This document provides an overview of basic accounting concepts and principles discussed in Chapter 1. It defines accounting as the process of recording, classifying, summarizing, and communicating the results of financial transactions. The three main purposes of accounting are to interpret financial activities, measure financial results, and communicate information to decision-makers. Accounting information is needed by both internal management and external investors, creditors, and other stakeholders. Financial statements, the balance sheet, income statement, statement of owner's equity, and statement of cash flows, are the primary reports used to communicate accounting information.

1. Well Come
To
Principles of Accounting
With:
SHAHI YAR KHAN

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. Chapter # 1
Accounting:
The Language of Business

4. Accounting
 The Art of
 Recording
 Classifying
 Summarizing and
 Communicating the results
 Of business transactions

5. Accounting
Accounting is the art of recording,
classifying, summarizing and
communicating the results of the
business transactions.
Accounting also called the language of
business

6. Accounting
 The Art of
 Interpreting the financial activities
 Measuring the financial activities
 Getting the results from such activities
 And communicating these results

7. Accounting
The Art of interpreting, measuring
and communicating the results of
financial activities.

8. Accounting
 Is a process
 That create
 Useful
 Financial information
 For its users
(basic purpose of Accounting)

9. The Purpose of Accounting
The basic purpose of Accounting is to
provide information to decision makers that
is useful in making economic decisions.

10. Accounting Information needed by:
 Management Internal
 Investors
 Creditors
 Government Agencies
External
 Researchers
 Labor
 Etc

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. Economic Activities
Human Activities
Non-Economic Activities Economic Activities
Profession Business

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. Business
Business is a legal financial activity, for which
on specific education is required and in which
return is also not definite

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 pages
1. Balance Sheet: Financial resources and obligations
2. Income Statement: Profitability of business
3. Statement of Owner’s Equity: Obligation of business
to Owner
4. Statement of Cash Flow: Cash Transaction of a
Business.

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. 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. Basic Accounting Concepts
1. Cost Principle
2. Objectivity Principle
3. Monetary Principle
4. Business Entity Concept

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. Example of Accounting Equation
Mr. “A” is started the business by investing $ 100,000…
Assets = O/Equity + Liabilities
100,000 = 100,000 + 0

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. Accounting Equation
Assets = O/Equity + Liabilities
$ 80,000 = $ 60,000 + $ ?
80,000
-60,000
20,000

23. End of Chapter 1
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