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Introduction Of Accounting
 

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?