and development of accounting record
    Ancient accounting record:
    Using system called “stewardship”. The document facilitate the owner to control and identify their asset, which is under the custody of the steward
    Renaissance in Italy:
    Accounting technique using double entry book-keeping was introduced. A system to ensure that financial information was recorded efficiently and accurately.
  • 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.
  • 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.
  • 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”
  • Accounting: Definition
    The process of identifying, measuring, recording and communicating economic information to permit informed judgment and decisions by users of the information.
  • Identifying
    Recording
    Communicating
    Measuring
    INTERNAL
    USERS
    EXTERNAL
    USERS
  • Identifying: Identify those events that are considered as an evidence of economic activity relevant to the business
    Recording: Keeping of a chronological diary of measured events in an orderly and systematic manner
    Communicating: Communicate through the preparation and distribution of accounting reports to the interested parties.
  • USERS OF FINANCIAL INFORMATION
    Internal Users
    Managers who plan, organise and run the business
    e.g. production supervisors, marketing managers, and directors
    Owners of the business
  • USERS OF FINANCIAL INFORMATIONcontinued
    External Users
    Resource providers
    e.g. investors, employees, creditors
    Recipients of goods and services
    e.g. customers, beneficiaries
    Reviewers
    e.g. regulatory agencies, media, governments, trade unions, special interest groups
  • FINANCIAL STATEMENTS
    Income Statement
    Reports revenues less expenses for a particular period of time
    Balance Sheet
    Reports assets and claims to those assets at a particular point in time
  • FINANCIAL STATEMENTS continued
    Statement of Changes in Equity
    Reports amount of profit for the period and the changes in equity
    Cash Flow Statement
    Reports information regarding cash receipts and cash payments for a particular period of time
  • Introduction to Financial Statements
    Definition: FRS 101 (MASB 1)
    • Financial statement is a structured financial representation of the financial position of an enterprise and the transaction undertaken by an enterprise
  • Objectives and purposes of Financial Statement
    Provide information about the financial position, performance and cash flow of an enterprise
    Show 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.
  • Components of FS
    Balance Sheet
    Income Statement
    A statement showing:
    • All changes in equity
    • Changes in equity other than those arising from capital transaction with owners and distribution with owners
    Cash Flow Statement, and
    Accounting policies and explanatory notes
  • Accounting policies and explanatory notes
    Important additional notes to define statement prepared e.g accounting policies
    Any additional information that is not shown in the financial statement will effect the fairly presentation
  • Income Statement
    Wong PTY LTD
    Income Statement
    for the year ended 31 October 2008
    Service revenues $10 600
    Expenses
    Salaries expense $3 200
    Supplies expense 1 500
    Rent expense 900
    Insurance expense 50
    Interest expense 50
    Depreciation expense 40 5 740
    Profit before tax 4 860
    Tax expense 2 000
    Profit after tax $ 2 860
  • Statement of Changes in Equity
    WONG PTY LTD
    Statement of Changes in Equity (extract)
    as at 31 October 2008
    Profit $ 2 860
    Retained earnings 1/10/08 0
    Dividends (500)
    Retained earnings 31/10/08 $ 2 360
  • WONG PTY LTD
    Balance Sheet
    as at 31 October 2008
    Assets
    Cash $15 200
    Accounts receivable 200
    Advertising supplies 1 000
    Prepaid insurance 550
    Office equipment 4 960
    Total assets $21 910
    Liabilities and equity
    Liabilities
    Accounts payable $ 2 500
    Interest payable 50
    Revenue received in advance 800
    Salaries payable 1 200
    Bank loan 5 000
    Total liabilities $ 9 550
    Equity
    Share capital 10 000
    Retained earnings 31/10/08 2 360
    Total equity 12 360
    $21 910
  • Cash Flow Statement
    WONG PTY LTD
    Cash Flow Statement
    for the month ended 31 October 2008
    Cash flows from operating activities
    Cash receipts from operating activities $11 200
    Cash payments from operating activities (5 500)
    Net cash provided by operating activities $ 5 700
    Cash 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 14 500
    Net increase in cash 15 200
    Cash at beginning of period --
    Cash at end of period $15 200
  • Accounting Roles:
    Language of Business
    Decision making tool
    Create accountability and control
    As an Information system
  • DECISION TOOLKIT
    Are 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?
  • DECISION TOOLKIT continued
    Is 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?