Submitted by Muhammad Hassan Submitted to Sir Abdul Razaaq Assignment no 2 25% of all four chapters Class MSBA-1 Register no# 09152013008 Date of submission 13, Dec 2020 Chapter no:1 Accounting information for decision making: Provide information *business-related * that is useful in making the right goods decisions. It is known as the “Language of business.” Bookkeeping is not an ending; it means ending. Cost: The total amount you spent to produce the product. Primary goals: i. ii. iii. The nature of financial activities that accounting information describes. The assumptions and measurement techniques are involved. The info that is most relevant for making various types of decisions. Types of accounting: i. Financial: Information about resources, obligations, and activities. Assist “external” user *investors, creditors, in decision making*. Often called “general purpose.” ii. Management accounting: Includes the turn of events and understanding of bookkeeping data of the executives. Information can be specially tailored to management needs to assist in the decision making process. Reports are only provided to internal users. Accounting as an information system: Essential functions of an accounting system: Every accounting system performs the following essential functions: i. Interpret and record the influences of business interactions. ii. Group the impacts of comparable exchanges to figure aggregates to be utilized in reports. iii. Sum-up and impart the data contained in the framework to leaders. The integrity of Accounting information: Integrity refers to the following qualities: o Complete o Unbroken o Unimpaired o Sound o Honest o Sincere Enhancing integrity: The reliability of bookkeeping information is increased in three significant ways: I. Institutional features II. Professional accounting organizations III. Personal competence, judgment, and ethical behavior. Chapter no:2 Basic financial reports: Shareholders and creditors are interested in the cash flow that they expect to receive future. A financial statement is simply a *declaration disclose of what* is believed to be true about an enterprise, communicated in terms of monitory units. Preparation of financial statements that are to be represented in economic activities. The primary financial statements: i. Balance sheet ii. Income statement iii. Statement of cash flow i. Balance sheet: Summary or snapshot of business all the performance and activities which was from last year. ii. Income statement: An action report that indicates the revenues and expenses for a specified phase. Profits have caused or are expected to result in positive cash flow through transactions with customers. iii. Cash flows: Specifics the stretched resources and utilizes of cash during an accounting period. Features of the balance sheet: a. Name of business b. Name of financial statement c. Date Business entity concept: Business entity A profit unit that seizes in recognizable business activities. For accounting intend, the activities of the entity are distinct from the personal activities of the holders. Must only consist of items related to the procedure of the business. Assets: Assets have three essential characteristics: 1. Economic resources 2. Owned by the business 3. Expected to benefit future operations Liquidity and profitability: Liquidity is the expertise of the business to reimburse its bills as they come due. Critical to the survival of the business A business that is not liquefied may be pushed into economic failure by its creditors. Profitable operations increase owner equity. Adequate disclosure: A module that may need revelation include but is not limited to: Significant accounting policies Subsequent events Contingencies Contractual commitments Assets pledged as collateral Management interest in financial statements: Creditors are further expected to expand credit if economic reports show a factual statement of financial position, that is, comparatively little debt and large totals of liquefied assets. Window covering occurs when managing takes measures to make the firm appear as healthy as potential in its economic reports. Chapter no:3 The Accounting Cycle: Capturing Economic Events The Accounting Cycle Accounting records are used to: ◦ Prepare financial statements. ◦ Complete income tax returns. ◦ Create other reports. The bookkeeping arrangement is the plan of bookkeeping strategies used to record, order, and sum up bookkeeping data in financial reports at standard periods. Steps of the Accounting Cycle 1. Journalize (record) transactions. 2. Post each journal entry to ledger accounts. 3 Prepare a trial balance. 4. Make end-of-period adjusting entries. 5. Prepare an adjusted trial balance. 6. Prepare financial statements. 7. Journalize and post-closing entries. 8. Prepare an after-closing trial balance. Role of Accounting Records (cont.) 1: Assessing the effectiveness and execution of various departments within an association. 