Second Semester Course Code: BBA-1204 Course Title: Principles Accounting Prepared By Md. Masukujjaman Lecturer Northern University Bangladesh.

Second Semester

Course Code: BBA-1204

Course Title: Principles Accounting

Second Semester

Course Code: BBA-1204

Course Title: Principles Accounting

Prepared By

Md. Masukujjaman

Lecturer Northern University Bangladesh

Text Book…..Text Book…..

Accounting Accounting Principles, 7th EditionPrinciples, 7th Edition

Weygandt • Kieso • Weygandt • Kieso • KimmelKimmel

Fundamental Accounting PrinciplesFundamental Accounting Principles

17th Edition

Larson Wild Chiappetta

Reference Book:

Accounting in BusinessChapter

11

1 Explain what accounting is. 2 Identify users and uses of

accounting. 3 Understand why ethics is a

fundamental business concept. 4 Explain the meaning of generally

accepted accounting principles and the cost principle.

After studying this chapter, you should be able to:

CHAPTER CHAPTER 11 ACCOUNTING IN ACTION ACCOUNTING IN ACTIONCHAPTER CHAPTER 11 ACCOUNTING IN ACTION ACCOUNTING IN ACTION

5 Explain the meaning of the monetary unit assumption and the economic entity assumption.

6 State the basic accounting equation and explain the meaning of assets, liabilities, and owner’s equity.

7 Analyze the effect of business transactions on the basic accounting equation.

8 Understand what the four financial statements are and how they are prepared.

After studying this chapter, you should be able to:

CHAPTER 1 CHAPTER 1 ACCOUNTING IN ACTION ACCOUNTING IN ACTIONCHAPTER 1 CHAPTER 1 ACCOUNTING IN ACTION ACCOUNTING IN ACTION

IdentifiesIdentifies

RecordsRecords

CommunicatesCommunicatesRelevantRelevant

ReliableReliable

ComparableComparable

Definition & Importance of Accounting

Definition & Importance of Accounting

AccountingAccountingis a

system that

information

that is

to help users make better decisions.

to help users make better decisions.

Identifying Business Activities

Recording Business Activities

Communicating Business Activities

Accounting ActivitiesAccounting Activities

Users of Accounting InformationUsers of Accounting Information

External Users

•Lenders

•Shareholders

•Governments

•Consumer Groups

•External Auditors

•Customers

Internal Users

•Managers

•Officers

•Internal Auditors

•Sales Staff

•Budget Officers

•Controllers

Users of Accounting InformationUsers of Accounting Information

External Users

Financial accounting provides external users with financial

statements.

Internal Users

Managerial accounting provides information needs for internal

decision makers.

QUESTIONS ASKED BY INTERNAL QUESTIONS ASKED BY INTERNAL USERSUSERS

STUDY OBJECTIVE STUDY OBJECTIVE 22

QUESTIONS ASKED BY QUESTIONS ASKED BY EXTERNAL USERSEXTERNAL USERS

What is the correct accounting process sequence ?What is the correct accounting process sequence ?

• identification, communication, recording.

• recording, communication, identification.

• identification, recording, communication.

• communication, recording, identification.

The accounting process is correctly sequenced asThe accounting process is correctly sequenced as

• identification, communication, recording.

• recording, communication, identification.

• identification, recording, communication.

• communication, recording, identification.

Opportunities in AccountingOpportunities in Accounting

FinancialFinancial

•Preparation•Analysis•Auditing•Regulatory•Consulting•Planning•Criminal investigation

•Preparation•Analysis•Auditing•Regulatory•Consulting•Planning•Criminal investigation

ManagerialManagerial

•General accounting •Cost accounting•Budgeting•Internal auditing•Consulting•Controller•Treasurer•Strategy

•General accounting •Cost accounting•Budgeting•Internal auditing•Consulting•Controller•Treasurer•Strategy

TaxationTaxation

•Preparation•Planning•Regulatory•Investigations•Consulting•Enforcement•Legal services•Estate planning

•Preparation•Planning•Regulatory•Investigations•Consulting•Enforcement•Legal services•Estate planning

Accounting-related

Accounting-related

•Lenders•Consultants•Analysts•Traders•Directors•Underwriters•Planners•Appraisers

•Lenders•Consultants•Analysts•Traders•Directors•Underwriters•Planners•Appraisers

•FBI investigators•Market researchers•Systems designers•Merger services•Business valuation•Human services•Litigation support•Entrepreneurs

•FBI investigators•Market researchers•Systems designers•Merger services•Business valuation•Human services•Litigation support•Entrepreneurs

Accounting Jobs by AreaAccounting Jobs by Area

Private accounting

60%Public accounting

25%

Government, not-for-profit, & education

15%

Auditing

Taxation

Management consulting

NGO’s, SEC

Beliefs that distinguish right from

wrong

Accepted standards of good and bad

behavior

Ethics

Ethics—A Key ConceptEthics—A Key Concept

Identify ethical concerns

Analyze options

Make ethical decision

Use personal ethics to

recognize ethical concern.

