The document discusses accounting principles and concepts including the cost principle, revenue principle, matching principle, adequate disclosure principle, business entity principle, going concern principle, monetary unit principle, accounting period principle, conservatism principle, and objectivity principle. It also covers topics like cash flow statements, their components and format, as well as definitions and pricing methods for marketable securities.

2. Presented to:
Hon'ble Ma’am Humaira
Presented by:
Group-2 members are:
Abdur Raheem
Rehan Tanveer Bhatti
Muhammad Abdullah
Umar Saleem
Muhammad Salman

3. TOPICS TO BE COVERED
1. Principles of Accounting
2. Cash Flow Statement
3. Marketable Securities

4. Generally Accepted
Accounting Principles
(GAAP)

5. 1. Cost Principle
 The cost principle states that the actual cost of assets
must be recorded instead of recording the cost based
on market value or inflation adjustment.
 This ensures that the recorded cost of inventory and
other purchases is reflected accurately in the
accounting ledger. The principle is sometimes referred
to as the “Historical Cost Principle" because costs are
recorded based on the actual cost at the time of
purchase instead of being an estimated or adjusted
cost recorded at a later time.

6. 2. Revenue Principle / Accrual Principle
 The revenue principle states that revenue should be
recorded at the time that it is earned, not at the time
when payment is received.
 This prevents errors in accounting caused by delayed
payments since any money still owed to the company is
evident within the accounting ledger. The revenue
principle also serves as the basis for the accrual
accounting method, causing it to occasionally be
referred to as the "accrual principle.

7. 3. Matching Principle
 The matching principle states that each expense item
related to revenue earned must be recorded in the
same accounting period as the revenue it helped to
earn.
 If this is not done, the financial statements will not
measure the results of operations fairly.

8. 4. Principle of Adequate Disclosure
 The Principle of Adequate Disclosure states that any and
all information that affects the full understanding of a
company's financial statements must be included in the
financial statements. The items which may not affect
the ledger accounts directly, would be included in the
form of accompanying notes. Examples of such items
are outstanding lawsuits, tax disputes, and company
takeovers.

9. 5. Business Entity Principle
 A business is considered a separate entity from the
owner(s) and should be treated separately. Any
personal transactions of its owner should not be
recorded in the business accounting book, vice versa.
Unless the owner’s personal transaction involves adding
and/or withdrawing resources from the business.

10. 6. Going Concern Principle
 It assumes that an entity will continue to operate for an
indefinite period of time. In this basis, assets are recorded
based on their original cost and not on market value.
Assets are assumed to be used for an indefinite period of
time and not intended to be sold immediately.

11. 7. Monetary Unit Principle
 All the business financial transactions recorded in the
books of accounts should be in monetary unit, such as
Pakistani Rupees (Rs.), US Dollar, Euro, etc.
 So, any non-financial or non-monetary information that
cannot be measured in a monetary unit is not recorded
in the accounting books.

12. 8. Accounting Period Principle
 This principle states that a business has to complete the
whole accounting process of a business over a specific
operating time period. It may be monthly, quarterly or
annually. For annual accounting period, it may follow a
Calendar or Fiscal Year.

13. 9. Conservatism Principle
 The Conservatism Principle is the general concept of
recognizing expenses and liabilities as soon as possible
when there is uncertainty about the outcome, but to only
recognize revenues and assets when they are assured of
being received. This Principle leads accountants to
anticipate or disclose losses, but it does not allow a
similar action for gains.
 For example: potential losses from lawsuits will be
reported on the financial statements or in the notes, but
potential gains will not be reported.

14. 10. Objectivity Principle
 This principle requires recorded business transactions
should have some form of impartial supporting evidence
or documentation. Also, it entails that bookkeeping and
financial recording should be performed with
independence, that’s free of bias and prejudice.

15. Statement of Cash Flow
 A financial statement which summarizes cash
transactions of a business during a given accounting
period and classifies them under three heads, namely,
cash flows from operating, investing and financing
activities.
 It shows how cash moved during the period by
indicating whether a particular line item is a cash in-flow
or a cash out-flow.
 The term cash as used in the statement of cash flows
refers to both cash and cash equivalents.
 It provides relevant information in assessing a company's
liquidity, quality of earnings and solvency.

