Accounting concepts

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Accounting concepts

  1. 1. Chapter One:Chapter One: IntroductionIntroduction
  2. 2. ObjectivesObjectives At the end of the lesson, students should be able to : • explain the concepts of Accounting Entity, Accounting Period, Monetary Convention, Going Concern and Historical Cost. • know the Accounting Cycle.
  3. 3. Basic Book-keeping conceptsThe Accounting Entity or Business Entity Accounting Period Monetary Convention The Going Concern The Historical Cost
  4. 4. The Accounting Entity Or Business Entity concept
  5. 5. The business exists as a unit by itself. It is separated from its owner. Only transactions and events related to the business are recorded in the business books.
  6. 6. Accounting Period
  7. 7. The life of a business is divided into many equal and fixed periods of time. Eg one year Similar to your parents’ monthly salary income & expenses…
  8. 8. 1 February 19981 February 1998 ?? One month 28 February28 February 19981998
  9. 9. March May 31 May31 May 19981998 ?? three months 1 March 19981 March 1998 April
  10. 10. Jan. Jun.Mar. Apr. MayFeb. 1 January1 January 19981998 30 June30 June 19981998 ?? six months
  11. 11. 89 31 August 199931 August 1999 10 11 12 1 2 3 4 5 6 7 1 September 19981 September 1998 ?? One year
  12. 12. Monetary Convention Click me!
  13. 13. Can you tell me… • How much is your health worth? • If I want to buy your attitude, how much should I pay you? • Can I buy laziness from you? How much are you willing to sell?
  14. 14. Do you think everything in the world can be measured in terms of dollars and cents?
  15. 15. Therefore,Therefore, ONLY MONEYONLY MONEY is usedis used as the basic measuring unit foras the basic measuring unit for financial reportingfinancial reporting
  16. 16. Going Concern
  17. 17. Imagine you just set up a new company. Do you think you want to sell off your business next year? Why not? Assumption: The business entity will continue to operate and it will not close down.
  18. 18. All assets owned by the business are assumed to be used into the unknown future. Hence, we value the assets at historical costs.
  19. 19. Historical Cost
  20. 20. BEFORE 11/9 AFTER 11/9
  21. 21. Market price changes all the time! Therefore… All transactions/assets of a business entity are recorded at the original cost price.
  22. 22. Can you still remember the 5 concepts ?
  23. 23. One day, you bought a new handphone Nokia 8310… You also received an invoice from M1…
  24. 24. You decided to write down what you have spent on a notebook so that you will not forget…
  25. 25. To record every different expenses on your notebook seem very messy to you, so you decided to keep a notebook for hobbies, books & stationery, food & transport etc…
  26. 26. Income Expense $ $ Pocket money received 140 Hobbies 20 Food & Transport 70 Books & Stationery 10 Sports & Recreation 15 Handphone bill 20 Left* 5 140 140 You want to see if your records are correct at the end of the month… Did you forget to record anything?…
  27. 27. At the end of the month, you added up all your pocket money received and the total amount of money spent. Did you overspent on your hobbies? Do you have some money to save for the month? How much money do you have left at the end? Should you cut down on your expenses next month? …
  28. 28. Source Documents (originals) Books of Prime Entry (Journal Entries) Ledgers Trial Balance Adjustments Reports Can you link??
  29. 29. SUMMARY  What have you learn today?  Any questions?  Do you find POA more interesting now?  Class worksheet to test your understanding.

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