Accounting provides comparable, reliable financial information to both internal and external users through identifying, recording, and communicating a company's transactions and financial position. It uses standards like GAAP and IFRS and principles such as historical cost and fair value. The basic accounting equation is Assets = Liabilities + Shareholders' Equity, and every transaction has a dual effect. Financial statements like the balance sheet, income statement, and statement of cash flows are produced and there are career opportunities in fields like public, private, and governmental accounting.

1. Accounting in Action
CHAPTER 1

2. Why Do we need accounting
To make resource allocation decisions investors and
creditors need comparable, relevant and reliable
information about financial position, profitability and risk.
Financial accounting and reporting is concerned with the
form and content of the information that is disclosed by a
firm to external parties, including shareholders, lenders,
customers, suppliers, employees, etc.

3. Who uses Accounting Data
 Internal Users
• Management-Finance, Marketing, Human Resource, Production
• Managerial accounting provides internal reports to help users
make decision about their companies

4. Who uses Accounting Data
 External Users
• Investors
• Creditors
• Customers
• Regulatory agencies
• Taxing Authority

5. Accounting
 Identifies
 Records
 Communicates

6. Accounting Standards
 GAAP
• USA, France, India
• Standard setting body: FASB, SEC (oversees)
 IFRS
• UK, Bangladesh, Australia
• Standard Setting body: IASB

7. Measurement Principles
 Historical Cost Principle
• Records assets at their cost
 Fair value Principle
• Records assets and liabilities at their fair value (the price received
to sell an asset or settle a liability)
 Depends on Relevance and Faithful representation

8. Assumptions
 Provides foundation for accounting process
 Monetary Unit Assumption
• Records transaction data that can be expressed in money terms
 Economic Entity Assumption
• Activities of the entity must be kept separate and distinct from the
activities of its owner and all other economic entities
• Ownership: Proprietorship, Partnership, Corporation

9. The Basic Accounting Equation
Assets = Liabilities + Shareholders’ Equity

10. The Basic Accounting Equation
 Asset
• Resources owns by business
 Liabilities
• Claims against assets-that is existing debt and obligation
 Owner’s Equity
• Ownership claim on total assets
• Increase in ownership equity: Investment, Revenue
• Decrease in Ownership equity: Drawings, Expenses

11. The Basic Accounting Equation
Assets = Liabilities + Shareholders’ Equity
Asset= Liabilities + Owner’s Capital - Owner’s
drawings + Revenues - Expenses

12. Dual Effect
 Each transaction have dual effect on the accounting equation
 Increase in asset – decrease in another asset or increase in liability
or increase in owner’s equity

13. Transactions
 Transaction 1 to 10
 Page: 10 - 15

14. Transactions

15. Transactions

16. Transactions

17. Principal Financial Statements
 Balance Sheet
• reports assets, liabilities ad owner’s equity for a specific period of time
 Income Statement
• present revenue and expenses and resulting net income or net loss for
a specific time period
 Statement of Cash flows
• Summarizes information about the cash inflows (receipts) and outflows
(payments) for a specific period of time
 Statement of Shareholder’s Equity
• Summarizes the changes in owner’s equity for a specific time period
- EXAMPLE: Illustration 1-9, Page 16

18. Income Statement

19. Statement of Owner’s Equity

20. Balance Sheet

21. Statement of Cash flows

22. Career opportunities in Accounting
 Public Accounting
 Private Accounting
 Governmental Accounting
 Forensic Accounting

23. End of chapter problems
 In class:
•Practice Exercises
•E1-7, E1-10, E1-11, E1-15, P1-3A, P1-4A

24. Next Class
The Recording Process