Business Accounting

EMBA LECTURE 1
Objectives

 Understanding of Accounting concepts from practical view point

 How does accounting system works

 Interaction with other ERP modules

 Reporting based on financial data

Text and Reference books

 ACCA Study text Financial Accounting F3

 Accounting by Horngren, Harrison and Oliver

Purpose of Accounting System

 Record Financial events

 Manual Electronic/digital
 Required by law

 Summarizes and reports

 Financial reporting Statutory requirement
 Govt. agencies, SECP, Public, Investors, Banks, Economists
 Management reporting Performance mgmt./Decision making
 Management /BoD
 Lenders
Regulatory Frameworks

 How to record and report

 Internationally accredited standards ….IAS and IFRS
 Local Laws….corporate governance and reporting requirements

 Business Entities
 Sole trader, Partnerships, Company
 Legal aspect…….governed by local laws
 Liability
 Taxation
 Accounting aspects……..governed by IAS and IFRS
Key Underlying Accounting Concepts

 The Entity Concept

 Businesses are separate from owners

 The going concern assumption

 Entity will keep on operating for foreseeable future

 Materiality
 E.g. Asset Vs expenditure
Key Underlying Accounting Concepts

 Substance over form

 Factual position Vs legal status

 The accruals basis of accounting

 Period matching

 Prudence
 Avoid over/understatement

 Consistency
 E.g depreciation
Accounting Equation

 Assets = Liabilities

 Assets = Liabilities towards owners + Liabilities towards third party

 Assets = Equity + Liabilities towards third party

Debit and Credit, and Double Entry
Bookkeeping
 Debit……Increase in assets
 Credit……Increase in liabilities

Conversely
 Debit……Decrease in liabilities
 Credit……Decrease assets