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Chapter 1


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Chapter 1

  1. 1. Well Come ToPrinciples of Accounting With: SHAHI YAR KHAN
  2. 2. Basic Accounting Recommended Book Accounting: The basis for business decisions Eleventh Edition By: Meigs William Haka Bettner Focus of Study Chapters to be focused… 1,2,3,4,5
  3. 3. Chapter # 1Accounting:The Language of Business
  4. 4. Accounting The Art of Recording Classifying Summarizing and Communicating the results Of business transactions
  5. 5. AccountingAccounting is the art of recording,classifying, summarizing andcommunicating the results of thebusiness transactions.Accounting also called the language ofbusiness
  6. 6. Accounting The Art of Interpreting the financial activities Measuring the financial activities Getting the results from such activities And communicating these results
  7. 7. Accounting The Art of interpreting, measuring and communicating the results of financial activities.
  8. 8. Accounting Is a process That create Useful Financial information For its users(basic purpose of Accounting)
  9. 9. The Purpose of AccountingThe basic purpose of Accounting is toprovide information to decision makers thatis useful in making economic decisions.
  10. 10. Accounting Information needed by: Management Internal Investors Creditors Government Agencies External Researchers Labor Etc
  11. 11. Types of Accounting Financial Accounting General Purpose (Profit, loss, assets, obligation etc) Management Accounting Helps in Planning and Control Tax Accounting Helps in preparation of Income Tax Return etc
  12. 12. Economic Activities Human ActivitiesNon-Economic Activities Economic Activities Profession Business
  13. 13. Functions of Accounting System In every Accounting System, the economic activities of the organization are Recoded in the books of accounts. Next, the recorded data are Classified in the system to accumulate sub-total for various types of economic activities. Finally, the information is Summarized in Accounting Repots i.e. designed to meet the information needs of the various decision makers.
  14. 14. BusinessBusiness is a legal financial activity, for whichon specific education is required and in whichreturn is also not definite
  15. 15. Financial Statements A set of Financial Statements consist of four related accounting reports that summarizes the financial resources, obligations, profitability and cash transaction of a business in the few pages1. Balance Sheet: Financial resources and obligations2. Income Statement: Profitability of business3. Statement of Owner’s Equity: Obligation of business to Owner4. Statement of Cash Flow: Cash Transaction of a Business.
  16. 16. Distinguish b/w Accounting and Book-keeping Book-keeping Accounting It refers to the daily  It refers to the preparation operation of an accounting of Accounting system system i.e. Recording and classifying  Recording and classifying It requires little skill of the transactions accounting  Summarize the data  Prepare the Final Reports  It requires Professional Judgment and high skill of accountancy
  17. 17. GAAP: Generally Accepted Accounting Principles GAAP are the “ground rules” for financial reporting. Generally Accepted Accounting Principles provide the general frame work that determines;1. What information is to be included in the financial statements? &2. How these information are to be presented ?
  18. 18. Basic Accounting Concepts1. Cost Principle2. Objectivity Principle3. Monetary Principle4. Business Entity Concept
  19. 19. Accounting Equation Assets = Equities Assets = Owner’s Equity + Liabilities This is the characteristic of the Balance Sheet that Assets always be equal to Liabilities plus Owner’s Equity
  20. 20. Example of Accounting Equation Mr. “A” is started the business by investing $ 100,000… Assets = O/Equity + Liabilities 100,000 = 100,000 + 0
  21. 21. Example of Accounting Equation Further the business borrows a loan from the bank of $ 40,000 Assets = O/Equity + Liabilities 100,000 = 100,000 + 0 40,000 = 0 + 40,000 ---------------------------------------------------- 140,000 = 100,000 + 40,000 ________________________________
  22. 22. Accounting Equation Assets = O/Equity + Liabilities $ 80,000 = $ 60,000 + $ ? 80,000-60,000 20,000
  23. 23. End of Chapter 1Your views will be highly appreciated