for all

1. Welcome to a training on
Financial
Accounting
By: Biniam Berhie
&
Mesele Getachew

2. Objectives
 The major objective of this training is to
acquaint participants with the basic
understanding of financial accounting.

3. Specific objectives
 Understand the basic concepts of accounting
 FASB
 Financial Statements
 Basic assumptions, principles and concepts
 Accrual and cash basis of accounting
 Accounting equation
 Practice the major stages of accounting
process

4. Expectations

5. Ethical conducts and rules of the training


6. Basic concepts of Accounting
 Types of businesses
– Service
– Merchandising
– Manufacturing
 Forms of business
– Sole proprietorship / sole trader
– Partnership
– Corporation
– Public enterprises
– Co-operation
– Joint venture

7. Definition of Accounting:
 It is the language of the business world
 An information system concerned with collection,
analysis and communication of financial information
useful for decision-making
 Concepts and techniques that are used to measure
and report financial information about an economic
unit.

8. Complete of the definition
– Identifying
– Analysing and measuring
– Recording
– Classification
– Summarising
– Reporting
– Interpreting

9. What is financial accounting?
 Is targeted toward base of external users, none of
whom control the actual preparation of reports or
have to underlying details.
 Standardization of principles and practices that are
used to prepare the report.
 Under the GAAP
 General purpose in orientation

10. What is management accounting?
 to serve the specific needs of management
 charged with planning, controlling, and
decision making
 desire specified reports, budget costing data,
and other details that are generally not
reported on external basis

11. Financial Accounting standards Board
(FASB)
 established in 1972
 to develop financial accounting standards for
business enterprises and non-profit
organizations.
 to issue statements of financial Accounting
standards
 subject matter of Intermediate Accounting

12. Elements of Financial Statements
 Asset (current, plant machinery and
equipment, intangibles, long-term
investment, others)
 Liability (current and non-current)
 Equity /investment by the government and
distribution to the government/

13. Elements (cont…)
 Revenue (sales, income, others)
 Expense (utility, rent, dep’n, salary, interest,
wage, supplies, tax, etc)
 Gain (revenue>expense)
 Loss (revenue<expense)

14. Recognition and Measurement
Concepts
 Recognition Criteria: recognition pertains to
the point in time when business transactions
are recorded in the accounting system.
 Recognition of an item is required when all
four of the following criteria are met:
(Definition, measurability, reliable, and
relevance)

15. Basic Assumptions
 Business entity Assumption
 Going – Concern (Continuity)
 Unit–of–measure Assumption
 Time – period Assumption

16. Basic Principles
 The cost principle
 The revenue realization principle
 The matching Principle
 Full – Disclosure Principle

17. Constraints
 Cost –Benefit Constraint
 Materiality Constraint
 Industry peculiarities
 Conservatism

18. Cash Basis of Accounting
 It is an accounting system based on the
timing of cash payments and receipts.
 Financial statements prepared under the
cash basis of accounting do not represent
the financial position or operating results of
an enterprise in conformity with GAAP since
it is not compatible with the matching
principle.

19. Modified cash
 Under the modified cash basis of accounting,
which is mostly used for income tax purpose,
the entire cost of property having an
economic life of more than one year may not
be deduced in the year of acquisition.
 Expenses paid after the year in which
incurred are deductible only in the year paid.
Revenue is reported in the year received.

20. Accrual Basis of Accounting
 is a system of accounting that requires an
event that alters the economic status of a
firm as represented in its financial statements
be recorded (recognized) in the period in
which the event occurs rather than in the
period when cash changes hands.

21. Accrual basis (cont…)
 revenues are reported in the income
statement when they are earned
 expenses are reported in the income
statement when they are incurred

22. The Accounting Equation
Resources=Equities/Claims to Resources
Assets=Liabilities + Owner's Equity
Assets - Liabilities=Owner's Equity

23. Business Transactions and the
Accounting Equation
 Collections of resources
 Consumptions of goods and services

24. Financial Statements
 Income statement (statement of profit and
loss) – revenue and expenses
 Statement of change in owner's equity
 Balance sheet (Statement of financial
position)
– Formats - Report format and
Account format

25. Financial Statements (Cont…)
 Statement of Cash flow
Elements – cash flow from operation
- cash flow from investing
- cash flow from financing

26. End of Part one
Thank you very much
for your undivided
attention and
participation