Page 1 Introduction To Accounting

Page 2 JOIN KHALID AZIZ MA ECONOMICS EXTERNAL COACHING CLASSES. MICRO ECONOMICS, STATISTICS & MACRO ECONOMICS. GUESS PAPERS AND NOTES ARE AVAILABLE

Page 3 JOIN KHALID AZIZ ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM. FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA, MBA & PIPFA. COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE D, BBA, MBA & PIPFA. CONTACT: R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, KARACHI, PAKISTAN.

Page 4 Outline The nature of firm; The value of accounting; The Evolution of accounting; Accounting: A bird view

Page 5 Opening Story Everyone here is supposed to know the Outlaws of the Marsh; Question I: –Who plays the role of “CFO” of the Marsh Mountain Liang? There are two;

Page 6 Opening Story –Some other positions related to accounting;

Page 7 Opening Story Question II: –Why does the Marsh Mountaion Liang need such positions as CFO and Chief Controller? –We must know that the title of SHUIHUZHUAN is also translated as All Men are Brothers.

Page 8 The Value of Accounting Why does accounting exist in every organization? I explain this question in another way: what kind of unique value does accounting possess? –The value must be fundamental and the society could not go without; Another way to explain: Darwinism; –Natural selection and the fittest survive;

Page 9 The Nature of Firm Although every organization needs accounting, we just talk about enterprise accounting for simplicity; What is the nature of firm? We discuss about human nature first;

Page 10 The Nature of Man Ethic Man; –Human Nature: Virtue vs. Evil; –Confucis vs. Hsun Tzu Economic Man; –There is no ethics concept in Economists’ dictionary; It is not from the benevolence of the butcher, the brewer, or the baker that expect our dinner, but from their regards their own interest. (Adam Smith);

Page 11 The Nature of Man We need a compound analytical tool; –Maslow and the Hierarchy of Needs: the most common tool; Michael Jensen and William Meckling –REMM Resourceful, Evaluator, Maximizer, Model.

Page 12 The Nature of Firm Classical theories; –A device to capture transaction costs; –A nexus of contracts; –Agency theory; –Economic Darwinism; –,,,, REMM perspective: –A coalition of economic men;

Page 13 The Nature of Firm On the coalition of economic men: Why does REMM join a firm? –Maximization of his own interests; When does REMM quit from a firm? –Seek different chance to maximize his own interests; When we define human being as REMM, we have to solve the fundamental issue: –How does REMM trust each other?

Page 14 The Value of Accounting Without trust, we could not have even a family, let alone a firm; REMMs have to find efficient ways to develop and maintain trust; –They know that they have to; –The problem is how;

Page 15 The Value of Accounting Historically, REMMs have created and experimented numerous ways; –Accounting is proven to be cost-effective; It is suitable to all kinds of firms, No matter of their size, No matter of the geographic locations; No matter of ownership;

Page 16 The Evolution of Accounting Now that accounting is connected with human nature and trusting issue, we may trace the history of accounting to the early days of human beings, or Primitive Society; –the Incas and Quipu;

Page 17 Sumer and CUNEIFORM Phoenician and ALPHABET

Page 18 The Evolution of Accounting Why do our ancestors invent Alphabet? –To build trusting via enhanced memory; –This is the right value of Accounting. Chronology of spelling by Steve Bett;Steve Bett –3200 BC Writing developed as an extension of the accounting system in Babylon; A British accounting scholar claimed: –Phoenician invented ALPHABET for the sake of accounting.

Page 19 The Evolution of Accounting The primitive stage of accounting; –A tool to help to maintain the trusts; –Alphabet, numeric and organizational control;

Page 20 The Evolution of Accounting The birth of double-entry bookkeeping; –A. C. Littleton on the birth of DEB; Another story –The Crusaders ( ); –Italian commodity economy, developed bank business; DEB: the symbol of accounting science;

Page 21 The Evolution of Accounting From Bookkeeping to Financial Accounting –Capital market: accounting information is widely circulated; –The most common users: outside of the reporting entity; –GAAP: the symbol of the conversion; Financial Accounting is also called External Accounting;

Page 22 The Evolution of Accounting Industrial revolution and modern mass manufacturing process; –Business profiting model is changed; Originally, buy low, sell high; Now, buy raw materials, manufacture into products and sell out; The determination of the cost of manufactured products is essential in profit determination; –Cost Accounting is “invented”;

Page 23 The Evolution of Accounting From cost accounting to management accounting; –More complicated business activities; –Dynamic and keep-changing environment; –Much larger business scale; Decision making: much more complicated; Management Accounting is “invented”;

Page 24 The Evolution of Accounting From commodity market to capital market; The developing of capital market raises two issues: –Effective ways to raise and allocate capital; –Trust crisis; We have Corporate Finance and Auditing subjects respectively.

Page 25 Accounting Firms FirmFirm Financial statements investors Financial Accounting Auditing F inance Managemen t Accounting Corporate Finance and Auditing

Page 26 The Evolution of Accounting Accounting will evolve with the development of economy and technology; –The invention of computer and its adoption into accounting practice; Reduces time, effort and cost of record-keeping; Improves clerical accuracy; Changes the way we store, process and summarize large masses of data;

Page 27 The Evolution of Accounting –Website and Internet; dissemination of accounting information: easy and no increment cost; –Internet based financial reporting system; Extensible Business Reporting Language (XBRL) was developed to provide users with an efficient and effective means of preparing and exchanging financial information over the Internet. Extensible Assurance Reporting Language (XARL) was designed to enable assurance providers to report on the integrity of information distributed over the Internet and help users and companies place warranted reliance on such information –Events accounting: may be re-introduced under internet environment;

Page 28 The Evolution of Accounting SOX and its impact on accounting; –Enron filed for bankruptcy protect in December 3, 2001; –WorldCom reported billions of false profit in June, 2002; –Sarbanes-Oxley Act of 2002 was signed by President Bush and became a law in June 30, 2002; –It mainly focuses on accounting;

Page 29 The Boundary of Accounting Accounting: a boundless discipline; What should accountants supposed to do? –For instance, the job description of CFO; –The job description of chief controller; –No definite definition; –No generally accepted principles;

Page 30 You may use knowledge freely as soon as you find the underlying regularity;

Page 31 Summary The nature of firm: contemporary interest coalition of REMM; REMMs have to find cost-effective ways to build trust; Accounting is proven cheap and reliable; Accounting is evolving with economy and technology, etc; –Four main branches: Financial accounting, management accounting, corporate finance and auditing; –Computer and internet: already changed accounting significantly;

Page 32 ATTENTION COMMERCE STUDENTS – ACCOUNTING(FINANCIAL & COST) OF – ICMAP STAGE 1,2,3,4 (NEW CLASSES) – CA..MODULE B,C,D – PIPFA (FOUNDATION,INTERMEDIATE,FINAL) – ACCA-F1,F2,F3,F8 & P7 – BBA,MBA – B.COM(FRESH),M.COM – MA-ECONOMICS..O/A LEVELS – KHALID AZIZ… – accountants/ – ACCOUNTING(FINANCIAL & COST) OF – ICMAP STAGE 1,2,3,4 (NEW CLASSES) – CA..MODULE B,C,D – PIPFA (FOUNDATION,INTERMEDIATE,FINAL) – ACCA-F1,F2,F3,F8 & P7 – BBA,MBA – B.COM(FRESH),M.COM – MA-ECONOMICS..O/A LEVELS – KHALID AZIZ… – accountants/