Accounting Principles (BUS 505)

Accounting Principles
(BUS 505)
1
Your Lecturer:
Professor Dr. Mohammad Azim

PhD in Accounting
Chartered Accountant (CA)
Certified Public Accountant (CPA)
Certified Management Accountant (CMA)
Contact Detail:
Room No: NAC 737
Email: mohammad.azim@northsouth.edu
Accounting Principles
Twelfth Edition
Weygandt ● Kimmel ● Kieso
Lecture 1
Chapter 1:
Accounting in Action
Class Outline
Learning Objectives
LO 1 Identify the activities and users associated with
accounting.
LO 2 Explain the building blocks of accounting: ethics,
principles, and assumptions.
LO 3 State the accounting equation, and define its
components.
LO 4 Analyze the effects of business transactions on the
accounting equation.
LO 5 Describe the four financial statements and how they
are prepared.
4
Accounting Activities and Users
LEARNING OBJECTIVE 1
Identify the activities and users associated with
accounting.
Accounting consists of three activities
1. Identification – Select economic events
(transactions)
2. Recording - Record, classify, and summarize
3. Communication
• Prepare accounting reports
• Analyze and interpret for users
LO 1 5
Who Uses Accounting Data (1 of 2)
Internal Users
• Finance - Is cash sufficient to pay dividends to
Bata Shoe Company stockholders?
• Marketing – What price should Navana CNG
Limited charge for an CNG conversion to maximize
net income?
• Human Resources – Can LankaBangla Finance Ltd
afford to give its employees pay raises?
• Management - Which Pran product line is most
profitable? Should any products be eliminated?
LO 1 6
Who Uses Accounting Data (2 of 2)
External Users
• Investors
Is British American Tobacco Bangladesh Company
o
Limited earning satisfactory income?
o How does City Bank compare in size and profitability
with Prime Bank?
• Creditors – Will Beximco Ltd be able to pay its
debts as they come due?
LO 1 7
The Building Blocks of Accounting
Explain the building blocks of accounting: ethics,
principles, and assumptions.
Ethics in Financial Reporting
• Financial scandals such as: Crescent Group (2019),
Hallmark- Sonali Bank Loan Scandal (2012), etc.
• Regulators and lawmakers concerned that
economy would suffer if investors lost confidence
in corporate accounting
• Effective financial reporting depends on sound
ethical behavior
LO 2 8
Big bank scams, slow actions
LO 2 9
Forms of Business Ownership
Proprietorship Partnership Corporation
• Owned by one • Owned by two or • Ownership
person more persons divided into
shares of stock
• Owner is often • Often retail and
manager/operator service-type • Separate legal
businesses entity
• Owner receives any organized
profits, suffers any • Generally under state
losses, and is unlimited personal corporation
personally liable for liability law
all debts • Partnership • Limited liability
agreement
LO 2 10
Global Accounting Practices
• Initially, many countries developed their
own accounting standards.
• All these standards were different from others in a way that
each had a different approach, such as tax-oriented, principle-
based, business-oriented, rules-based and more.
• However, with the globalization, the need was felt to unify all
different standards. After the 90’s, there were two dominant
standards – the GAAP and IFRS.
• Generally Accepted Accounting Principles (GAAP) and
International Financial Reporting System (IFRS) are the two
primary accounting frameworks in the world currently.
• Although similar in most areas, there are a few differences
between GAAP vs IFRS.
LO 2 11
GAAP vs IFRS – All You Need To Know
• GAAP is primarily in use in the United States and has a different set
of rules and regulations than IFRS.
• International Financial Reporting Standard, on the other hand, is
followed by over 110 countries and, thus, has a global appeal.
• Companies that expand internationally prefer to keep their books as
per IFRS. This makes it easier for the organization and
the stakeholders to understand and compare the financial
• statements.
A major difference between GAAP vs. IFRS is that the latter is
principle-based whereas GAAP is rule-based.
• The principle-based approach opens the window for different
interpretations of similar transactions. This gives the organizations
some leeway but requires extensive disclosure.
• IFRS, however, also has guidelines that can be considered more like a
set of rules rather than a set of principles.
LO 2 12
Accounting and Accounting Rules in Bangladesh
Tax Year From 1 July to 30 June
Accounting Standards The main source of accounting principles is the series of

