Welcome to University of

Botswana
Wish You A Happy And
Prospers New Year 2011

Chapter 1, Slide #1
 Introduction to Accounting
By
Dr p s baliyan

Chapter 1&2

Introduction ,the Role of Accounting and

Principles & Standards

Chapter 1, Slide #2
 What is Accounting?

Identifying

Economic to
Measuring
Information various
users

Communicating

Chapter 1, Slide #3
 Internal and External
Users of Accounting Information
Bankers
Current Creditors
and
Potential Internal
Owners Users –
Management Financial
Analysts

Suppliers
Trade Government
Associations
Agencies
Chapter 1, Slide #4
 Decisions Made with Financial
Information

Add new
Invest?? product line??

Borrow $$?? Build new plant??

Loan $$??
Extend credit $$??
Start new business?? Sell stocks or bonds??
Chapter 1, Slide #5
 Function , Classifications & Types
of Accounting
• Objectives& Functions

• Divisions & Classification

• Types of Accounting

Chapter 1, Slide #6
 The Accounting Equation
Assets = Liabilities + Owners’ Equity
(or Stockholders’ Equity)

Economic Creditors’ Owners’

resources
= claims + claims
to assets to assets
Examples:
Cash Accounts payable Capital stock
Accounts receivable Notes payable Retained earnings
Land
Chapter 1, Slide #7
LO2
 – snapshot of
Balance Sheet financial position

Assets Liabilities
FEDERAL RESERVE NOTE

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THIS NOTE IS LEGAL TENDER

FOR ALL DEBTS, PUBLIC AND PRIVATE

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12 WASHINGTON, D.C. 12
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ONE
ONEDOLLAR
DOLLAR

Owners’ Equity
(or Stockholders’ Equity)

Stock
Certificate

Chapter 1, Slide #8
 A = L + SE
Top of the World
Balance Sheet
June 30, 2009
Assets
Current assets: A
Cash $ 200
Accounts receivable 600
Land 4,000
Lodge, lifts and equipment 2,500
Total assets $7,300

Chapter 1, Slide #9
 Top of the World A = L + SE
Balance Sheet
June 30, 2009
Liabilities and Stockholders’ Equity
=L
Liabilities:
Accounts payable $ 700
Salaries and wages payable 400
Notes payable 3,000
Total liabilities $4,100
+ SE
Stockholders’ equity:
Capital stock $2,000
Retained earnings 1,200
Total stockholders’ equity $3,200

Total Liabilities and Stockholders’ Equity $ 7,300

Financial Statement Assumptions

Economic
Entity Cost
Concept Principle
Time
Period
Assumption
Going Monetary
Concern Unit

Chapter 1, Slide #11

LO3
 Economic Entity Concept
 Each entity has its own books, records, and
financial statements that are separate from
owners
 No intermingling of personal and business
assets and liabilities or income and
expenses
Business Owners’
Books and Books and
Records Records

Chapter 1, Slide #12

 Cost Principle

 Record assets at cost paid to

acquire them
 Continue to value assets at
historical cost until sold
 More objective than market
value

Chapter 1, Slide #13

 Going Concern

 Assume business will

continue indefinitely
into the future
 Justifies use of
historical cost

Chapter 1, Slide #14

 Monetary Unit
 How we measure amounts in the
financial statements (e.g., U.S.
dollar, Japanese yen, Mexican
peso, Botswana Pula etc.)
 Assumes economic measure is
relatively stable; no adjustment
for inflation made in financial
statements

Chapter 1, Slide #15

 Time Period Assumption
 Assumes it is possible to break up an
entity’s earnings in discrete time periods (a
month, quarter, year)
 Necessary to provide users with financial
results on a timely basis
 Requires use of estimates 4 5 6 7
1

8
2

9
3

10

11 12 13 14 15 16 17

18 19 20 21 22 23 24

25 26 27 28 29 30 31

Chapter 1, Slide #16

The Rules of the Game

 The rules  GAAP

 The rule makers  FASB
 The rule enforcers  SEC
 The CPA regulators  AICPA
Chapter 1, Slide #17
 Ethics in Accounting

1. Identification
2. Analysis
3. Resolution

Chapter 1, Slide #18

LO4
 The Changing Face of the
Accounting Profession
A “financial reporting crisis” caused by:
 Enron: the omission of entities from the
financial statements
 WorldCom: treating costs as assets rather
than expenses causing higher net income

Chapter 1, Slide #19

 Where Accountants Work
 Private business
 Nonbusiness entities
 Public accounting
• Auditing services
• Tax services
• Management consulting services
 Education
Chapter 1, Slide #20
LO5
 End of Chapter 1

Chapter 1, Slide #21