Professional Documents
Culture Documents
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❖ Course Name :
⚫ Financial and Managerial Accounting
❖ Course Instructor:
⚫ Tekabe Sinatyehu (Assistant Professor)
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Chapter Description
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Accounting from Users
Perspective
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Accounting from Users Perspective
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Cont…
⚫ Employees:
❑ to assess the ability of the entity to pay salary
(wage) and provide other benefits to its
employees.
❑ To assess the continuity of employment and
issues associated with the working environment.
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Cont…
⚫ Lenders:
❑ To assess the security for amounts lent to the
entity.
❑ To measure the vulnerability of the entity to
different risks.
⚫ Suppliers or trade creditors:
❑ To assess the continuity of supply.
❑ To assess the ability of the firm to pay for
supplies delivered on credit terms.
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Cont…
⚫ Public interest:
❑ Impact on local economy
❑ Environmental concerns.
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Definition of Accounting
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What is Accounting?
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Cont…
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Types of Business Entity
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Types of Business Entity
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Types of Accounting
Information
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Types of Accounting Information
Types of Accounting
Information
Managerial Accounting Financial Accounting
Information for decision Published financial
making, planning, and statements and other
controlling an organization’s financial reports.
operations.
Internal External
Users Users
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Cont…
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The company’s accountants
prepare both the financial and …and the information
the managerial accounting comes from the same
reports… information system.
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1
The Conceptual Framework for
Financial Reporting
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Cont…
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Conceptual Framework for
Financial Reporting
Third Level:
Second Level: Recognition,
Conceptual First Level:
Fundamental Measurement, &
Framework Basic Objective Disclosure
Concepts
Concepts
Need Qualitative Basic
Development characteristics assumptions
Overview Basic elements Basic principles
Cost Constraints
Summary of the
Structure
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Need for a Conceptual Framework
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Cont..
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Cont…
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Cont…
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Overview of the Conceptual Framework
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ASSUMPTIONS PRINCIPLES CONSTRAINTS
1. Economic entity 1. Measurement 1. Cost-benefit
2. Going concern 2. Revenue recognition
Third
3. Monetary unit 3. Expense recognition level: The
4. Periodicity 4. Full disclosure "how"—
5. Accruals implement
ation
QUALITATIVE
CHARACTERISTICS ELEMENTS
1. Fundamental 1. Assets
qualities 2. Liabilities
3. Equity Second level:
2. Enhancing 4. Income Bridge between
qualities 5. Expenses
levels 1 and 3
Illustration 1-6
Conceptual OBJECTIVE
Framework for Provide information
Financial about the reporting
entity that is useful
Reporting to present and potential First level: The
equity investors, "why"—purpose
lenders, and other
creditors in their of accounting
capacity as capital
Chapter providers.
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First Level: Basic Objective
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First Level: Basic Objective
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Second Level: Fundamental Concepts
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Second Level: Fundamental Concepts
Qualitative Characteristics
❑ “The IASB identified the Qualitative
Characteristics of accounting information that
distinguish better (more useful) information from
inferior (less useful) information for decision-
making purposes.”
❑ In addition, the IASB identified a cost constraint
as part of the Conceptual Framework.
❑ The characteristics may be viewed as a hierarchy.
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Second Level: Fundamental Concepts
Illustration 1-7
Hierarchy of
Accounting
Qualities
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Second Level: Fundamental Concepts
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Second Level: Fundamental Concepts
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Second Level: Fundamental Concepts
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Second Level: Fundamental Concepts
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Second Level: Elements
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Third Level: Recognition and Measurement
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Third Level: Assumptions
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Third Level: Principles
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Third Level: Principles
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Third Level: Constraints
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End of Chapter One !!
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