approved accounting standards (known as BFRS/BAS) issued by the Institute of Chartered
Accountants of Bangladesh (ICAB). Most of these standards are based on international accounting
standards IFRS and IAS.
Accounting Regulation Bodies Securities and Exchange Commission of Bangladesh
Accounting Reports The financial statements consist of a balance sheet, an income

statement (profit and loss) and cash flows. Accounts should be accompanied by an Auditer's
reports and Director's report.
Publication Requirements Financial statements must be prepared annually. Companies with

shares listed on the stock exchanges in Dhaka or Chittagong must comply with additional
requirements Government may ask for, via notification in the Official Gazette..
The
Professional Accountancy Bodies Institute of Chartered Accountants of Bangladesh (ICAB)
Institute of Cost and Management Accountants of Bangladesh (ICMAB)
Certification and Auditing Only members of the Institute of Chartered Accountants of Bangladesh
(ICAB) can apply for an audit license, which allows them to audit companies.
LO 2 13
The Institute of Chartered Accountants of Bangladesh (ICAB)
• Established under the Bangladesh Chartered Accountants Order,

1973 (President's Order No. 2 of 1973).
• The total number of Members of the Institute is 1544 as of 01 July

2017 of whom 1432 are residing in Bangladesh and 112 in abroad.
• There are 1035 Fellows and 509 Associates enrolled with the
Institute.
• Out of 1544 members, 370 are practicing as public accountants
and the rest are either serving in various key positions in public
and private organizations, both at home and abroad, and self
employed running their own business.
• 14
ICAB web link: https://www.icab.org.bd/icabweb/
The Institute of Cost and Management Accountants of Bangladesh (ICMAB)
• ICMAB is a statutory organization constituted by the Government

under the Cost and Management Accountants Ordinance 1977
(Ordinance No Llll of 1977) and regulated under the Cost and
Management Accountants Regulations 1980 (as amended up-to
date).
• Membership and Firms Statistics (As on July 01, 2017)

• Total Membership ...........................................................1271
• Fellow Members ............................................................ 854
• Associate Members ....................................................... 417
• Members in practice.......................................................173
• Practicing Firms.............................................................145
• 15
ICAB web link: http://www.icmab.org.bd/
• The largest international firms are known as the 'Big Four':
– PricewaterhouseCoopers (PwC) - Revenue $41.3 bn
– EY - Revenue $34.8 bn
– KPMG - Revenue $29.0 bn
– Deloitte – Revenue $43.2 bn
In Bangladesh, who represent what !
– PricewaterhouseCoopers (PwC) – PwC Private Limited

– EY - A.Qasem & Co.
– KPMG - Rahman Rahman Huq & Co.
– Deloitte – NUFHAS
16
The Accounting Equation
State the accounting equation, and define its
components.
Basic Accounting Equation

• Provides underlying framework for recording and
summarizing economic events
• Assets are claimed by either creditors or owners
• If a business is liquidated, claims of creditors must
be paid before ownership claims
LO 3 17
The Accounting Equation (1 of 5)
Assets
• Resources a business owns
• Provide future services or benefits
• Cash, Supplies, Equipment, etc.
LO 3 18
Liabilities
• Claims against assets (debts and obligations)
• Creditors (party to whom money is owed)
• Accounts Payable, Notes Payable, Salaries and
Wages Payable, etc.
LO 3 19
Owner’s Equity
• Ownership claim on total assets
• Referred to as residual equity
• Investment by owners and revenues (+)
• Drawings and expenses (−)
LO 3 20
Increase in Owner’s Equity

• Investment by Owner. Assets the owner puts into
the business
• Revenues. Increases in assets or decreases in
liabilities resulting from sale of goods or
performance of services in normal course of
business
LO 3 21
Decrease in Owner’s Equity