Consider all good and bad

consequences.

Choose best option after weighing all

consequences.

Guidelines for Ethical Decision MakingGuidelines for Ethical Decision Making

Financial accounting practice is governed by concepts and rules known as generally accepted

accounting principles (GAAP).

Financial accounting practice is governed by concepts and rules known as generally accepted

accounting principles (GAAP).

Generally Accepted Accounting PrinciplesGenerally Accepted Accounting Principles

Relevant Information

Relevant Information

Affects the decision of its users.

Affects the decision of its users.

Reliable InformationReliable Information Is trusted by users.

Is trusted by users.

Comparable Information

Comparable Information

Is helpful in contrasting organizations.

Is helpful in contrasting organizations.

The Securities and Exchange Commission is the government group that establishes

reporting requirements for companies that issue stock to the public.

The Securities and Exchange Commission is the government group that establishes

reporting requirements for companies that issue stock to the public.

Setting Accounting PrinciplesSetting Accounting Principles

Financial Accounting Standards Board is the private group that sets both broad and

specific principles.

Financial Accounting Standards Board is the private group that sets both broad and

specific principles.

Principles of AccountingPrinciples of Accounting

Now Future

Going-Concern PrincipleReflects assumption that the

business will continue operating instead of being closed or sold.

Cost PrincipleAccounting information is

based on actual cost.

Objectivity PrincipleAccounting information is supported by independent,

unbiased evidence.

It demands more than one person’s opinion/ verification

Principles of AccountingPrinciples of Accounting

Revenue Recognition Principle1. Recognize revenue when it is

earned.2. Proceeds need not be in cash.3. Measure revenue by cash

received plus cash value of items received.

Monetary Unit PrincipleExpress transactions and events in

monetary, or money, units.Money is a common denominator in

Business.

Business Entity PrincipleA business is accounted for

separately from other business entities, including its owner.

Business Entity FormsBusiness Entity Forms

ProprietorshipProprietorship PartnershipPartnership CorporationCorporation

Characteristics Proprietorship Partnership CorporationBusiness entity yes yes yesLegal entity no no yesLimited liability no no yesUnlimited life no no yesBusiness taxed no no yesOne owner allowed yes no yes

Characteristics Proprietorship Partnership CorporationBusiness entity yes yes yesLegal entity no no yesLimited liability no no yesUnlimited life no no yesBusiness taxed no no yesOne owner allowed yes no yes

*

* Proprietorships and partnerships that are set up as LLC’s provide limited liability.

* Proprietorships and partnerships that are set up as LLC’s provide limited liability.

Characteristics of BusinessesCharacteristics of Businesses

Exh.1.8

*

Owners of a corporation are called shareholders (or stockholders).

When a corporation issues only one class of stock, we call it

common stock (or capital stock).