16. 1. Cash Flows from Operating Activities:
 This section includes cash flows from the principal revenue
generation activities such as sale and purchase of goods
and services.
2. Cash Flows from Investing Activities:
 Cash in-flows and out-flows related to activities that are
intended to generate income and cash flows in future. This
includes cash in- flows and out-flows from sale and
purchase of long-term assets.
3. Cash Flows from Financing Activities:
 The cash flows related to transactions with stockholders and
creditors such as issuance of share capital, purchase of
treasury stock, dividend payments etc.
Statement of Cash Flow
Statement of Cash Flow comprises of three sections:

17. Components of Cash Flow
Cash
flow
Operating cash flow
Internal operations
Investing cash flow
Internal non-operating activities
Financing cash flow
To and from external sources

18. Cash in-flow & out-flow
customers
lenders
investors
salaries
suppliers
creditors
outin
out
out
in
in

19. Positive and Negative Cash Flow
A positive cash flow
Inflow of cash > outflow of cash
A negative cash flow
Inflow of cash < outflow of cash

20. Following is the format of Cash Flow Statement:
Statement of Cash Flow
XYZ Co. (Pvt.) Ltd.
Cash Flow Statement
For the year ending 31 Dec, 2014.
Cash at Beginning of Year 15,700
Operating Activities:
Cash received from customers 693,200
Inventory purchases (264,000)
General operating and administrative expenses (112,000)
Wage expenses (123,000)
Interest (13,500)
Income taxes (32,800)
Net Cash Flow from Operations 147,900
Investing Activities:
Sale of property and equipment 33,600
Purchase of property and equipment (75,000)
Net Cash Flow from Investing Activities (41,400)
Financing Activities:
Issuance of stock
Payment of loans (34,000)
Dividend paid (53,000)
Net Cash Flow from Financing Activities (87,000)
Net Increase in Cash 19,500
Cash at End of Year 35,200

21. Solution

22. XYZ Co. (Pvt.) Ltd.
Cash Flow Statement
For the year ending 31 Dec, 2014.
Cash at Beginning of Year 15,700
Operating Activities:
Cash received from customers 693,200
Inventory purchases (264,000)
General operating and administrative expenses (112,000)
Wage expenses (123,000)
Interest (13,500)
Income taxes (32,800)
Net Cash Flow from Operations 147,900
Investing Activities:
Sale of property and equipment 33,600
Purchase of property and equipment (75,000)
Net Cash Flow from Investing Activities (41,400)
Financing Activities:
Issuance of stock
Payment of loans (34,000)
Dividend paid (53,000)
Net Cash Flow from Financing Activities (87,000)
Net Increase in Cash 19,500
Cash at End of Year 35,200
By adding
Beginning
Balance

23. Data for solution
Example No. 13.7:
Cash and cash equivalents, Jan, 1 ………………………………………… $ 45,200
Cash and cash equivalents, Dec, 31 ……………………………………… $ 64,200
Cash paid to acquire plants assets ……………………………………….. $ 21,000
Proceeds from short-term borrowing ………………………………….. $ 10,000
Loans made to borrow ………………………………………………………… $ 5,000
Collections on loans (exclude interest) ………………………………… $ 4,000
Interest and dividends received …………………………………………… $ 17,000
Cash received from customers …………………………………………….. $ 795,000
Proceeds from sales of plant assets …………………………………….. $ 9,000
Dividends paid …………………………………………………………………….. $ 65,000
Cash paid to suppliers and employees …………………………………. $ 635,000
Interest paid ………………………………………………………………………… $ 19,000
Income tax paid …………………………………………………………………… $ 71,000

24. Marketable Securities
 Marketable securities are unrestricted financial instruments
which can be readily sold on a stock exchange or bond
exchange. Marketable securities are often classified into two
groups:
1. Marketable equity securities
2. Marketable debt securities.
 Marketable equity securities include shares of common
stock and most preferred stock which are traded on a stock
exchange and for which there are quoted market prices.
 Marketable debt securities include government bonds and
corporate bonds which are traded on a bond exchange and
for which there are quoted market prices.
Marketable securities held as a temporary investment are classified
as current assets.

25. Pricing Methods of Marketable Securities
Value of securities at the end of accounting period
Marketable Securities are first recorded at cost.
The cost of marketable securities includes purchase price,
broker’s fee, and other reasonable charge incurred during
the purchase of securities.
Method 1

26. Pricing Methods of Marketable Securities
To use the marketable value as the price and
record the investment income as the result of
change of the marketable value.
Method 2

27. To use the smaller one of the cost and the
marketable price as the investment cost of
securities to meet the prudence principle.
Method 3
Pricing Methods of Marketable Securities

28. Solution

29. Thanks