• Drawings. A withdraw of cash or other
assets for personal use
• Expenses. Cost of assets consumed or
services used in the process of earning
revenue
LO 3 22
Do It! : Owner’s Equity Effects
Classify the following items as investment by owner, owner’s
drawings, revenues, or expenses. Then indicate whether each
item increases or decreases owner’s equity.
Effect
Classification
on Equity
1. Rent Expense
2. Service Revenue
3. Drawings
4. Salaries and Wages
Expense
LO 3 23
Do It! : Owner’s Equity Effects
Classify the following items as investment by owner, owner’s
drawings, revenues, or expenses. Then indicate whether each
item increases or decreases owner’s equity.
Effect
Classification
on Equity
1. Rent Expense Expense Decrease
2. Service Revenue Revenue Increase
Owner’s
3. Drawings Decrease
Drawings
4. Salaries and Wages
Expense Decrease
Expense
LO 3 24
Analyzing Business Transactions
Analyze the effects of business transactions on the
accounting equation.
Transactions are a business’s economic events recorded
by accountants.
• May be external or internal
• Not all activities represent transactions
• Have a dual effect on the accounting equation
LO 4 25
Analyzing Business Transactions
Illustration: Are the following events recorded in
the accounting records?
LO 4 26
Transaction Analysis (1 of 10)
Transaction 1. Ray Neal decides to start a smartphone app development company
which he names Softbyte. On September 1, 2020, he invests $15,000 cash in the
business. This transaction results in an equal increase in assets and owner’s equity.
LO 4 27
Transaction 2. Softbyte purchases computer equipment for $7,000
cash.
LO 4 28
Transaction 3. Softbyte Inc. purchases for $1,600 headsets and other accessories
expected to last several months. The supplier allows Softbyte to pay this bill in
October.
LO 4 29
Transaction 4. Softbyte receives $1,200 cash from customers for app development
services it has performed.
LO 4 30
Transaction 5. Softbyte Inc. receives a bill for $250 from the Daily News for
advertising on its online website but postpones payment until a later date.
LO 4 31
Transaction 6. Softbyte performs $3,500 of services. The company receives cash
of $1,500 from customers, and it bills the balance of $2,000 on account.
LO 4 32
Transaction 7. Softbyte pays the following expenses in cash for September: office
rent $600, salaries and wages of employees $900, and utilities $200.
LO 4 33
Transaction 8. Softbyte pays its $250 Daily News bill in cash. The company
previously (in Transaction 5) recorded the bill as an increase in Accounts
Payable.
LO 4 34
Transaction 9. Softbyte receives $600 in cash from customers who had been billed
for services (in Transaction 6).
LO 4 35
Transaction 10. Ray Neal withdraws $1,300 in cash in cash from the business for
his personal use.
LO 4 36
Transaction Analysis
Together: Transaction 1 - Transaction 10
LO 4 37
Summary of Transactions
1. Each transaction analyzed in terms of effect
on:
a. Three components of basic accounting
equation
• Assets
• Liabilities
• Owner’s equity
b. Specific types of items, such as Cash
2. Two sides of equation must always be
equal
LO 4 38
Do It! 1: Tabular Analysis (1 of 6)
Transactions made by Virmari & Co., a public accounting firm,
for the month of August are shown below. Prepare a tabular
analysis which shows the effects of these transactions on the
expanded accounting equation, similar to that shown in
Illustration 1.8.
1. The owner invested $25,000 cash in the business.
2. The company purchased $7,000 of office equipment on
credit.
3. The company received $8,000 cash in exchange for
services performed.
4. The company paid $850 for this month’s rent.
5. The owner withdrew $1,000 cash for personal use.
LO 4 39
Transaction 1. The owner invested $25,000 cash in the
business.
LO 4 40
Transaction 2. The company purchased $7,000 of office
equipment on credit.
LO 4 41
Transaction 3. The company received $8,000 cash in exchange
for services performed.
LO 4 42
Transaction 4. The company paid $850 for this month’s rent.
LO 4 43
Transaction 5. The owner withdrew $1,000 cash for personal use.
LO 4 44
LO 4 45
The Four Financial Statements
Describe the four financial statements and how they
are prepared.
LO 5 46
Income Statement
• Reports revenues and expenses for a specific
period of time
• Lists revenues first, followed by expenses
• Shows net income (or net loss)
• Does not include investment and withdrawal
transactions between owner and business in
measuring net income
LO 5 47
Owner’s Equity Statement
• Reports changes in owner’s equity for a specific
period of time
• Time period is the same as that covered by the
income statement
LO 5 48
Balance Sheet
• Reports assets, liabilities, and owner’s equity at a
specific date
• Lists assets at top, followed by liabilities and
owner’s equity
• Total assets must equal total liabilities and owner's
equity
• Snapshot of company’s financial condition at a
specific moment in time (usually month-end or
year-end)
LO 5 49
Statement of Cash Flows
• Information on cash receipts and
payments for a specific period of time
• Answers the following:
o Where did cash come from?
o What was cash used for?
o What was change in cash balance?
LO 5 50
Financial Statements (1 of 3)
Softbyte statements
for the Month Ended
September 30, 2020
LO 5 51
Softbyte statements
for the Month Ended
September 30, 2020
LO 5 52
Softbyte statements
for the Month Ended
September 30, 2020
LO 5 53
Class Quiz: Financial Statements
Which of the following financial statements is
prepared as of a specific date?
a. Balance sheet
b. Income statement
c. Owner’s equity statement
d. Statement of cash flows
LO 5 54
Answer: Class Quiz
Which of the following financial statements is
prepared as of a specific date?
a. Answer: Balance sheet
b. Income statement
c. Owner’s equity statement
d. Statement of cash flows
LO 5 55
Class Quiz: Financial Statements
Net income will result during a time period when:
a. assets exceed liabilities.
b. assets exceed revenues.
c. expenses exceed revenues.
d. revenues exceed expenses.
LO 5 56
Answer: Class Quiz
Net income will result during a time period when:
a. assets exceed liabilities.
b. assets exceed revenues.
c. expenses exceed revenues.
d. Answer: revenues exceed expenses.
LO 5 57
Do It! 2: Financial Statement Items (1 of 4)
Presented below is selected information related to Flanagan
Company at December 31, 2020. Flanagan reports financial
information monthly. 10,000 Utilities Expense
Equipment 4,000
Cash 8,000 Accounts Receivable 9,000
Service Revenue 36,000 Salaries and Wages Expense 7,000
Rent Expense 11,000 Notes Payable 16,500
Accounts Payable 2,000 Owner’s Drawings 5,000
a. Determine the total assets of at December 31, 2020.

