Introduction to Accounting

Information Age
Information System
Financial Information
Economic Event
GAAP
Forms of Business Organization

1. Financial & Managerial
Accounting
Lecture 01: Introduction to Accounting
Chapter
1
Lecture 01: Introduction to Accounting
Masud Jahan
Department of Science and Humanities
Military Institute of Science and Technology

2. Information Age
We live in the information age-a time of
communication, data, news and facts.
Access to and understanding of
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Access to and understanding of
information affect how we live and the
opportunities we have. To take
advantage of the information, we need
knowledge of the information system.

3. Information System
An information systemis the collecting,
processing, and communicating of
information to decision makers.
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Understanding and processing
information is the core of information
system.

4. Accounting, an Information
System
Accountingis an information system
that collects, processes and
communicates financial informationto
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communicates financial informationto
interested users about an organization
useful in making decisions.

5. Financial Information
Financial informationmay include
sales, expenses, taxes and any other
figure of an economic event.
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figure of an economic event.

6. Economic Event
Economic event is an event which
causes changes to the financial
position oh an organization.
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position oh an organization.

7. Users Of Accounting Information
Interested parties are also called
accounting information users. There are
two broad categories of accounting
information users:
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information users:
External Users
Internal Users.

8. External Users & Their Need
External usersare parties outside the
reporting entity (i.e. company) who are
interested in the accounting information.
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They include investors, creditors, taxing
authorities, customers etc.

9. External Users -Investors
Investorsuse accounting information to
make buy, sell or keep decisions related
to shares, bonds, etc.
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to shares, bonds, etc.

10. External Users-Creditors
Creditors(suppliers, banks) utilize
accounting information to make lending
decisions.
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decisions.

11. External Users-Taxing Authorities
Taxing authorities(Internal Revenue
Service) need accounting information to
determine a company's tax liabilities.
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determine a company's tax liabilities.

12. External Users-Customers
Customersmay need accounting
information to decide which products
and from which company to buy.
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and from which company to buy.

13. Internal Users & Their Need
Internal usersare parties inside the
reporting entity (i.e. company) who are
interested in the accounting information.
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Internal users are managers, owners
and employees who actually work for
the business.

14. Internal Users-Managers
A company's managementuses
accounting information to run the
business.
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business.

15. Internal Users-Employees
Employeesutilize accounting
information to determine a company's
profitability and profit sharing.
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profitability and profit sharing.

16. Types of Accounting
There are mainly two types of
accounting:
Financial Accounting
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Financial Accounting
Managerial Accounting

17. Financial Accounting
Financial accountingprovides
information that is designed to satisfy
the needs of external users. Such
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the needs of external users. Such
reporting is usually done in the form of
financial statements.

18. Managerial Accounting
Managerial accountingprovides
information that is useful in running a
company by internal users. Such
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company by internal users. Such
reporting is usually accomplished
through custom designed reports.

19. Illustration
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20. GAAP
The accounting profession has
developed standers that are generally
accepted and universally practiced. This
common set of standers is called
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common set of standers is called
“Generally Accepted Accounting
Principles" (GAAP).
These standers indicate how to report
economic events.

21. GAAP-Money Measurement Principle
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Money Measurement Principle
For an accounting record to be made it must be able to be
expressed in monetary terms.
Only those economic events and transactions
that can be monetized (stated in a monetary unit such as
the BD Taka or U.S. Dollars) are recorded.

22. Organizations
Organizations:A person or body of
persons organized for some specific
purpose.
Organizations can be classified as either
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Organizations can be classified as either
business or nonbusiness.
Business Organizationsis one or more
individuals selling products or services for
profit.
Nonbusiness Organizations serves us in
ways not always measured by profit.

23. GAAP-Business Entity Concept
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Business Entity Concept
A business entity is separate from the personal affairs of its owner.
Accounts are kept for entities and not the people who own or run the
company.Even in proprietorships and partnerships, the accounts for the
business must be kept separate from those of the owner(s).

24. Forms of Business Organizations
.
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25. A proprietorship
is owned by one
individual.
Advantages
•Ease in organizing
•Low cost of organizing
Single Proprietorship
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Disadvantage
•Limited source of
financial resources
•Unlimited liability
X’s

26. A partnershipis
owned by two or
more individuals.
Advantages
•More financial resources
than a proprietorship.
•Additional management
skills.
Partnership
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skills.
Disadvantage
•Unlimited liability.
X & Y’s

27. A corporationis
organized under state
or federal statutes as a
separate legal entity.
Advantage
•The ability to obtain
large amounts of
resources by issuing
shares.
Corporation
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shares.
•Limited liability.
Disadvantage
•Double taxation.
X & Y, Inc.

28. Activities in Business Organizations
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29. Financing activities
Financing activities
•Owner financing
•Nonowner financing
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Financing

30. Investing activities
Investing activities
•Buying resources
•Selling resources
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FinancingInvesting
=

31. Operating activities
Operating activities
•Aim at selling the
organization’s
products and
services.
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FinancingInvesting
Operating
•Result in sales
and expenses.

32. Types of Business
Service companies
–Provide services for a fee.
Merchandising companies
–Purchase goods that are ready for sale and
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–Purchase goods that are ready for sale and
then resell them to customers.
Manufacturing companies
–Buy materials, convert them into products,
and then sell the products to other companies
or to final customers.

33. End of Lecture 01
thank you all…thank you all…