1. Prepared By Md. Masukujjaman Lecturer Northern University Bangladesh
Second Semester Course Code: BBA Course Title: Principles Accounting
Prepared By
Md. Masukujjaman
Lecturer
Northern University Bangladesh

2. Text Book….. Accounting Principles, 7th Edition
Weygandt • Kieso • Kimmel

3. Fundamental Accounting Principles
Reference Book:
Fundamental Accounting Principles
17th Edition
Larson Wild Chiappetta

4. Accounting in Business
Chapter 1 1 1 1 1 1

5. CHAPTER 1 ACCOUNTING IN ACTION
After studying this chapter, you should be able to:
1 Explain what accounting is.
2 Identify users and uses of accounting.
3 Understand why ethics is a fundamental business concept.
4 Explain the meaning of generally accepted accounting principles and the cost principle.

6. CHAPTER 1 ACCOUNTING IN ACTION
After studying this chapter, you should be able to:
5 Explain the meaning of the monetary unit assumption and the economic entity assumption.
6 State the basic accounting equation and explain the meaning of assets, liabilities, and owner’s equity.
7 Analyze the effect of business transactions on the basic accounting equation.
8 Understand what the four financial statements are and how they are prepared.

7. Definition & Importance of Accounting
is a
system that
Accounting
Identifies
Records
information
that is
Relevant
Communicates
Reliable
to help users make better decisions.
Comparable

8. Accounting Activities
Identifying Business Activities
Recording Business Activities
Communicating Business Activities

9. Users of Accounting Information
External Users
Lenders
Shareholders
Governments
Consumer Groups
External Auditors
Customers
Internal Users
Managers
Officers
Internal Auditors
Sales Staff
Budget Officers
Controllers

10. Users of Accounting Information
External Users
Financial accounting provides external users with financial statements.
Internal Users
Managerial accounting provides information needs for internal decision makers.

11. QUESTIONS ASKED BY INTERNAL USERS
STUDY OBJECTIVE 2

12. QUESTIONS ASKED BY EXTERNAL USERS

13. What is the correct accounting process sequence ?
identification, communication, recording.
recording, communication, identification.
identification, recording, communication.
communication, recording, identification.

14. The accounting process is correctly sequenced as
identification, communication, recording.
recording, communication, identification.
identification, recording, communication.
communication, recording, identification.

15. Opportunities in Accounting
Financial
Preparation
Analysis
Auditing
Regulatory
Consulting
Planning
Criminal investigation
Managerial
General accounting
Cost accounting
Budgeting
Internal auditing
Consulting
Controller
Treasurer
Strategy
Taxation
Preparation
Planning
Regulatory
Investigations
Consulting
Enforcement
Legal services
Estate planning
Accounting-related
Lenders
Consultants
Analysts
Traders
Directors
Underwriters
Planners
Appraisers
FBI investigators
Market researchers
Systems designers
Merger services
Business valuation
Human services
Litigation support
Entrepreneurs

16. Accounting Jobs by Area
Auditing
Taxation
Management consulting
NGO’s, SEC

17. Ethics Ethics—A Key Concept Beliefs that distinguish right from wrong
Accepted standards of good and bad behavior

18. Guidelines for Ethical Decision Making
Make ethical decision
Identify ethical concerns
Analyze options
Use personal ethics to recognize ethical concern.
Consider all good and bad consequences.
Choose best option after weighing all consequences.

19. Generally Accepted Accounting Principles
Financial accounting practice is governed by concepts and rules known as generally accepted accounting principles (GAAP).
Relevant Information
Affects the decision of its users.
Reliable Information
Is trusted by users.
Comparable Information
Is helpful in contrasting organizations.

20. Setting Accounting Principles
Financial Accounting Standards Board is the private group that sets both broad and specific principles.
The Securities and Exchange Commission is the government group that establishes reporting requirements for companies that issue stock to the public.

21. Principles of Accounting
Objectivity Principle
Accounting information is supported by independent, unbiased evidence.
Cost Principle
Accounting information is based on actual cost.
Now
Future
Going-Concern Principle
Reflects assumption that the business will continue operating instead of being closed or sold.
It demands more than one person’s opinion/ verification

22. Principles of Accounting
Monetary Unit Principle
Express transactions and events in monetary, or money, units.
Money is a common denominator in Business.
Revenue Recognition Principle
Recognize revenue when it is earned.
Proceeds need not be in cash.
Measure revenue by cash received plus cash value of items received.
Business Entity Principle
A business is accounted for separately from other business entities, including its owner.

23. Business Entity Forms
Proprietorship
Partnership
Corporation

24. Characteristics of Businesses
Exh.
1.8
Characteristics of Businesses * *
* Proprietorships and partnerships that are set up as LLC’s provide limited liability.

25. Owners of a corporation are called shareholders (or stockholders).
When a corporation issues only one class of stock, we call it common stock (or capital stock).

