Principles of accounting

1. Principles of Accounting
Presented by
Md. Rasadul Islam

2. Content
 what is accounting?
 Function of Accounting
 Users of Accounting information
 GAAP
 Assumption

3. What is Accounting?
1. Methods for recording transactions,
2. Keeping financial records,
3. Performing internal audits,
4. Reporting and analyzing financial
information to the management
5. Advising on taxation matters.
Accounting is an information system, It is a systematic
process of identifying, recording, measuring, classifying,
verifying, summarizing, interpreting and communicating
financial information.

4. Three Activities
The accounting process includes
the bookkeeping function.
What is Accounting?

5. Illustration 1-1
Accounting process
Function of accounting
1. RECORDING : Accounting is the art of recording
business transaction according to some specific
rules. In a small business where the number of
transaction is quit small , all transaction are first of all
recorded in “Journal” But in a big business , where
the number of transaction is large , the journal is sub
divided into various books : 1. Cash Book
2. Purchase Book
3. Sales Book
4. Purchase Return Book
5. Sales Return Book

6. Illustration 1-1
Accounting process
Function of accounting(cont)
2. CLASSIFYING; Classifying is the process of grouping the
transaction of one nature at one place , in a separate account.
The book in which various account are opened is called “Ledger.”
3, SUMMARIZING ; Summarizing is the art of presenting the
classified data in a manner which is understandable and useful to
management ad other user’s of such data.
Balance the ledger account and the preparation of trial balance with
the help of such balances :
4. INTERPRETATION OF THE RESULT :In accounting the result
of the business are presented in a such manner that the parties
interested in the business such as proprietors manager’s , bank’s
, creditors , employees etc , can have full information about the
profit ability and the financial position of the business.

7. Users of Accounting information
External Users
•Investor
•Creditor
•Tax authority
•Regulatory Authorities
•Customers
Financial accounting provides external users
with financial statements (shareholders, lenders,
etc.).

8. External users of accounting(cont)
Creditors: for determining the credit worthiness of the organization.
Terms of credit are set by creditors according to the assessment of
their customers' financial health. Creditors include suppliers as well
as lenders of finance such as banks
Tax Authorities: for determining the credibility of the tax returns filed
on behalf of the company
Investors: for analyzing the feasibility of investing in the company.
Investors want to make sure they can earn a reasonable return on
their investment before they commit any financial resources to the
company.

9. External users of accounting(cont)
Customers: for assessing the financial position of its suppliers
which is necessary for them to maintain a stable source of supply
in the long term
Regulatory Authorities: for ensuring that the company's
disclosure of accounting information is in accordance with the
rules and regulations set in order to protect the interests of the
stakeholders who rely on such information in forming their
decisions.

10. Internal users of accounting
Internal Users
•Management
•Employees
•Owners
Managerial accounting provides information
needs for internal decision makers (officers,
managers, etc.).

11. Internal users of accounting(cont)
Management: for analyzing the organization's performance and
position and taking appropriate measures to improve the
company results.
Employees: for assessing company's profitability and its
consequence on their future remuneration and job security.
Owners: for analyzing the viability and profitability of their
investment and determining any future course of action.

12. Various users
need financial
information
The accounting profession
has attempted to develop a
set of standards that are
generally accepted and
universally practiced.
Financial Statements
Balance Sheet
Income Statement
Statement of Owner’s Equity
Statement of Cash Flows
Note Disclosure
Generally Accepted
Accounting
Principles (GAAP)
Generally Accepted Accounting Principles

13. Generally Accepted Accounting Principles (GAAP) - A set of
rules and practices, having substantial authoritative support, that
the accounting profession recognizes as a general guide for
financial reporting purposes. Generally Accepted Accounting
Principles, also called GAAP
Generally Accepted Accounting Principles
Financial reporting should provide information that is: Useful to
present to potential investors and creditors and other users in
making rational investment, credit, and other financial decisions
Helpful to present to potential investors and creditors and other
users in assessing the amounts, timing, and uncertainty of
prospective cash receipts about economic resources, the claims
to those resources, and the changes in them Helpful for making
financial decisions Helpful in making long-term decisions Helpful
in improving the performance of the business Useful in
maintaining records
Basic objectives

14. Basic concepts
To achieve basic objectives and implement
fundamental qualities GAAP has four basic
assumptions, four basic principles, and four basic
constraints
Generally Accepted Accounting Principles

15. 1. Entity assumption
2. Going concern assumption
3. Periodic assumption
4. Monetary unit assumption
Accounting Assumptions

16. Thank You