Lecture 1-ACC. Theory

Lecture 1-ACC. Theory - LECTURE1 Dr.ElGazzar ACCOUNTING AND...

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LECTURE 1 Dr. El-Gazzar ACCOUNTING AND ACCOUNTING THEORY
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WHAT IS ACCOUNTING? I. Accounting : is the process and its underlying theory of generating information about the economic activities of a specific economic entity for a given accounting period. Here: we analyze the meaning of each of the concepts involved in the definition: Process --- System that identifies an objective and prescribes the appropriate mechanism to achieve it. Theory --- The coherent body of knowledge that governs the process. It includes definitions, interpretations, standards and rules of conduct, and serves as a guide for any further development in the field .
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ACCOUNTING……. . Generating Information - -- The objective of accounting is to produce useful information for users. All accounting systems: in the business world such as in a factory, bank, merchandising retailer; or in the not for profit organizations such as a hospital, a school, a municipal institution------ the goal is to produce useful information for users. Economic Activities - -- All exchanges of economic resources are defined as economic activities. Ex. Buy merchandise --- you get inventory and give cash or a promise to pay cash in the future; buy a machine--- you get an asset and give cash or a promise to pay cash in the future usually in the form of notes payable.
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ACCOUNTING………… Economic Entity - -- a real or legal person that has the right to own economic resources and held liable for others. Real person…like proprietorships and partnerships. Legal person… a corporation or government institution. It can be a city, hospital, state, and even the whole economy such as the USA. Accounting period - -- Is the length of time for which the information is produced. Typically it is twelve-month period, known as the fiscal year of the firm. However, for achieving timeliness of information, accounting periods can be shorter such as in the case of quarterly financial statements or even monthly statements. The determining factor in the frequency of reporting is the cost-benefit relationship.
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Accounting Theory Theory in General: Webster defines theory as: “Systematically organized knowledge, applicable in a relatively wide variety of circumstances, a system of assumptions, accepted principles and rules of procedure to analyze, predict or otherwise explain the nature of behavior of a specified set of phenomena.” Two General Frames: Normative theory : Utility Maximization Positive theory : Explaining Behavior
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Nature of Accounting Theory (AT): Accounting is a social science field and interacts
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Lecture 1-ACC. Theory - LECTURE1 Dr.ElGazzar ACCOUNTING AND...

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