Introduction to Accounting
What is Accounting?
Purpose of accounting is to:
1. identify, record, and communicate the economic
events of an
2. organization to
3. interested users.
SO 1 Explain what accounting is.
What is Accounting?
Three Activities
Illustration 1-1
Accounting process
The accounting process includes
the bookkeeping function.
SO 1 Explain what accounting is.
Who Uses Accounting Data
Internal Users
Management
Human
Resources
IRS
Investors
There are two broad groups of
users of financial information:
internal users and external users.
Labor Unions
Finance
Creditors
Marketing
Customers
SEC
External
Users
SO 2 Identify the users and uses of accounting.
Who Uses Accounting Data
Common Questions Asked
User
1. Can we afford to give our
employees a pay raise?
Human Resources
2. Did the company earn a
satisfactory income?
Investors
3. Do we need to borrow in the
near future?
Management
4. Is cash sufficient to pay
dividends to the stockholders?
Finance
5. What price for our product will
maximize net income?
Marketing
6. Will the company be able to
pay its short-term debts?
Creditors
SO 2
ACCOUNTING CAREER OPPORTUNITIES
Public Accounting
Private Accounting
Careers in auditing, taxation,
and management in
consulting,serving the general
public.
Careers in industry, working in
cost accounting, budgeting,
accounting information
systems, and taxation.
Government
Forensic Accounting
Careers with the IRS, the FBI,
the SEC, and in public
colleges and universities.
Uses accounting, auditing, and
investigative skills to conduct
investigations into theft and
fraud.
SO 9 Explain the career opportunities in accounting.
Generally Accepted Accounting Principles
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.
Standard-setting bodies determine these guidelines:
►
Securities and Exchange Commission (SEC)
►
Financial Accounting Standards Board (FASB)
►
International Accounting Standards Board (IASB)
SO 4 Explain generally accepted accounting principles.

Accounting standards in Malaysia are based on:
 MASB Standards
 International Accounting Standards
 MIA Standards

The recording and presentation of accounting information
in the financial statements have to abide by the accounting
 Assumptions
 Principles
 Constraints
Generally Accepted Accounting Principles
Assumptions
Monetary Unit – include in the accounting records only
transaction data that can be expressed in terms of money.
Economic Entity – requires that activities of the entity be
kept separate and distinct from the activities of its owner and
all other economic entities.

Proprietorship.

Partnership.

Corporation.
Forms of Business
Ownership
SO 5 Explain the monetary unit assumption
and the economic entity assumption.
Forms of Business Ownership
Proprietorship
Partnership

Generally owned
by one person.

Owned by two or
more persons.

Often small
service-type
businesses

Often retail and
service-type
businesses
Owner receives
any profits,
suffers any
losses, and is
personally liable
for all debts.



Generally
unlimited
personal liability
Corporation

Ownership
divided into
shares of stock

Separate legal
entity organized
under state
corporation law

Limited liability
Partnership
agreement
SO 5 Explain the monetary unit assumption
and the economic entity assumption.
Generally Accepted Accounting Principles
Assumptions
Going Concern – this assumption believes in continuity of
the business over indefinite period, it is also known as continuity
assumption.
Accounting Period– This assumption permits the
accountant to divide the lifespan of the business enterprise into
different time periods known as 'accounting period' (quarterly, halfyearly, annually) for the purpose of preparing financial
statements
Generally Accepted Accounting Principles
Question
Combining the activities of Kellogg and General Mills
would violate the
a. cost principle.
b. economic entity assumption.
c. monetary unit assumption.
d. ethics principle.
SO 5 Explain the monetary unit assumption
and the economic entity assumption.
Generally Accepted Accounting Principles
Principles
Cost Principle – Or historical cost principle, dictates that
companies record assets at their cost.
Fair Value Principle – Indicates that assets and liabilities
should be reported at fair value (the price received to sell an
asset or settle a liability).
SO 4 Explain generally accepted accounting principles.
Generally Accepted Accounting Principles
Principles
Revenue Recognition Principle – requires companies
to record when revenue is (1) realized or realizable and (2)
earned, not when cash is received. This way of accounting is
called accrual basis accounting.
Matching Principle – Expenses have to be matched with
revenues .
Full Disclosure Principle – Amount and kinds of information
disclosed should be decided based on trade-off analysis as a larger
amount of information costs more to prepare and use. Information
disclosed should be enough to make a judgment while keeping costs
SO 4 Explain generally accepted accounting principles.
reasonable.
Generally Accepted Accounting Principles
SO 4 Explain generally accepted accounting principles.
Generally Accepted Accounting Principles
Constraints
Objectivity principle: the company financial statements
provided by the accountants should be based on objective
evidence.
Materiality principle: the significance of an item should be
considered when it is reported. An item is considered
significant when it would affect the decision of a reasonable
individual.
SO 4 Explain generally accepted accounting principles.
Generally Accepted Accounting Principles
Constraints
Consistency principle: It means that the company uses
the same accounting principles and methods from year to year.
Conservatism principle: when choosing between two
solutions, the one that will be least likely to overstate assets
and income should be picked (see convention of
conservatism).
SO 4 Explain generally accepted accounting principles.