Introduction Of Accounting


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Introduction Of Accounting

  2. 2. History and development of accounting record<br />Ancient accounting record:<br />Using system called “stewardship”. The document facilitate the owner to control and identify their asset, which is under the custody of the steward<br />Renaissance in Italy:<br />Accounting technique using double entry book-keeping was introduced. A system to ensure that financial information was recorded efficiently and accurately.<br />
  3. 3. Industrial Age:<br />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.<br />Post Industrial Age:<br />Accounting is a need for decision making – information element.<br />
  4. 4. What is accounting?<br />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<br /> decisions.<br />
  5. 5. The different between accounting and bookkeeping:<br />Accounting:<br />“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)<br />Bookkeeping:<br />“ only involves activities of collecting and recording financial data”<br />
  6. 6. Accounting: Definition<br />The process of identifying, measuring, recording and communicating economic information to permit informed judgment and decisions by users of the information.<br />
  7. 7. Identifying<br />Recording<br />Communicating<br />Measuring<br />INTERNAL<br />USERS<br />EXTERNAL<br />USERS<br />
  8. 8. Identifying: Identify those events that are considered as an evidence of economic activity relevant to the business<br />Recording: Keeping of a chronological diary of measured events in an orderly and systematic manner<br />Communicating: Communicate through the preparation and distribution of accounting reports to the interested parties.<br />
  9. 9. USERS OF FINANCIAL INFORMATION<br />Internal Users<br />Managers who plan, organise and run the business<br />e.g. production supervisors, marketing managers, and directors<br />Owners of the business<br />
  10. 10. USERS OF FINANCIAL INFORMATIONcontinued<br />External Users <br />Resource providers<br />e.g. investors, employees, creditors<br />Recipients of goods and services<br />e.g. customers, beneficiaries<br />Reviewers<br />e.g. regulatory agencies, media, governments, trade unions, special interest groups<br />
  11. 11. FINANCIAL STATEMENTS<br />Income Statement<br />Reports revenues less expenses for a particular period of time<br />Balance Sheet<br />Reports assets and claims to those assets at a particular point in time<br />
  12. 12. FINANCIAL STATEMENTS continued<br />Statement of Changes in Equity<br />Reports amount of profit for the period and the changes in equity<br />Cash Flow Statement<br />Reports information regarding cash receipts and cash payments for a particular period of time<br />
  13. 13. Introduction to Financial Statements<br />Definition: FRS 101 (MASB 1)<br /><ul><li>Financial statement is a structured financial representation of the financial position of an enterprise and the transaction undertaken by an enterprise</li></li></ul><li>Objectives and purposes of Financial Statement<br />Provide information about the financial position, performance and cash flow of an enterprise<br />Show the results of management’s stewardship of the resources entrusted to it<br /> Assists users in predicting the enterprise’s future cash flow and the timing and certainty of the generation of cash and cash equivalents.<br />
  14. 14. Components of FS<br />Balance Sheet<br />Income Statement<br />A statement showing:<br /><ul><li>All changes in equity
  15. 15. Changes in equity other than those arising from capital transaction with owners and distribution with owners</li></ul>Cash Flow Statement, and<br />Accounting policies and explanatory notes<br />
  16. 16. Accounting policies and explanatory notes<br />Important additional notes to define statement prepared e.g accounting policies<br />Any additional information that is not shown in the financial statement will effect the fairly presentation<br />
  17. 17. Income Statement<br />Wong PTY LTD<br />Income Statement<br />for the year ended 31 October 2008<br />Service revenues $10 600<br />Expenses<br /> Salaries expense $3 200<br /> Supplies expense 1 500<br /> Rent expense 900<br /> Insurance expense 50<br /> Interest expense 50<br /> Depreciation expense 40 5 740<br />Profit before tax 4 860<br /> Tax expense 2 000<br />Profit after tax $ 2 860<br />
  18. 18. Statement of Changes in Equity<br />WONG PTY LTD<br />Statement of Changes in Equity (extract)<br />as at 31 October 2008<br />Profit $ 2 860<br />Retained earnings 1/10/08 0<br />Dividends (500)<br />Retained earnings 31/10/08 $ 2 360<br />
  19. 19. WONG PTY LTD<br />Balance Sheet<br />as at 31 October 2008<br />Assets<br /> Cash $15 200<br /> Accounts receivable 200<br /> Advertising supplies 1 000<br /> Prepaid insurance 550<br /> Office equipment 4 960<br />Total assets $21 910<br />Liabilities and equity<br />Liabilities<br /> Accounts payable $ 2 500<br /> Interest payable 50<br /> Revenue received in advance 800<br /> Salaries payable 1 200<br /> Bank loan 5 000<br /> Total liabilities $ 9 550<br />Equity<br /> Share capital 10 000<br /> Retained earnings 31/10/08 2 360<br /> Total equity 12 360<br />$21 910<br />
  20. 20. Cash Flow Statement<br />WONG PTY LTD<br />Cash Flow Statement<br />for the month ended 31 October 2008<br />Cash flows from operating activities<br /> Cash receipts from operating activities $11 200<br /> Cash payments from operating activities (5 500)<br /> Net cash provided by operating activities $ 5 700<br />Cash flows from investing activities<br /> Purchased office equipment (5 000)<br /> Net cash used by investing activities (5 000)<br />Cash flows from financing activities<br /> Issue of shares 10 000<br /> Proceeds from bank loan 5 000<br /> Payment of dividend (5 000)<br /> Net cash provided by financing activities 14 500<br />Net increase in cash 15 200<br />Cash at beginning of period --<br />Cash at end of period $15 200<br />
  21. 21. Accounting Roles:<br />Language of Business<br />Decision making tool<br />Create accountability and control<br />As an Information system<br />
  22. 22. DECISION TOOLKIT<br />Are the business operations profitable?<br />Does the business rely mainly on debt or equity to finance its assets?<br />Does the business generate sufficient cash from operations to fund its investing activities?<br />Is the company using its assets effectively?<br />
  23. 23. DECISION TOOLKIT continued<br />Is the company maintaining an adequate margin between sales and expenses?<br />Can the company meet its short-term obligations?<br />Can the company meet its long-term obligations?<br />