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Prisantion

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The theoretical framework of accounting

The theoretical framework of accounting

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    Prisantion Prisantion Presentation Transcript

    • THE THEORETICAL FRAMEWORKOF ACCOUNTING PRESENTED BY MOHAMMED ALSAIKHAN FAHAD ALROBAI HAAGA-HELIA UAS SCHOOL OF VOCATIONAL TEACHER EDUCATION
    • GOALS OF THE SESSIONS FACILITATED BY M. ALSAIKHAN AND F. ALROBAI1- To get familiar with concept of accounting.2- To understand beneficiaries of accounting information.3- To be able to determine the characteristics of accountinginformation4- To be able to identify branches of accounting.5- To have ideas about assumptions and principles that govern thefinancial operations.
    • AGENDA FOR THE SESSION 21 NOV 8.30 orientation and warming up 8.40 Introduction to Financial Accounting 9.15Break 9.25 assumptions and principles of accounting 9.45 practice 9.55 Summary
    • CONCEPTUAL FRAMEWORKDefinition beneficiaries assumptions principles Elements of financial branches statements
    • Accounting : art or science??
    • DEFINITION OF ACCOUNTINGThe American Accounting Association define accounting as follows:“the process of identifying, measuring andcommunicating economic information to permit informedjudgments and decisions by users of the information”.
    • BENEFICIARIES OF ACCOUNTING INFORMATIONWho are the beneficiaries of accounting information?
    • BENEFICIARIES OF ACCOUNTING INFORMATION Management of the establishment Staff Investors Owners Lenders Government agencies
    • Management of theEconomic events: establishmentSuch as Staff*procurement Accountingprocess. Registration* Selling. Investors Classification* Changes in the Summarize theproperty* Changes in the Ownersobligations Lenders Government agencies
    • BRANCHES OF ACCOUNTING Financial Accounting: Cost Accounting: Management Accounting Zakat and Tax Accounting Governmental Accounting Accounting systems Auditing
    • CHARACTERISTICS OF ACCOUNTINGINFORMATION Relevance when Information help the decision-makers for takingright decision ClarityInformation must be understandable by its users
    • CHARACTERISTICS OF ACCOUNTINGINFORMATION Objectivitywhen the information is factual, truthful and unbiased AccuracyIt means that the information is free of error – it canbe depended on. TimelinessInformation must be available to decision makersbefore it loses its capacity to influence their decisions
    • ASSUMPTIONS OF ACCOUNTING Economic Entity:Company keeps its activity separate from its ownersand other businesses. Periodicity:Company can divide its economic activities into timeperiods 2008 2009 2010 QTR 1 JAN FEB MAR APR QTR 2 MAY JUN JUL QTR 3 AUG SEPT OCT QTR 4 NOV DEC
    • ASSUMPTIONS OF ACCOUNTINGGoing Concern: It assumes that the enterprise will continue to operate in the foreseeable future.
    • monetary unit:  It states that only transaction data capable of being expressed in terms of money should be included in the accounting records of the economic entity  Money is the common unit of measure of economic transactions Customer satisfactionShould not beincluded in Percentage ofaccounting internationalrecords employeesShould be includedin accounting Salaries paidrecords
    • ACCOUNTING PRINCIPLES Historical Cost Recognition Revenue Matching Consistency Disclosure Accrual Conservatism
    • ACCOUNTING PRINCIPLESHistorical Cost: The cost principle dictates that assets are recorded at their historic cost. Cost is used because it is both relevant and reliable
    • ACCOUNTING PRINCIPLESRevenue Recognition: revenue should be recognized in the accounting period in which it is earned. Revenue can be recognized: During Production. At End of Production Upon Receipt of Cash
    • ACCOUNTING PRINCIPLESMatching: It dictates that expenses be matched with revenuesin the period in which efforts are expended togenerate revenues.“Let the expense follow the revenues.”
    • ACCOUNTING PRINCIPLESConsistencyIt means that the same accounting principles andmethods should be used from year to year within acompany. 2008 2009 2010
    • ASSUMPTIONS OF ACCOUNTINGFull Disclosure: providing information that is of sufficient importance to influence the judgment and decisions of an informed user. Provided through: Financial Statements Notes to the Financial Statements Supplementary information
    • BRIEF EXERCISE a) Norfolk Southern Corporation reports revenue in its income statement when it is earned instead of when the cash is collected. (b)Yahoo, Inc. recognizes depreciation expense for a machine over the 2-year period during which that machine helps the company earn revenue. (c)Oracle Corporation reports information about pending lawsuits in the notes to its financial statements. (d)Eastman Kodak Company reports land on its balance sheet at the amount paid to acquire it, even though the estimated fair market value is greater.
    • Basic Elements of Financial Statements Balance Sheet Income Statement• Assets: • Revenues:Probable future economic Inflows from entity’s ongoingbenefits resulting from past operationstransactions • Expenses:• Liabilities: Outflows from entity’s ongoingProbable future sacrifices of operationseconomic benefits resulting from • Gains:past transactions Increases in equity from• Equity: incidental transactionsResidual interest in assets after • Losses:deducting liabilities or ownership Decreases in equity frominterest incidental transactions
    • CONCLUSION. Definition of accounting beneficiaries of accounting information characteristics of accounting information branches of accounting assumptions and principles
    • THANK YOU FOR YOUR ATTENTION