2: Preserving documentary proof of the company’s business actions, including controlling requirements such as tax agreement and documentation Each account has three elements: 1. A title 2. A left-hand side, which is termed as debit side 3. A right-hand side, which is termed as the credit side Using T Accounts Increases are recorded on one side of the T Title of Account, and decreases are recorded on the other side. Debit and Credit Entries Rules of Debit and Credit Entries ⚫ Asset accounts are increased by debit entries and decreased by credit entries. ⚫ Asset accounts have an average debt balance. ⚫ The fact that assets are situated on the left side of the balance sheet is an appropriate means of remembering the rule that an increase in investment is verified on the left-hand (debit) side of the bank account and an asset account usually has a debit (left-hand) balance. Credit Balances in Liabilities and Equity ⚫ Liability accounts and owners’ equity accounts are increased by credits and decreased by deductions. ⚫ The connection between entries in these accounts and their position on the balance sheet may be totaled up as follows: 1. Liabilities and owners’ equity fit on the right side of the balance sheet. 2. An rise in a liability or an owners’ equity account is documented on the report’s right-hand (credit) side. 3. Liability and owners’ equity accounts typically have credit (right-hand) balances. There are some essential qualities of this general journal entry. 1. The term of the account debited (Cash) is composed first, and the dollar amount to be debited looks in the left-hand money column. 2. The first name of the account credited (Capital Stock) seems lower than the account debited and is shifted to the right. The dollar sum appears in the rightward money line. 3. A short explanation of the transaction seems immediately under the journal entry. Posting Journal Entries to the Ledger ⚫ Placement means updating the ledger accounts for the effects of the operations recorded in the journal. ⚫ Posting involves copying into the ledger accounts information that has already been recorded in the journal. Debit and Credit Regulations for Revenue and Expenses The debit and credit rules for record revenue and expenses in the ledger accounts are a real addition to the rules for record vagaries in owners’ equity: ⚫Credits record increases in owners’ equity. ⚫Debits record decreases in owners’ equity. This rule is now stretched to cover up revenue and expense accounts. ⚫Revenue increases owners’ equity; therefore, payment is recorded by credits. ⚫Expenses decrease owners’ equity; therefore, costs are recorded by debits. Revenue and Expense T Accounts Dividends A dividend is a division of assets (usually cash) by a business to its shareholders. Reduces both assets and owners’ equity. Chapter 4 The Accounting Cycle: Accruals and Deferrals Introduction ⚫ In Chapter 3, we learned that we record revenue when it is earned. ⚫ For example, when a hairdresser cuts a customer’s hair, income is earned when the hair is cut, and the fee is received. ⚫ Suppose the same passenger boards a Carnival Company cruise ship to the Bahamas using a purchased ticket six months in advance. When should the journey line perceive that ticket income has been acquired? Timing Changes ⚫ For most firms, revenue is not always earned as cash is received, nor is an expense certainly suffered as money is distributed. ⚫ Scheduling disagreements between cash flows and revenue recognition and costs are referred to as increases and postponements. ⚫ Examine how accounting information must be adjusted for accruals and deferrals before the preparation of financial statements. Step 4 in the Accounting Cycle The Need for Adjusting Entries ⚫ Certain transactions affect the revenue or expenses of two or more accounting periods. ⚫Changing passages are required toward each bookkeeping period’s finish to verify that reasonable sums or income and cost are accounted for in the organization’s pay articulation. Categories of Adjusting Entries Most changing passages can be categorized as one of four general classes: 1. Converting assets to expenses. 2. Converting liabilities to revenue. 3. Accruing unpaid expenses. 4. Accruing uncollected revenue Introduction: Transforming Obligations to Profits ⚫ A corporation may collect cash in advance for services to be rendered in future accounting cycles. ⚫Exchanges of this nature are generally recorded by charging cash and by crediting an obligation account (commonly called Unearned Revenue or Customer Deposits Here, the danger account made addresses the deferral (or the postponement) of a pay. ⚫ When services are provided (or that goods are sold), a changing entry is made to allocate a portion of the balance sheet’s obligation to the pay articulation to perceive the income procured throughout the cycle. ⚫ The changing entry is recorded by debiting the liability Introduction: Accruing Unpaid Expenses ⚫A cost might be brought about in the current bookkeeping period even though no money installment will happen until a future period. ⚫These accumulated costs are recorded by a changing passage made toward the finish of each bookkeeping period. ⚫ The adjusting entry is recorded by deducting the suitable expense account (for example, Interest Expense or Salary Expense) and by crediting the associated liability (for example, Interest Payable or Salaries Payable). Introduction: Accruing Uncollected Revenue Income might be procured (or gathered) during the current time frame, even though money’s assortment won’t happen until a future period. ⚫ Unrecorded earned revenue, for which no cash has been received, requires an adjusting entry at the end of the accounting period. Materiality Concept ⚫ Materiality refers to the comparative importance of an item or an event. ⚫ An item is considered relevant if knowledge of the thing might reasonably influence users’ economic reports judgments. ⚫ Bookkeepers must be sure that all material items are correctly reported in financial statements. The concept of materiality permits auditors to reduce and make simpler modifying entries in numerous ways.
