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Principles of Accounting – I
CHAPTER ONE
CHAPTER ONE
BASIC CONCEPTS OF ACCOUNTING
BASIC CONCEPTS OF ACCOUNTING
Dear learner! In the earlier stage of economic development a business enterprise was
very often managed by its owner, and the accounting records and reports were used
mainly by the owner /manager in conducting the business. Bankers and other lenders often
relied on their personal relationship with the owner rather then on financial statements as
the basic for making loan to business.
As business organizations grew in size and complexity, managers and outsiders became
more clearly differentiated. From outsiders, which includes owners, creditors,
government, banks, customers, and the public demanded for accurate financial
information on the basis of which they could judge the performance of management? In
addition, as the size and complexity of the business unit increased, the accounting
problems involved in the issue of financial statements became more and more complex.
Along with these developments came an awareness of the need for a conceptual
framework and generally accepted accounting principles that could serve as guidelines for
preparing basic financial statements. In this unit, you will study the principles and
concepts of accounting.
OBJECTIVES
OBJECTIVES
After studying this chapter you should be able to
After studying this chapter you should be able to
a) Describe the functions and accounting performed by accountants.
a) Describe the functions and accounting performed by accountants.
a) a) Define the career opportunities in accounting Define the career opportunities in accounting
b) b) Identify and describe the three basic forms of business organizations. Identify and describe the three basic forms of business organizations.
c)
c)
Identify and describe the users of accounting information.
Identify and describe the users of accounting information.
d) d) Identify application of accounting concepts Identify application of accounting concepts
DEFINITION
DEFINITION
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Principles of Accounting – I
Business organizations need good financial information to make good business decision.
Business organizations need good financial information to make good business decision.
Orderly records of a business financial activities are called Orderly records of a business financial activities are called accounting records accounting records . The . The
process of identifying, measuring and communicating financial and economic information process of identifying, measuring and communicating financial and economic information
to permit informed judgments and decisions by the users of the information,
to permit informed judgments and decisions by the users of the information,
Specifically, the accounting process (also called accounting cycle) consists of the Specifically, the accounting process (also called accounting cycle) consists of the
following group of functions. following group of functions.