The theoretical framework of accounting

1. THE THEORETICAL FRAMEWORK
OF ACCOUNTING
PRESENTED BY
MOHAMMED ALSAIKHAN
FAHAD ALROBAI
HAAGA-HELIA UAS SCHOOL OF VOCATIONAL TEACHER EDUCATION

2. GOALS OF THE SESSIONS FACILITATED BY M. ALSAIKHAN
AND F. ALROBAI
1- To get familiar with concept of accounting.
2- To understand beneficiaries of accounting information.
3- To be able to determine the characteristics of accounting
information
4- To be able to identify branches of accounting.
5- To have ideas about assumptions and principles that govern the
financial operations.

3. AGENDA FOR THE SESSION 21 NOV
 8.30 orientation and warming up
 8.40 Introduction to Financial Accounting
 9.15Break
 9.25 assumptions and principles of accounting
 9.45 practice
 9.55 Summary

4. CONCEPTUAL FRAMEWORK
Definition beneficiaries assumptions principles
Elements of
financial branches
statements

5. Accounting : art or science??

6. DEFINITION OF ACCOUNTING
The American Accounting Association define accounting as follows:
“the process of identifying, measuring and
communicating economic information to permit informed
judgments and decisions by users of the information”.

7. BENEFICIARIES OF ACCOUNTING INFORMATION
Who are the beneficiaries of accounting information?

8. BENEFICIARIES OF ACCOUNTING INFORMATION
 Management of the establishment
 Staff
 Investors
 Owners
 Lenders
 Government agencies

9. Management
of the
Economic events: establishment
Such as Staff
*procurement
Accounting
process.
Registration
* Selling. Investors
Classification
* Changes in the
Summarize the
property
* Changes in the Owners
obligations
Lenders
Government
agencies

10. BRANCHES OF ACCOUNTING
 Financial Accounting:
 Cost Accounting:
 Management Accounting
 Zakat and Tax Accounting
 Governmental Accounting
 Accounting systems
 Auditing

11. CHARACTERISTICS OF ACCOUNTING
INFORMATION
 Relevance
when Information help the decision-makers for taking
right decision
 Clarity
Information must be understandable by its users

12. CHARACTERISTICS OF ACCOUNTING
INFORMATION
 Objectivity
when the information is factual, truthful and unbiased
 Accuracy
It means that the information is free of error – it can
be depended on.
 Timeliness
Information must be available to decision makers
before it loses its capacity to influence their decisions

13. ASSUMPTIONS OF ACCOUNTING
 Economic Entity:
Company keeps its activity separate from its owners
and other businesses.
 Periodicity:
Company can divide its economic activities into time
periods
2008 2009 2010
QTR 1 JAN FEB MAR APR
QTR 2 MAY JUN JUL
QTR 3 AUG SEPT OCT
QTR 4 NOV DEC

14. ASSUMPTIONS OF ACCOUNTING
Going Concern:
 It assumes that the enterprise will continue to
operate in the foreseeable future.

15. monetary unit:
 It states that only transaction data capable of being
expressed in terms of money should be included in
the accounting records of the economic entity
 Money is the common unit of measure of economic
transactions
Customer satisfaction
Should not be
included in Percentage of
accounting international
records employees
Should be included
in accounting Salaries paid
records

16. ACCOUNTING PRINCIPLES
 Historical Cost
 Recognition Revenue
 Matching
 Consistency
 Disclosure
 Accrual
 Conservatism

17. ACCOUNTING PRINCIPLES
Historical Cost:
 The cost principle dictates that assets are
recorded at their historic cost.
 Cost is used because it is both relevant and
reliable

18. ACCOUNTING PRINCIPLES
Revenue Recognition:
 revenue should be recognized in the accounting
period in which it is earned.
 Revenue can be recognized:
During Production.
At End of Production
Upon Receipt of Cash

19. ACCOUNTING PRINCIPLES
Matching:
It dictates that expenses be matched with revenues
in the period in which efforts are expended to
generate revenues.
“Let the expense follow the revenues.”

20. ACCOUNTING PRINCIPLES
Consistency
It means that the same accounting principles and
methods should be used from year to year within a
company.
2008 2009 2010

21. ASSUMPTIONS OF ACCOUNTING
Full Disclosure:
 providing information that is of sufficient
importance to influence the judgment and decisions
of an informed user.
 Provided through:
Financial Statements
Notes to the Financial Statements
Supplementary information

22. BRIEF EXERCISE
 a) Norfolk Southern Corporation reports revenue in
its income statement when it is earned instead of
when the cash is collected.
 (b)Yahoo, Inc. recognizes depreciation expense for
a machine over the 2-year period during which that
machine helps the company earn revenue.
 (c)Oracle Corporation reports information about
pending lawsuits in the notes to its financial
statements.
 (d)Eastman Kodak Company reports land on its
balance sheet at the amount paid to acquire it, even
though the estimated fair market value is greater.

23. Basic Elements of Financial Statements
Balance Sheet Income Statement
• Assets: • Revenues:
Probable future economic Inflows from entity’s ongoing
benefits resulting from past operations
transactions • Expenses:
• Liabilities: Outflows from entity’s ongoing
Probable future sacrifices of operations
economic benefits resulting from • Gains:
past transactions Increases in equity from
• Equity: incidental transactions
Residual interest in assets after • Losses:
deducting liabilities or ownership Decreases in equity from
interest incidental transactions

24. CONCLUSION.
 Definition of accounting
 beneficiaries of accounting information
 characteristics of accounting information
 branches of accounting
 assumptions and principles

25. THANK YOU FOR YOUR ATTENTION