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.