Features of A Ccounting, Accounting Principles, Process of A Ccounting, and Accoun Ting Standards

A
ETAU
TU RRESESOO
A
CCO F FAA CC O
C
CO UUNNTITNIN O
UU NN T I
T NIN
OO
R G G P R
P R
I G G
CCESES SOO NIN
CCI PILPEL
F F
A AC C S
E ,
S ,
N
DDAACCO O
C OUUNN T I
CO UUN N
T I T N
I N
G G
, ,
NNDDAA T N
I N
G G
RRDDSS
WHAT IS ACCOUNTING ?
• Accounting is primarily concerned with designing the
systems for recording , classifying, and summarizing the
recorded data and interpreting them for internal and
external end-users.
• Accountants often direct and review the work of the

book-keepers. The larger the firm, the greater is the
responsibility of the Accountant.
BOOK KEEPING AND ACCOUNTING
According to Prof. G.A. Lee the accounting system has two stages.
Book-Keeping:
Book-Keeping involves the chronological recording of
financial transactions in a set of books in a systematic manner.
Accounting:
Accounting is concerned with the maintenance of accounts
giving stress to the design of the system of records, the preparation
of reports based on the recorded data and the interpretation of the
reports.
BRANCHES OF ACCOUNTING
Financial
Accounting Management
Accounting
FEATURES OF ACCOUNTING
Systematic Records
Protects Business Properties
Ascertainment of Profit and Loss
Ascertainment of Financial Position
Facilitates Rational decision making
Financial Accounting Process

Features
 Systematic Records: It is done to keep a systematic record of financial
transactions.
 Protecting Business Properties : Accounting provides protection to business

properties from unjustified and unwarranted use. This is possible on account of
accounting supplying the information to the manager or proprietor.
 Ascertaining the operational profit and loss: Accounting helps in ascertaining

the net profit earned or loss suffered on account of carrying the business.
 Ascertaining the financial position of business : The profit and loss made by
the business during a particular period.
 To Facilitate rational decision making: Accounting these days has taken upon
itself the task of collection, analysis and reporting of information at the required points
of time to the required levels of authority in order to facilitate rational decision making.
ACCOUNTING CONCEPTS
ACCOUNTING PRINCIPLES
AND PRINCIPLES
Relevance
Reliability
Timeliness
Materiality
Going Concern
Business Entity
Duality Concept
Historical Cost
Matching Concept
Accounting Principles
Relevance
• A company discloses an increase in Earnings Per Share (EPS) from $5
to $6 since the last reporting period. The information is relevant to
investors as it may assist them in confirming their past predictions
regarding the profitability of the company and will also help them in
forecasting future trend in the earnings of the company.
• Relevance is affected by the materiality of information contained in
the financial statements because only material information
influences the economic decisions of its users.
Reliability
• A company is being sued for damages by a rival firm,

settlement of which could threaten the financial
stability of the company. Non-disclosure of this
information would render the financial statements
unreliable for its users.
Timeliness
• Users of accounting information must be provided financial
statements on a timely basis to ensure that their financial
decisions are based on up to date information. This can be
achieved by reporting the financial performance of
companies with sufficient regularity (e.g. quarterly, half
yearly or annual) depending on the size and complexity of
the business operations. Unreasonable delay in reporting
accounting information to users must also be avoided.
Materiality
• A default by a customer who owes only $1000 to a company

having net assets of worth $10 million is immaterial to the
financial statements of the company.
• However, if the amount of default was, say, $2 million, the
information would have been material to the financial
statements omission of which could cause users to make
incorrect business decisions.
Going Concern
• Going concern is one the fundamental assumptions in accounting

on the basis of which financial statements are prepared. Financial
statements are prepared assuming that a business entity will
continue to operate in the foreseeable future without the need or
intention on the part of management to liquidate the entity or to
significantly curtail its operational activities. Therefore, it is
assumed that the entity will realize its assets and settle its
obligations in the normal course of the business
Business Entity
• Financial accounting is based on the premise that the

transactions and balances of a business entity are to
be accounted for separately from its owners. The
business entity is therefore considered to be distinct
from its owners for the purpose of accounting.
Duality Concept
Mr. A, who owns and operates a bookstore, has identified the following transactions for the month of
January that need to be accounted
$
for in the monthly financial statements:
1. Payment of salary to staff 2,000
2. Sale of books for cash 5,000 Account Title Effect Debit Credit
$ $
3. Sales of books on credit 15,000
4. Receipts from credit customers 10,000

1. Salary Expense Increase in expense 2,000
5. Purchase of books for cash 20,000 Cash at bank Decrease in assets 2,000
6. Utility expenses - unpaid 3,000
2. Cash in hand Increase in assets 5,000

Under double entry system, the above transactions will be accounted for as Sales revenue Increase in income 5,000
follows:
3. Receivables Increase in assets 15,000

Sales revenue Decrease in income 15,000
4. Cash at bank Increase in asset 10,000

Receivables Decrease in asset 10,000
Historical Cost
A machine was acquired 5 years ago for $10,000.

