Accounting in Business

A look at this topic

▪ IMPORTANCE OF ACCOUNTING
▪ FUNDAMENTALS OF ACCOUNTING
▪ BUSINESS TRANSACTIONS AND
ACCOUNTING
▪ COMMUNICATING WITH USERS
IMPORTANCE OF ACCOUNTING

▪ ACCOUNTING – an information and measurement system that

identifies, records, and communicates information about an
organization’s business activities
IDENTIFYING RECORDING COMMUNICATING

Select transactions and events Input, measure and log Prepare, analyze, and interpret
Users of Accounting Information

EXTERNAL INTERNAL
▪ Lenders ▪ Chief Executive Officer (CEO)
▪ Shareholders ▪ Purchasing Manager
▪ Board of Directors ▪ Research&Development Manager
▪ External Auditors ▪ HR Manager

▪ Voters, government officials ▪ Production Manager

▪ Donors ▪ Marketing Manager

▪ Suppliers and Customers ▪ Service Manager

Opportunities in Accounting

FINANCIAL
MANAGERIAL
TAXATION
ACCOUNTING-RELATED
 FUNDAMENTALS OF ACCOUNTING

ETHICS – beliefs that distinguish right from wrong

Good Ethics are good business!!!
FRAUD TRIANGLE
Opportunity Pressure Rationalization

Generally Accepted Accounting Principles (GAAP) – concepts and rules that governs financial accounting

Securities and Exchange Commission (SEC) – a government agency that has legal authority to set the GAAP

Financial Accounting Standards Board (FASB) – private-sector group that sets broad and specific principles.

International Accounting Standards Board (IASB) issues International Financial Reporting Standards (IFRS)
Conceptual Framework

Objectives – to provide information useful to investors, creditors, and others.

Qualitative Characteristics – to require relevant, reliable, and comparable
information
Elements – to define items that financial statements can contain
Recognition and Measurement – to set criteria for an item to be recognized as
an element; and how to measure it.
Principles and Assumptions of Accounting
General Specific
Assumptions, concepts and Detailed rules used in
guidelines for preparing reporting business
financial statements transactions and events

Accounting Principles
Basic Principles Assumptions Constraints
• Measurement principle • Going concern • Materiality
• Revenue recognition • Monetary unit • Benefit exceeds cost
• Expense recognition • Time period
• Full disclosure • Business entity
proprietorship
partnership
corporation
 BUSINESS TRANSACTIONS AND ACCOUNTING

COMPANY
Assets = Liabilities +
Equity Owns Owes
Assets Liabilities Equity
Cash
Creditors’ Owners’ claims on
Supplies claims on assets
Equipment assets

Land

Assets = Liabilities + Owner Capital – Owner Withdrawal + Revenues -

Expenses
COMMUNICATING WITH USERS

Financial Statements
Income Statement – describes a company’s revenues and expenses along
with the resulting net income or loss over a period of time
Statement of owners’ equity – explains changes in equity from net income (or
loss) and from any owner investments and withdrawals over a period of time
Balance Sheet – describes a company’s financial position at a point of time
Statement of cash flows – identifies cash inflows (receipts) and cash outflows
(payments) over a period of time