Chapter 1 Introduction to Accounting and Business

Chapter 1Introduction to Accounting and Business Objectives • Describe the nature of a business • Describe the role of accounting in business • Describe the profession of accounting •

Chapter 1

Introduction to

Accounting and

Business

Objectives

• Describe the nature of a business

• Describe the role of accounting in business

• Describe the profession of accounting

• Summarise the development of accounting principles and

relate them to practice

• State the accounting equation and define each element of

the equation.

• Describe the financial statements of a sole proprietorship

and explain how they interrelate.

Content

• Profession of accounting

Nature of a business

which basic resources (inputs) are assembled and processed to provide goods or services (outputs) to customers

Nature of a business

Manufacturing

Trading

Service

Manufacturing

Service

Types of Business Organisation

• Sole proprietorship

• Partnership

What is accounting?

stakeholders

Communicating

Providing Information to Stakeholders

1

Internal/External Stakeholders

4

2

Accounting Information System

3 Design the AIS

Identify stakeholders

Assess their information needs

Record economic data about business activities

5

Stakeholder

• Internal:

– Manager – Employee

• External:

– Bank – Tax authority

Stakeholders’ information needs

• Investors?

• Creditors (such as Bank)?

Profession of accounting

Accountant

Private accountant Public accountant

Accounting Fields

Financial Accounting Managerial Accounting

GAAP

GAAP (Generally Accepted Accounting Principles)

US GAAP

UK GAAP

* Accountants follow GAAP in preparing reports By this,

these reports could be compared from one business to

another.

GAAP

Accounting concepts developed from GAAP

 Business Entity Concept

 Historical Cost

 Accounting Period

 Going Concern

 Consistency



Business entity

treated as separate entities An entity is an organisation or a system

Historical cost

the cost at the point of transaction This cost is called the historical cost or original cost

Accounting Period

• Means that financial statements of the

business are prepared for a period of time,

either a month or a year

Going concern

business, we assume that the business will

continue to operate for the foreseeable

future

Consistency

financial statement of the business on the

same basis every year

Accounting equation

Assets = Liabilities + Owner’s Equity

* All business transactions can be stated in terms of changes in the elements of the accounting equation

Assets

Assets

• Stock (Inventory)

• Patent right

• Payable to supplier

• Tax payable

Owner’s Equity

• Owner’s right to the asset of the business

Business Transactions and the Accounting

Equation

• Deposit in bank account for initial capital investment ($1,000)

($200)

Financial statement

• Profit and loss statement

• Notes of FS

Profit and loss statement

Revenues

Expenses

Statement of owner’s equity

Summary

of the

changes in

the

owner’s

equity

Balance sheet

A list of

assets,

liabilities

and

owner’s

equity

Statement of cash flows

A summary

of the cash receipts and cash payment

Notes of FS

additional information

 Accounting policies

 Detailed information

 Contingency liabilities

 Events after reporting date

 Transactions with related parties

How they linked together?

Profit and loss statement owner’s equityStatement of Balance sheet

Statement of cash flows Notes of FS