Accounting : Basics 2018
Overview 1. Introduction 2. Accounting Information Process 3. Recording Transactions
1.1 Introduction to Accounting ￮ The process of recording and communicating financial & economic information about an economic entity’s activites - Identification - Recording: Log, Measurement, Classification, Summarization - Communicating: Preparation, Analysis, Interpretation ￮ The language of business - Helps interested parties draw basic conclusions about the entity’s financial health and make good economic decisions 1.1.1 Concept of Accounting
1.1 Introduction to Accounting ￮ External users Vs. Internal users ￮ External users - Not directly involved in running the entity · Owners : present & prospective investors · Creditors & Lenders · Customers · Employees · Taxation authorities · Regulatory agencies · Information agencies ￮ Internal users : Managers - Directly involved in running the entity · Managers 1.1.2 Users of Accounting Information
1.1 Introduction to Accounting Financial Managerial Taxation Audience External users Management Tax authorities Reporting form Aggregated Financial statements, (Annual reports) Management’s discretion (Budgets) Tax return Objective Facilitate economic & financial decision Facilitate management decision Facilitate collection of tax revenue Rules GAAP, IFRS None Tax code Authority Country authority Management Tax authority Reporting interval Regular Management’s discretion Regular 1.1.3 Types of Accounting
1.2 Financial Accounting Framework ￮ Real level · Transactions & Events ￮ lnformation level · Basic assumpons → Accounng standards & principles → Accounting procedures & practices → Financial reports ￮ lnfluence level · Guidelines, Conventions 1.2.1 Introduction
2. Accounting Information Process
2.1 Accounting Data : Transactions ￮ Business Resources - Economic entities acquire various resources to put into operation - Then they operate by using them to earn profit - What are these resources? & Where do they come from? ￮ What a company owns & What it owes - The accounting system reflects two basic aspects of a company 2.1.1 Assets & Sources
2.1 Accounting Data : Transactions ￮ Assets - Resources a company owns or controls - Expected to yield future benefits - E.g., Cash, Receivables, Inventories, Investments, Property, Plant, Equipment, Intangibles(Patents, Copyrights) ￮ Claims on Sources of Assets - The acquisition of assets leads to corresponding claims on them. - The claims are separated into owner & nonowner claims. - Liabilities : What a company owes its nonowners(creditors) · E.g., Payables, Accrued liabilities, Unearned revenue - Owners’ Equity : the Claims of its owners 2.1.1 Assets & Claims on Sources
2.1 Accounting Data : Transactions ￮ Concept of Accounting Transactions & Their Importance - Economic events involving an economic entity which cause measurable changes in its resources and sources · Measurable in terms of money - Measurable representation of organizations’ activities and their results · Bricks or Lens thru which an entity’s activities are identified ￮ Two Categories of Accounting Transactions - External
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