CorporationCorporation

AssetsLiabilities & Equity

Accounting EquationAccounting Equation

LiabilitiesLiabilities EquityEquityAssetsAssets = +

LandLand

EquipmentEquipment

BuildingsBuildings

CashCash

VehiclesVehicles

Store Supplies

Store Supplies

Notes Receivable

Notes Receivable

Accounts Receivable

Accounts Receivable

Resources owned or controlled

by a company

Resources owned or controlled

by a company

AssetsAssets

Taxes Payable

Taxes Payable

Wages Payable

Wages Payable

Notes Payable

Notes Payable

Accounts Payable

Accounts Payable

Creditors’ claims on

assets

Creditors’ claims on

assets

LiabilitiesLiabilities

Owner’sclaims

on assets

Owner’sclaims

on assets

RevenuesRevenues

Owner Investments

Owner Investments

Owner Withdrawals

Owner Withdrawals

ExpensesExpenses

EquityEquity


Expanded Accounting EquationExpanded Accounting Equation

RevenuesRevenues ExpensesExpensesOwner CapitalOwner Capital

Owner Withdrawals

Owner Withdrawals

_ + _

• Drawings• are withdrawals of cash or other assets

by the owner for personal use

• decrease owner’s equity

DRAWINGS AS A BUILDING DRAWINGS AS A BUILDING BLOCKBLOCK

INCREASES AND INCREASES AND DECREASES IN OWNER’S DECREASES IN OWNER’S

EQUITYEQUITYINCREASES DECREASES

Investments by Owner

Revenues

Owner’s Equity

Withdrawals by Owner

Expenses

Transaction AnalysisTransaction Analysis

Exchange of economic consideration between at least two parties.

Economic consideration include products, services, money, rights to collect money

(A/R,B/R)

TRANSACTION IDENTIFICATION PROCESSSTUDY OBJECTIVE STUDY OBJECTIVE 66

The accounting equation must remain in balance after each transaction.


Transaction Analysis EquationTransaction Analysis Equation

The accounts involved are:

(1) Cash (asset)

(2) J. Scott, Capital (equity)

J. Scott, the owner, contributed $20,000 cash to start the business.



J. Scott, the owner, contributed $20,000 cash to start the business.


(1) Cash (asset)

(2) Supplies (asset)


Purchased supplies paying $1,000 cash.


Purchased supplies paying $1,000 cash.


(1) Cash (asset)

(2) Equipment (asset)


Purchased equipment for $15,000 cash.


Purchased equipment for $15,000 cash.


(1) Supplies (asset)

(2) Equipment (asset)

(3) Accounts Payable (liability)

Transaction AnalysisTransaction AnalysisPurchased Supplies of $200 and Equipment of $1,000 on account.

Transaction AnalysisTransaction AnalysisPurchased Supplies of $200 and Equipment of $1,000 on account.


(1) Cash (asset)

(2) Notes payable (liability)


Borrowed $4,000 from 1st American Bank.


Borrowed $4,000 from 1st American Bank.

Transaction AnalysisTransaction AnalysisThe balances so far appear below. Note that the

Balance Sheet Equation is still in balance.

Now let’s look at transactions involving revenue, expenses and withdrawals.


(1) Cash (asset)

(2) Revenues (equity)

Transaction AnalysisTransaction AnalysisRendered consulting services

receiving $3,000 cash.

Transaction AnalysisTransaction AnalysisRendered consulting services

receiving $3,000 cash.


(1) Cash (asset)

(2) Salaries expense (equity)


Paid salaries of $800 to employees.

Remember that the balance in the salaries expense account actually increases.

But, equity actually decreases because expenses reduce equity.


Remember that expenses decrease equity.

Paid salaries of $800 to employees.


(1) Cash (asset)

(2) J. Scott, Withdrawals (equity)

Transaction AnalysisTransaction AnalysisJ. Scott withdrew $500 from the

business for personal use.

Remember that the balance in the J. Scott, Withdrawals account actually increases.

But, equity actually decreases because withdrawals reduce equity.


Remember that withdrawals decrease equity.

J. Scott withdrew $500 from the business for personal use.

Financial StatementsFinancial StatementsLet’s prepare the Financial Statements

reflecting the transactions we have recorded.

1. Income Statement

2. Statement of Owner’s Equity

3. Balance Sheet

4. Statement of Cash Flows

Net income is the difference between

Revenues and Expenses.

The income statement describes a company’s revenues and expenses

along with the resulting net income or loss over a period of time due to

earnings activities.

The net income of $2,200 increases

Scott’s capital by $2,200.

The Statement of Owner’s Equity

explains changes in equity from net

income (or net loss) and from

owner investments and withdrawals for

a period of time.

The Balance Sheet describes a company’s

financial position at a point in time.

The Balance Sheet describes a company’s

financial position at a point in time.

The Statement of Cash Flows identifies cash inflows and cash outflows over a period of time.

Net income ÷ Average total assets

ROA is viewed as an indicator of operating

efficiency.

ROA is viewed as an indicator of operating

efficiency.

Return on Assets (ROA)Return on Assets (ROA)

End of Chapter 1End of Chapter 1

Second Semester Course Code: BBA-1204 Course Title: Principles Accounting Prepared By Md. Masukujjaman Lecturer Northern University Bangladesh.

Documents

principles accounting

accepted accounting

basic accounting equation

action slide

business chapter

internal users study

internal decision makers

fundamental business