Best Slides For Accounting Introduction........ By Naeem Gill

1. INTRODUCTION TO ACCOUNTING
FINANCIAL
ACCOUNTING

2. GROUP
Group Members
 Naeem Riaz (1143)
 M.Najam ul Ghani (1104)
 Hassan Raza (1124)
 Syed Abdullah (1108)

3. DEFINATION
According to AICP
(American Institute of
Certified Public
Accountant)
“ The art of recording,
classifying and summarizing
in a specific manner and in
term of money transactions
and then interpreting the
results. ”

4. Recording: recording all the transactions for future use
refers to as “Journal”.
classifying: all records are classified for the preparation of
the main accounting book known as “Ledger”.

5. Summarizing: All records are summarize for
“trail balance”.
Interpreting: After all the steps then we
interoperates the results for final accounts
and “Financial Statement”(1.income
statement, retained earning 2. balance sheet
3.cashflow statement.) so that the interested
parties can determine the future earning e.g.
pay interest, dividend policy.

6. BRANCHES:
THERE ARE THREE TYPES OF ACCOUNTING:
FINANCIAL ACOUNTING
 COST ACCOUNTING
MANAGEMENT ACCOUNTING

7. FINANCIAL ACCOUNTING
• Designed to help people outside
and inside of the business make
decisions (creditors, investors,
suppliers, customers,
governments, labor unions,
management, owners etc)
• Multi purpose reports (one set of
financial statements meets the
need of all users outside inside of
the business)

8. Cost Accounting
Function of cost
accounting is to
ascertain the cost
of a product and to
help the
management in
the control of cost.

9. Management Accounting
Accounting that provides
necessary information
to the management for
discharging its
functions, help
management in
taking a decisions
and to control
activities.

10. Scope and Nature of Accounting
scope:
It has very wide scope and area of
applications.
Accounting use all over the world as in
business, institution, trading and non-trading
area’s like schools, banks, colleges, hospitals,
Co-operative society etc…
It is spread in all the sphere of the society and in
all the professions.

11. Scope and Nature of Accounting
Nature:
systematic record of financial statements.
1. Accounting is a process:
step by step process to performing any specific
task.
2. Accounting is an art:
art of recording, classifying, summarizing, and
finalizing the financial data.
3. Accounting is an information system:
characterized as a storehouse of information.

12. Terms using in Accounting
Business:
Any activity undertaken for the purpose
of earning profit e.g. banking business, goods
trading etc.
Proprietor:
Owner of the business. He invest for the
business and bear loss and profit.

13. Voucher and Account
Voucher:
“Any written evidence in support of a
business Transaction is called a Voucher.”
Account:
“A summarized record of transactions
relating to a persons and things is called
Account.”

14. 14
Debits and Credits
• Two of the most familiar accounting terms are
“debits and credits.” In the double-entry system, if
there anything is debit then on other side thing
should be credit as well according to Dual aspect of
accounting.
• Debit (from the Latin word debere) means “left.” It
is often abbreviated as “dr.”
• Credit (from the Latin word credere)
• means “right.” It is often abbreviated
• as “cr.”

15. DEBITS AND CREDITS
• Recording $s on the left side of an account is
debiting the account
• Recording $s on the right side is crediting the
account
• For individual accounts:
• If the total of debit amounts is bigger than credits, the
account has a debit balance
• If the total of credit amounts is bigger than debits, the
account has a credit balance

16. Capital and Equity
The amount that is invested for the beginning
of the business by the owner called it’s
“CAPITAL”.
A claim which can be enforced against the
company or product known as “EQUITY” .
It can be as:
* Owner equity * Customer equity

17. NORMAL BALANCE — OWNER’S
CAPITAL
Owner’s Capital
Decrease Increase
Debit Credit
Normal
Balance

18. Definition of an
• An asset is anything of value that is owned
• An asset may be something which is paid for
in advance, like prepaid insurance or prepaid
rent.
• Money you will receive later – Accounts
Receivable

19. Asset
– Accounts Receivable
I will receive th
e money later
•When a person owes YOU money, this
is also an asset.
•The asset is called “Accounts Receivable
”.

20. Asset
Check in the pictures below to see the value of the asset
Moving on…

21. Money you owe another person
• Great job! Money $ you owe another person
would not be of value to you because you
will eventually have to pay the person off.
• Money you owe is a LIABILITY
Moving onto Liabilities …

22. Examples of Liability Accounts
• Accounts Payable
• Notes Payable
• Federal Income Tax Payable
• Social Security Tax Payable

23. NORMAL BALANCES — ASSETS
AND LIABILITIES
Assets
Increase Decrease
Debit Credit
Decrease Increase
Debit Credit
Liabilities
•Normal
Balance
Normal
Balance

24. Good’s and stock
Good(merchandise):
Things that are purchased for business
purpose of the selling.
Stock(inventory):
Goods on hand, that goods remaining
unsold is called stock.

25. Debtor and Creditor
Debtor:
“A person (A) who owes money to another
person (B) in this case (A) is a debtor”.
also termed as Account Receivable(R/A).
Creditor:
A person to whom money is owing is a creditor.
It is also termed as
Account Payable (A/p).

26. Expense and Expenditures
Expenditures:
when assets or services is acquired for long
period.
Expense:
An expenditures whose
benefit is finished or enjoyed
Immediately such as salaries, rent etc.

