Principles

of
Accounting

Md. Sohel Rana

Assistant Professor
Dept. of Accounting & Information Systems
Jahangirnagar University
2
Do we really need
Accounting???

Why?????
 Accounting...

is the language of business.

 Accounting as an Aid to
Decision Making
• Accounting helps in decision making by showing
where and when money has been spent, by
evaluating performance, and by showing the
implications of choosing one plan instead of
another.
• Fundamental relationships in the decision-making
process:
Accountant’s
Financial
Event analysis and Users
statements
recording
Users of Accounting Information

• investors
Accounting • creditors
EXTERNAL USERS • regulators
• customers
• competitors
Users of Accounting Information

• Owners
Accounting
• Managers
INTERNAL USERS
• Employees
• Human
Resource
• Finance
• Marketing
 Users of Accounting Information
Common Questions Asked User

1. Can we afford to give our

Human Resources
employees a pay raise?
2. Did the company earn a
Investors
satisfactory income?
3. Do we need to borrow in the
Management
near future?
4. Is cash sufficient to pay
Finance
dividends to the stockholders?
5. What price for our product will
Marketing
maximize net income?
6. Will the company be able to
Creditors
pay its short-term debts?
Users of Accounting Information
Users of Accounting Information

External users
Internal users
make decisions
make decisions
about the
for the entity.
entity.
What is Accounting?

Accounting is the information system that...

measures business activities,

processes data into reports, and

communicates results to decision makers.

Accounting — An Information
System
Identification
of Users
Accounting — An Information System

Identification
of Users

User
Information
Needs
Accounting — An Information System

Identification
of Users

User
Information
Needs

Accounting
System
 Accounting — An Information System

Identification
of Users

User
Information
Needs

Economic Data Accounting

and Activities System
Accounting — An Information System

Identification
of Users

User
Information
Needs

Economic Data Accounting

and Activities System

Reports
 Accounting — An Information
System
Identification
of Users

User
Information
Needs

Economic Data Accounting

and Activities System

User
Reports
Decisions
 The Flow of Accounting
Information
1. Business transactions
occur

2. Businesses prepare reports to

Show the results of their operations

3. People make decisions.

What is Accounting?
Illustration 1-1
Three Activities Accounting process

The accounting process includes

the bookkeeping function.
 Bookkeeping Vs Accounting
Basis Bookkeeping Accounting
Transactions Recording in the books of Examining these recorded
original entry transactions for accuracy

Posting Posting in ledger Examining these postings for

accuracy

Total and Balance Total of the Journal & Ledger, Preparing Trial Balance with the
Balance of all the accounts help of the ending balances of all
maintained. accounts

Income Statement Not included in its Included in its encompassment

and Balance Sheet encompassment

Rectification of Not included Included

errors
Special skill and Not required, this system is Special skill and knowledge is a
knowledge now automated. must.

Liability Bookkeeper is not liable for Accountant is liable for the work of
accountancy work. the bookkeeper.
 Debit and Credit

Finance Vs Accounting