New machine with the same specification would cost $40,000 today due to inflation.
The current market value of the machine in its present condition is $6,000.
Machine is depreciated using straight line basis over its useful life of 10 years.
Using the historical cost convention, what would be the net book value of the machine today?
Net book value = Cost - Accumulated Depreciation

= $10,000 - ($10,000 x 5/10)
= $5,000
The machine would be assigned a historical cost of $10,000. The replacement value (i.e.
$40,000) and fair value (i.e. $6,000) would not be considered in the valuation.
Matching Concept
Examples of the use of matching principle in IFRS and GAAP include the following:
 Deferred Taxation
IAS 12 Income Taxes and FAS 109 Accounting for Income Taxes require the accounting for taxable and deductible temporary differences
arising in the calculation of income tax in a manner that results in the matching of tax expense with the accounting profit earned
during a period.
 Cost of Goods Sold

The cost incurred in the manufacture or procurement of inventory is charged to the income statement of the accounting period in
which the inventory is sold. Therefore, any inventory remaining unsold at the end of an accounting period is excluded from the
computation of cost of goods sold.
 Government Grants
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance requires the recognition of grants as income over
the accounting periods in which the related costs (that were intended to be compensated by the grant) are incurred by the entity
Accounting Standards And International Accounting
Standards Committee/ Board
• An accounting standard is a common set of principles, standards and procedures that define the
basis of financial accounting policies and practices. Accounting standards improve the transparency
of financial reporting in all countries.
• In the United States, the Generally Accepted Accounting Principles form the set of accounting
standards widely accepted for preparing financial statements. International companies follow the
International Financial Reporting Standards, which are set by the International Accounting
Standards Board and serve as the guideline for non-U.S. GAAP companies reporting financial
statements.
International Financial Reporting Standards
Share-based Business Insurance Operating

Payment Combinations Contracts Segments
Financial Consolidated Disclosure of
Instrument : Financial Join Interests in
Disclosures Statements Agreements other Entities
Exploration
Fair value for and
Financial Evaluation of
Measuremen Instruments
t Mineral
Assets
List of Reporting Standards and International Accounting
Standards
No. of Title Originally Effective Fully Supersede
Standards Issued Withdrawn d By
IAS 1 Disclosure of Accounting 1975 January
policies (1975) 1, 1975
IAS 2 Valuation and 1976 January
Presentation of 1, 1976
Inventories in the context
of the Historical Cost
System (1975)
IAS 7 Cash Flow Statements 1977 January
(1992) 1, 1979
IAS 8 Accounting Policies, 1978 January
changes in Accounting 1, 1979
Estimates and errors
(2003)
Process Of Accounting

Features of A Ccounting, Accounting Principles, Process of A Ccounting, and Accoun Ting Standards

Uploaded by

Copyright:

Available Formats

Features of A Ccounting, Accounting Principles, Process of A Ccounting, and Accoun Ting Standards

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Features of A Ccounting, Accounting Principles, Process of A Ccounting, and Accoun Ting Standards

Uploaded by

Copyright:

Available Formats

A

• Accountants often direct and review the work of the

Facilitates Rational decision making

Financial Accounting Process

 Protecting Business Properties : Accounting provides protection to business

 Ascertaining the operational profit and loss: Accounting helps in ascertaining

• A company is being sued for damages by a rival firm,

• A default by a customer who owes only $1000 to a company

• Going concern is one the fundamental assumptions in accounting

• Financial accounting is based on the premise that the

4. Receipts from credit customers 10,000

6. Utility expenses - unpaid 3,000

2. Cash in hand Increase in assets 5,000

3. Receivables Increase in assets 15,000

4. Cash at bank Increase in asset 10,000

A machine was acquired 5 years ago for $10,000.

Net book value = Cost - Accumulated Depreciation

 Cost of Goods Sold

Share-based Business Insurance Operating

You might also like