27. Sales and Sales returns
Sales:
“Selling of goods are called sales. If goods are
sold on credit called credit sale else if sold on
cash called as cash sales.”
Sales Returns:
“If sold goods find
defective or unsatisfactory
that are returns to the
company back.”

28. Purchases and Purchase
Returns
Purchases:
“purchasing of goods are called purchases. If
goods are purchased on credit called credit purchase
else if
purchased on cash called
as cash purchase.”
Purchases Returns:
“If purchased goods
find defective or unsatisfactory
that are returns to the person or company from whom
you purchase goods.”

29. Trade Discount and Cash
Discount
Trade Discount:
“It is allowance from the scheduled
price granted by the seller to the buyers.”
Cash Discount:
“It is a discount allowed by a creditor
to a debtor if he
pay’s before due date known
Cash Discount.”

30. Transaction and Commission
Transaction:
“Any dealing between two parties called
Transaction.”
*Cash Transaction *Credit Transaction
Commission:
“Involvement of third party provide
services to both parties , In this case the third
party charges called commission.”

31. Drawing and Dividend:
Drawing:
“Cash or Goods taken away from the
business by the owner for his personal use.”
Dividend:
“A sum of money paid regularly by
the company to it’s shareholders out of it’s
profit according to their invested amount.”

32. Depreciation
“A reduction in the value of
an asset over time,.”
Dep =Cost – scrap value
useful life/est life

33. Interested parties
Parties interested in Accounting Information:
Owner:
“provide capital for organization so they
need to know accounting information for
profitability and financial position.”
Management:
it is an art of getting things done
through others. So check the managerial
position of the company Accounting.”

34. Interested parties…
Creditor:
“person who supply goods to the
company on credit e.g. banks. They need
accounting information to know about financial
position.”
Employees:
payment of bonus depends upon
size of the profit earned.

35. Interested parties:
Investors:
“persons want to invest their money want to know
the financial position before investing.”
Government:
“Interested for the purpose of
taxation.”
Consumer:
For establishing good accounting control so
that cost of production may be reduced with resultant re
duction of price of good they buy.”

36. GAAP (Generally Accepted
Accounting Principles)
Refers to standard framework of guidelines for
financial accounting used in any given jurisdiction;
generally known as accounting standards or standard
accounting practices.
Consist Of Two Parts
* Accounting CONCEPTS
* Accounting CONVENTIONS

37. ACCOUNTING CONCEPTS:
DEFINATION:
The term ‘concept’ include those basic assumptions or conditions up
on which accounting is based
1.Business Entity Concept:
In accounting, “Business” and “Owner
” are taken as two separate entities. All the transactions of the bus
iness are recorded in the books of the business from point of vie
w of the business as an entity and even the proprietor is treated a
s a creditor to the extent of his capital.
e.g. In the Joint Stock Company, the business
has a separate legal entity than the
shareholders.

38. CONCEPTS…
Money Measurement:
– All transactions of the business are recorded in terms of
money
– It provides a common unit Of measurement
e.g. If business has got a team of dedicated and trusted
employees, it is definitely an asset to the business, but since
their monetary measurement is not possible, they are not
Shown in the books of the business.

39. Matching concept:
• Matching principle defines that we must charge
the expenses for any particular period against the r
evenues of that particular period.
purpose of every business to earn profit.
Expenses  2011 Revenues  2011

40. CONCEPTS…
Dual Aspect Concept:
This is the basic concept of accounting. Modern a
ccounting system is based on dual aspect concept. Dual concept may be
stated as “For every debit there is a credit”
For example. If A starts a business with capital of 10,000RS.There are two
aspects of the transaction .On the one hand the business has assets of 10,
000RS while the other hand the business has to pay the proprietor a sum
of 10,000RS which is taken as proprietor capital.
Accounting Period:
According to this concept the life of the business is
divided into appropriate segments for studying the results shown by the
business after each segment. Its necessary that after each segment or
time interval the businessman must stop and see, how things are going
on. In accounting such segment or time intervals is called accounting
period. It is usually of a year.

41. Historical Cost Concept:
It means that fixed assets must be reporte
d in financial statements on the cost on
which they were purchased.
Fixed assets should not be recorded on th
eir market value.
Book Value + Depreciation = Cost

42. Realization concept:
According to this principle revenues are
recognized if realized or realizable or if goods
transferred or services rendered, no matter cash
is received or not.

43. Accounting conventions:
Definition:
“Term convention those customs or tradition
which guide the accounting while preparing the
accounting statements.”
Convention of disclosure:
Accounts should be prepared in such a way that
all material information is clearly disclosed to the
reader. Anybody who wants to study the financial
statement should not be mislead.

44. Convention…
Convention of materiality:
according to this only those events or
items should be recorded which have a significant
bearing and insignificant things should be ignored.
There is no formula in making a distinction b/w
material or immaterial events. It is matter of judgment
and is left to the accountant for taking decisions.
Convention of consistency:
“Accounting practices should remain
unchanged from one period to another.”

45. Convention…
Convention of consvertism(prudence):
Means that the policy of ‘safe play’ this
convention ensures that uncertainties and risks
inherent should in business be taken into account at
the earliest.

46. System Of Accounting:
Two types of system accounting:
CASH BASIS SYSTEM
Recognizing the revenue
when cash is received.
Expenses are recognized
when cash is paid, is called
Cash basis system of
accounting.

47. System Of Accounting:
ACCRUAL BASIS SYSTEM
The policy of recognizing
revenue in the accounting
record when it is earned
and recognizing expenses
when the related goods are
used is called accrual basis
system of accounting.