b. Determine the net income reported for December
2020.
c. Determine the owner’s equity at December 31, 2020.
LO 5 58
Equipment 4,000
a. Determine the total assets of at December 31,
2020.
Cash $ 8,
Accounts 000
9,
receivable
Equipmen 000
10,
tTotal $ 000
27, 000
assets
LO 5 59
Equipment 4,000

2020.
LO 5 60
Equipment 4,000
2020. Service $36,000
revenue
Less: Rent expense 11,000
Less: Salaries and wages 7,
expense
Less: Utilities expense 000
4,
Net $ 1000
4, 000
LO 5 income
61
Equipment 4,000

2020.
LO 5 62
Equipment 4,000
c. Determine the owner’s equity at December 31,
2020. Total $27,
assetsNotes payable
Less: 000
16,500
Less: Accounts 2,
payable
Owner’s 000
$ 8 , 500
equity
LO 5 63
Class Quiz: Basic Concepts (1 of 2)
Indicate whether each of the statements is true or false.
1. The three steps in the accounting process are
identification, recording, and communication.
2. Bookkeeping encompasses all steps in the accounting
process.
3. Accountants prepare, but do not interpret, financial reports.
4. The two most common types of external users are
investors and company officers.
5. Managerial accounting focuses on reports for internal
users.1.
Solution: 2. 3. 4. 5.
LO 1 64
Answer: Class Quiz (Basic Concepts)
Indicate whether each of the statements is true or false.
1. The three steps in the accounting process are
identification, recording, and communication.
2. Bookkeeping encompasses all steps in the accounting
process.
3. Accountants prepare, but do not interpret, financial reports.
4. The two most common types of external users are
investors and company officers.
5. Managerial accounting focuses on reports for internal
users.1.
Solution: 2. 3. 4. 5. True
True False False False
LO 1 65
Do It! 3: Tabular Analysis

Accounting Principles (BUS 505)

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Accounting Principles (BUS 505)

Uploaded by

Copyright:

Available Formats

Accounting Principles

Professor Dr. Mohammad Azim

Tax Year From 1 July to 30 June

Accounting Standards The main source of accounting principles is the series of

Accounting Regulation Bodies Securities and Exchange Commission of Bangladesh

Accounting Reports The ﬁnancial statements consist of a balance sheet, an income

Publication Requirements Financial statements must be prepared annually. Companies with

• Established under the Bangladesh Chartered Accountants Order,

• The total number of Members of the Institute is 1544 as of 01 July

• ICMAB is a statutory organization constituted by the Government

• Membership and Firms Statistics (As on July 01, 2017)

In Bangladesh, who represent what !

– PricewaterhouseCoopers (PwC) – PwC Private Limited

Basic Accounting Equation

Increase in Owner’s Equity

Decrease in Owner’s Equity

a. Determine the total assets of at December 31, 2020.

a. Determine the total assets of at December 31, 2020.

a. Determine the total assets of at December 31, 2020.

You might also like