CHAPTER 1.Introduction To Accounting chapter 1pdf

CHAPTER 1.Introduction To Accounting chapter 1pdf

• 1.
  CHAPTER 1 INTRODUCTION TO ACCOUNTING
• 2.
  DEFINITION OF ACCOUNT ❖Interpreting the result so obtained 1. Classifying which involve sorting out the mass of accounting data into orderly and meaningful categories (Example: receipt, payment, purchase, sale, ECT...) Art of classifying, recording and summarizing of transaction
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  2) Recording; wherethe transactions are recorded in the books of business. (Example: journal, ledger) 3) Summarizing ; where periodically the accounting data are summarized in the form of financial statement (Example: Trading and Profit and Loss Account and Balance Sheet)
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  ◼ Interpreting wherethe financial data are analyzed and used as guides to decision making.
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  ACCOUNTING CYCLE
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  DEVELOPMENT OF ACCOUNTING
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  FUNCTIONS OF FINANCIAL STATEMENT. 1.To record and control business transaction 2. To maintain accuracy in recording 3. To meet the requirements of the law 4. To present final accounts to the owners of the business 5. To present other financial report and analyses 6. To facilitated the efficient allocation of resources
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  USERS USERS OF FINANCIAL STATEMENT/ACCOUNTING INFORMATION Internal users Those who work in organization 1.Owner 2.Managers 3.Employees External users Those who are not directly involved with the organization 1.Creditors/bankers 2.Prospective investors 3.Government 4.Public
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  Internal Users… Users Uses/Purposes Owners i. To evaluate the financial status of the business ii. To be able to evaluate their interest in the business Managers i. To evaluate the financial status of the business ii. To have the information necessary to make sound business decision Employees i. To evaluate the firm’s ability to pay salary ii. To get an idea of their employment prospects
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  External users… Users Uses/Purposes Creditors i. To determine the firm’s ability to repay the loans Prospective investors i. To evaluate the financial position of business ii. To evaluate whether the business is a good investment or not Government i. To determine the taxable income of the business ii. To make better financial decision for the company Others i. For academic purpose ii. For planning of projects
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  TYPES OF BUSINESS ORGANISATION Soletrader / Sole proprietorship Partnership Company
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  Characteristics Sole Trader LiabilityUnlimited liability Profit or Loss Belong to owner Books and Accounts No legal obligation to keep the books and prepare the accounts Formation Easy to form Sole trader.. Characteristics Sole Trader Registration With business registrar under the Business Registration Act 1957 Capital By owner from savings Ownership One person (owner) Management and control The owner with the help from his family and workers
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  Characteristics Partnership Liability Unlimitedliability Profit or Loss Share according to their profit sharing ratio Books and Accounts No legal obligation to keep the books and prepare the accounts Formation Easy to form with bigger capital than sole trader. Easy to dissolve (dies/bankrupt/quit) Partnership… Characteristics Partnership Registration With business registrar under the Business Registration Act 1957 Capital By partners according to their agreement Ownership 2 - 20 partners but professional partners 2 - 50 persons Management and control Partners or board which consists of a few partners
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  Characteristics Company Liability Limitedliability Profit or Loss Paid to shareholders in the form of dividend Books and Accounts Proper books of account and annual account must be sent to ROC Formation Hard to incorporated. Need to file the Memorandum & Articles of Association to the ROC/CCM Company… Characteristics Company Registration With Registrar of Companies under the Companies Act 1965 Capital By shareholders through buying of shares Ownership Private Co: 2 - 50 shareholders. Public Co: min 2 shareholders Management and control Board of Directors appointed by the shareholders
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  END OF CHAPTER 1