26. = + Accounting Equation Liabilities Equity Assets Liabilities & Equity

27. Resources owned or controlled by a company
Assets
Cash
Accounts Receivable
Notes Receivable
Resources owned or controlled by a company
Vehicles
Land
Buildings
Store Supplies
Equipment

28. Creditors’ claims on assets
Liabilities
Accounts Payable
Notes Payable
Creditors’ claims on assets
Wages Payable
Taxes Payable

29. Equity Owner’s claims on assets Owner Investments Owner Withdrawals
Revenues
Expenses

30. Expanded Accounting Equation
Liabilities
Equity
Assets = +
Revenues
Expenses
Owner Capital
Owner Withdrawals _ +

31. DRAWINGS AS A BUILDING BLOCK
are withdrawals of cash or other assets by the owner for personal use
decrease owner’s equity

32. INCREASES AND DECREASES IN OWNER’S EQUITY
INCREASES DECREASES
Investments by Owner
Withdrawals by Owner
Owner’s Equity
Revenues
Expenses

33. Exchange of economic consideration between at least two parties.
Transaction Analysis
Exchange of economic consideration between at least two parties.
Economic consideration include products, services, money, rights to collect money (A/R,B/R)

34. TRANSACTION IDENTIFICATION PROCESS
STUDY OBJECTIVE 6

35. Transaction Analysis Equation
The accounting equation must remain in balance after each transaction.
Liabilities
Equity
Assets = +

36. J. Scott, the owner, contributed $20,000 cash to start the business.
Transaction Analysis
J. Scott, the owner, contributed $20,000 cash to start the business.
The accounts involved are:
(1) Cash (asset)
(2) J. Scott, Capital (equity) 21

37. J. Scott, the owner, contributed $20,000 cash to start the business.
Transaction Analysis
J. Scott, the owner, contributed $20,000 cash to start the business. 21

38. Purchased supplies paying $1,000 cash.
Transaction Analysis
Purchased supplies paying $1,000 cash.
The accounts involved are:
(1) Cash (asset)
(2) Supplies (asset) 25

39. Purchased supplies paying $1,000 cash.
Transaction Analysis
Purchased supplies paying $1,000 cash. 25

40. Purchased equipment for $15,000 cash.
Transaction Analysis
Purchased equipment for $15,000 cash.
The accounts involved are:
(1) Cash (asset)
(2) Equipment (asset) 29

41. Purchased equipment for $15,000 cash.
Transaction Analysis
Purchased equipment for $15,000 cash. 29

42. Purchased Supplies of $200 and Equipment of $1,000 on account.
Transaction Analysis
Purchased Supplies of $200 and Equipment of $1,000 on account.
The accounts involved are:
(1) Supplies (asset)
(2) Equipment (asset)
(3) Accounts Payable (liability) 30

43. Purchased Supplies of $200 and Equipment of $1,000 on account.
Transaction Analysis
Purchased Supplies of $200 and Equipment of $1,000 on account. 30

44. Borrowed $4,000 from 1st American Bank.
Transaction Analysis
Borrowed $4,000 from 1st American Bank.
The accounts involved are:
(1) Cash (asset)
(2) Notes payable (liability)

45. Borrowed $4,000 from 1st American Bank.
Transaction Analysis
Borrowed $4,000 from 1st American Bank.

46. Transaction Analysis
The balances so far appear below. Note that the Balance Sheet Equation is still in balance.
Now let’s look at transactions involving revenue, expenses and withdrawals. 32

47. Rendered consulting services receiving $3,000 cash.
Transaction Analysis
Rendered consulting services receiving $3,000 cash.
The accounts involved are:
(1) Cash (asset)
(2) Revenues (equity) 32

48. Rendered consulting services receiving $3,000 cash.
Transaction Analysis
Rendered consulting services receiving $3,000 cash. 32

49. Paid salaries of $800 to employees.
Transaction Analysis
The accounts involved are:
(1) Cash (asset)
(2) Salaries expense (equity)
Paid salaries of $800 to employees.
Remember that the balance in the salaries expense account actually increases.
But, equity actually decreases because expenses reduce equity.

50. Transaction Analysis Paid salaries of $800 to employees.
Remember that expenses decrease equity.

51. J. Scott withdrew $500 from the business for personal use.
Transaction Analysis
J. Scott withdrew $500 from the business for personal use.
The accounts involved are:
(1) Cash (asset)
(2) J. Scott, Withdrawals (equity)
Remember that the balance in the J. Scott, Withdrawals account actually increases.
But, equity actually decreases because withdrawals reduce equity.

52. Transaction Analysis
J. Scott withdrew $500 from the business for personal use.
Remember that withdrawals decrease equity.

53. Financial Statements
Let’s prepare the Financial Statements reflecting the transactions we have recorded.
Income Statement
Statement of Owner’s Equity
Balance Sheet
Statement of Cash Flows 34

54. Net income is the difference between Revenues and Expenses.
The income statement describes a company’s revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities.

55. The net income of $2,200 increases Scott’s capital by $2,200.
The Statement of Owner’s Equity explains changes in equity from net income (or net loss) and from owner investments and withdrawals for a period of time.

56. The Balance Sheet describes a company’s financial position at a point in time.

57. The Statement of Cash Flows identifies cash inflows and cash outflows over a period of time.

58. Net income ÷ Average total assets
Return on Assets (ROA)
Net income ÷ Average total assets
ROA is viewed as an indicator of operating efficiency.

59. End of Chapter 1