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CHAPTER 1: INTRODUCTION to accounting. Learning objectives:. To understand the importance of financial information in business. To understand the definition of accounting and book keeping. To identify the users of accounting information. To introduce the fundamental accounting concepts

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learning objectives
Learning objectives:
  • To understand the importance of financial information in business.
  • To understand the definition of accounting and book keeping.
  • To identify the users of accounting information.
  • To introduce the fundamental accounting concepts
  • To introduce the types of business and differences

KE1013 Chapter One

definition of accounting
Definition of Accounting
  • Kieso and Weygandt “ process of identifying, recording and communicating economic activities of the organization to the users of the information.”
  • Generally accepted definition: “accounting is the process of identifying, measuring, summarizing and communicating economic information to permit informed judgments and decisions by users of the information.”

KE1013 Chapter One

accounting definition
Accounting: Definition

Measuring

Identifying

Bookeeping

Reporting

Recording

Interpreting

Analyzing

Provide useful

information

to users

Designing Information

KE1013 Chapter One

fields in accounting
Fields in Accounting

Accounting Information

System

Financial

Accounting

Accounting

Public Sector Accounting

And Non-Profit

Organization

Management

Accounting

Auditing

Tax

accounting professional bodies
Accounting Professional Bodies

MICPA

MIA

ACCA

IFRS

MASB

CPA

GAAP

characteristics of accounting information
Characteristics of Accounting Information
  • Understandability- clarity in expression
  • Relevance- in decision making
  • Consistency- in treatment of similar items and accounting policies
  • Comparability - similar companies in an industry
  • Reliability- accurate, complete and verifiable
  • Objectivity - prepared in a neutral way and not biased toward a user group
users of accounting information
Users of Accounting Information

Users

External

Internal

Indirect

Interest

Direct

Interest

users of accounting information1
Users of Accounting Information
  • Owner (s) of the business

- profitability

- financial resources

  • Prospective buyer
  • Prospective partner
  • Bank- ability to pay loans and interest when they fall due
  • Employees- stability and continuing profitability of business

Profitability, prospects for growth

users of accounting information2
Users of Accounting Information
  • Creditors- ability to pay short term borrowed money.
  • Tax inspectors (IRB)- business profitability in order to levy corporate tax.
  • Analysts - analyze business (especially listed companies) competitiveness in relation to an industry or sector.
  • Investors (existing and prospective)- whether they should invest in a business.
underlying accounting concepts
Underlying Accounting Concepts
  • Historical cost -transactions recorded at ruling price and resources (assets) valued at cost price.
  • Money measurement - accounting is only interested in facts that can be measured in monetary terms.
  • Business entity - affairs of business treated separately from private transactions of owners.
underlying accounting concepts1
Underlying Accounting Concepts
  • Dual aspect - two aspects of accounting; resources (assets) and claims against them.
  • Time interval -preparation of financial statements at regular intervals.
fundamental accounting concepts
Fundamental Accounting Concepts
  • Going concern-business will continue to operate into the foreseeable future.
  • Consistency- in treatment of similar items and accounting policies.
  • Prudence/Conservatism- anticipate no profits unless with reasonable certainty and provide for possible losses.
fundamental accounting concepts1
Fundamental Accounting Concepts
  • Realisation - profits and gains recognized when it can determined with reasonable certainty.
  • Accruals/Matching- income should be properly matched against expenses.
  • Materiality- include items that are useful to the users of accounts.
types of business
Types of Business
  • Sole Proprietor
  • Partnership
  • Limited companies

KE1013 Chapter One

thank you

Thank You

KE1013 Chapter One