basic accounting

1. General purpose of Financial
Statements
 This information, along with other information
in the notes to financial statements, assists
users in predicting the enterprise’s future cash
flows and, in particular, the timing and
certainty of the generation of cash and cash
equivalents.
 The structure of financial reporting
requirements and the place of this Standard in
that structure are illustrated in Appendix 2

2. Responsibility for Financial
Statements
 The board of directors or the equivalent
governing body of an enterprise is
responsible for the preparation and
presentation of its financial statements

3. Users of financial reports
 three primary user groups for general
purpose FR:
 resource providers
 employees, lenders, creditors, suppliers,
investors and contributors
 recipients of goods and services
 customers and beneficiaries
 parties performing review or oversight
function
 parliaments, governments, regulatory agencies,
analysts, labour unions, employer groups,
media and special interest groups

4. Components of FS
 A complete set of financial statements
includes the following components:
1. balance sheet;
2. income statement;
3. a statement showing either:
1. all changes in equity; or
2. changes in equity other than those arising from capital
transactions with owners and distribution to owners;
4. cash flow statement; and
5. accounting policies and explanatory notes.

5. Qualitative Characteristics of
Accounting Information
USEFUL
FINANCIAL
INFORMATION
CONSISTENCYCOMPARABILITY
Fairly presented
RELEVANCE
1. Predictive value
2. Feedback value
3. Timely
RELIABILITY
1. Verifiable
2. Faithful representation
3. Neutral

6. Financial accounting practice is governed by
concepts and rules known as Generally Accepted
Accounting Principles (GAAP).
Generally Accepted Accounting
Principles
Relevant
Information
Affects the decision of
its users.
Reliable Information Is trusted by
users.
Comparable
Information
Is helpful in contrasting
organizations.

7. The Operating Guidelines of Accounting
ASSUMPTIONS PRINCIPLES CONSTRAINTS
Economic entity Historical costs Conservatism
Monetary unit Revenue
recognition
Materiality
Going concern Matching
Time period Full disclosure

8. Accounting Assumptions
Economic Entity
The business is accounted for
separately from other business
entities, including its owner
Monetary Unit Principle
Express transactions and events in
monetary, or money, units
Now Future
Going-Concern Principle
Reflects assumption that the
business will continue operating
instead of being closed or sold
Time Period
The economic life of business can be
divided into artificial time period for
the purpose of financial reporting

9. Going concern
 When preparing financial statements,
management should make an assessment of
an enterprise’s ability to continue as a going
concern.
 Financial statements should be prepared on a
going concern basis unless management
either intends to liquidate the enterprise or to
cease trading, or has no realistic alternative
but to do so

10. Reporting Period
 Financial statements should be presented at least
annually.
 When, in exceptional circumstances, an
enterprise’s balance sheet date changes and the
annual financial statements are presented for a
period longer or shorter than a year, an enterprise
should disclose, in addition to the period covered
by the financial statements:
 the reason for a period other than a one year being used;
and
 the fact that comparative amounts for the income statement,
changes in equity, cash flows and related notes are not
comparable

11. Historical Cost
Accounting information is based
on actual cost.
Revenue Recognition
1. Recognize revenue when it is
earned.
2. Proceeds need not be in cash.
3. Measure revenue by cash
received plus cash value of items
received.
Matching
Expenses are matched against
revenues, and recorded in the
same period in which the related
revenues are earned
Accounting Principles
Full Disclosure
Report enough information for
users to make knowledgeable
decisions about the company

12. Accounting Constraints
Conservatism
Income and assets be reported at
their lowest reasonable amounts (i.e.
minimizing the assets and
understating the income) Materiality
Accountants are required to
accurately account for significant
items and transactions

13. Materiality and Aggregation
 Each material item should be
presented separately in the financial
statements.
 Immaterial items should be
aggregated with amounts of a similar
nature or function and need not be
presented separately.

14. Accrual Basis of Accounting
 An enterprise should prepare its
financial statements, except for cash
flow information, under the accrual basis
of accounting

15. Consistency of Presentation
 The presentation and classification of
items in the financial statements should be
retained from one period to the next
unless:
 a significant change in the nature of the operation of
the enterprise or a review of its financial statement
presentation demonstrates that the change will result
in a more appropriate presentation of events or
transactions; or
 a change in presentation is required by a Financial
Reporting Standard and any other technical
pronouncements issued by MASB or other directive or
regulation

16. Structure of FR