Well Come

To
Principles of Accounting

With:
SHAHI YAR KHAN

Basic Accounting
Recommended Book
Accounting:
The basis for business decisions
Eleventh Edition
By: Meigs William Haka Bettner

Focus of Study

Chapters to be focused
1,2,3,4,5

Chapter # 1

Accounting:
The Language of Business

Accounting
The

Art of

Recording
Classifying
Summarizing

and
Communicating the results
Of business transactions

Accounting
Accounting is the art of recording,
classifying,
summarizing
and
communicating the results of the
business transactions.
Accounting also called the language of
business

Accounting
The Art of
Interpreting the financial activities
Measuring the financial activities
Getting the results from such activities
And communicating these results

Accounting
The Art of interpreting, measuring
and communicating the results of
financial activities.

Accounting

Is a process
That create
Useful
Financial information
For its users

(basic purpose of Accounting)

The Purpose of Accounting

The basic purpose of Accounting is to
provide information to decision makers that
is useful in making economic decisions.

Accounting Information needed by:

Management

Internal

Investors
Creditors
Government
Researchers
Labor
Etc

Agencies

External

Types of Accounting
Financial

Accounting

General Purpose
Management

(Profit, loss, assets, obligation etc)

Accounting

Helps in Planning and Control

Tax

Accounting

Helps in preparation of Income Tax Return etc

Economic Activities

Human Activities

Non-Economic Activities

Economic Activities

Profession

Business

Functions of Accounting System

In every Accounting System, the economic activities of

the organization are Recoded in the books of
accounts.
Next, the recorded data are Classified in the system to
accumulate sub-total for various types of economic
activities.
Finally, the information is Summarized in Accounting
Repots i.e. designed to meet the information needs of
the various decision makers.

Business
Business is a legal financial activity, for which
on specific education is required and in which
return is also not definite

Financial Statements
A set of Financial Statements consist of four related
accounting reports that summarizes the financial
resources, obligations, profitability and cash
transaction of a business in the few pages
1.
2.
3.
4.

Balance Sheet: Financial resources and obligations

Income Statement: Profitability of business
Statement of Owners Equity: Obligation of business
to Owner
Statement of Cash Flow: Cash Transaction of a
Business.

Distinguish b/w Accounting and

Book-keeping
Book-keeping

It refers to the daily

operation of an accounting
system i.e. Recording and
classifying
It requires little skill of
accounting

Accounting

It refers to the preparation

of Accounting system
Recording and classifying
the transactions
Summarize the data
Prepare the Final Reports
It requires Professional
Judgment and high skill of
accountancy

GAAP: Generally Accepted Accounting Principles

GAAP are the ground rules for financial reporting.
Generally Accepted Accounting Principles provide the
general frame work that determines;
1.

2.

What information is to be included in the financial

statements? &
How these information are to be presented ?

Basic Accounting Concepts

1.
2.
3.
4.

Cost Principle
Objectivity Principle
Monetary Principle
Business Entity Concept

Accounting Equation
Assets = Equities
Assets = Owners Equity + Liabilities
This is the characteristic of the Balance Sheet
that Assets always be equal to Liabilities plus
Owners Equity

Example of Accounting Equation

Mr. A is started the business by investing $ 100,000
Assets = O/Equity + Liabilities
100,000 = 100,000 +
0

Example of Accounting Equation

Further the business borrows a loan from the bank of $
40,000
Assets = O/Equity + Liabilities
100,000 = 100,000 +
0
40,000 =
0
+ 40,000
---------------------------------------------------140,000 = 100,000 + 40,000
________________________________

Accounting Equation
Assets = O/Equity + Liabilities
$ 80,000 = $ 60,000 + $ ?
80,000
-60,000
20,000

End of Chapter 1
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