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Understanding Principles of Accounting

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SYED DANIYAL HASSAN SHAH
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7 views

Understanding Principles of Accounting

Uploaded by

SYED DANIYAL HASSAN SHAH
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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UNDERSTANDING

PRINCIPLES OF
ACCOUNTING
What is Accounting and who Uses
Accounting Information?
• Accounting
Comprehensive system for collecting, analyzing and
communicating financial information
• Book keeping
Recording of accounting transactions
• Accounting Information System (AIS)
Organized means by which financial
information is identified measured,
recorded and retained for use in
accounting statements and
management reports.
What is Accounting and who Uses
Accounting Information?
• Users of Accounting Information
• Business Mangers
• Employees and Unions
• Investors and Creditors
• Tax Authorities
• Government Regulatory agencies
Who are Accountants and What Do They
Do?
Controller
Person who managers all of a firm`s accounting
activities (chief accounting officer)
• Financial Versus Managerial Accounting
• Financial Accounting
Field of accounting concerned with external users of a
company`s financial information
• Managerial Accounting
Field of accounting that serves
internal users of a company's
financial information
Who are Accountants and What Do They
Do?
• Certified Public Accountants
• Certified public accountant (CPA)
Accountant licensed by the state and offering services to the
public.
• Audit
Systematic examination of a company`s accounting system to
determine wither its financial represent its operations.
• Generally accepted accounting principles (GAAP)
Accepted rules and procedures
governing the content and form
of financial reports.
• Management advisory services
Specialized accounting
Who are Accountants and What Do They
Do?
Private Accountants
• Private accountant
Salaried accountant hired by a business to carry out its day-to-
day financial activities
• Certified management accountant (CMA)
Professionals recognized of management accounting
qualifications awarded by the institute of management
Accountants.
Who are Accountants and What Do They
Do?
The CPA Vision Project
• Identifying Issues for the Future
• Global Forces as Drivers of Change
• Recommendations for Change
• A New Direction
• Core Services
• Assurance and information Integrity
• Technology
• Management consulting and performance Management
• Financial Planning
• International Business
• Core Competencies
• Strategic and critical Thinking Skills
• Communication and Leadership Skills
• Focus on the Customer, Client, and Market
• Skills in Interpreting Converging Information
• Technical Skills
Tools of the Accounting Trade
• Accounting Equation
Assets = Liabilities + Owner`s equity
• Assets
Any economic resource expected to benefit a firm or an
individual who owns it.
• Liability
Debt owed by a firm to an outside organization or individuals
Owner`s equity
• Double entry Accounting
Financial Statements
• Financial Statements
Any of the several types of reports summarizing a company`s
financial status to aid in managerial decision making
• Balance sheet
Financial abatement detailing firm`s assets, liabilities and
owners equity
• Current assets
Assets that can or will be converted
into cash with in the following year
• Liquidity
Ease with which an asset can
be converted into cash
Financial Statements
• Accounts receivable
Amount due from customer who has purchased goods from credit
• Merchandise inventory
Cost of merchandise that has been acquired for sale to customers
and is still on hand
• Prepaid expense
Expense, such as prepaid rent, that is paid before the upcoming
period in which it is due
• Fixed Assets
Assets with long term user value, such as land buildings and
equipment's
• Depreciation
Process of distributing the cost of an asset over its life
Financial Statements
• Intangible assets
Nonphysical assets such as patent or trade mark that has
economic value in the form of expected benefit
• Goodwill
Amount paid for an existing business above the value of its other
assets
• Current liability
Debt that must be paid within the year
• Accounts payables
Current liability consisting of bills owed to suppliers plus wages
and taxes due within the upcoming year
• Long-term liability
Debt that is not due for at least one year
Financial Statements
• Paid in capital
Additional money above proceeds from stock sales paid directly
to a firm by its owners.
• Retained earnings
Earnings retained by a firm for its use rather than paid as
dividends
Financial Statements
Income statements
• Income statements(profit or loss summary)
Financial statements listing a firm`s annual
revenues and expenses so that a bottom line
shows annual profit ore loss
• Revenues
Funds that flow into a business from the sale
of goods or services
• Cost of goods sold
total cost of obtaining materials for making
the products sold by a firm during the year
• Gross profit (gross margin)
Revenues obtained from goods sold minus
cost of goods sold
• Operating expenses
Cost other than the cost of goods sold, incurred in producing a
goods or service
• Operating income
Gross profit minus operating expenses
• Net income ( net profit ,net earnings)
Gross profit minus operating expenses and income taxes
• Statement of cash flows
Financial statement describing a firm`s yearly cash receipts and
cash payments
Budget: An Internal Financial Statement
• Budget
Detailed statement of estimated receipts and expenditures for a
period of time in the future

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