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
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 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