Chapter 1

INTRODUCTION
By Miss Saira Baloch
 History of Accounting
• Around 10,000 B.C accounting system
consisted stones to show wealth
• Around 7500 B.C Mesopotamians began using
clay tokens to represent goods, such as
animals, tools, food items or units of grain
• Around 4000 B.C the Sumerians began placing
these tokens in sealed clay envelopes
• Around 3000 B.C the Chinese developed the
abacus, a tool for counting and calculating
• French mathematician Luca Pacioli is often
called the Father of Accounting as he invented
double entry accounting system
 Accounting Defined
• “Accounting is an art of measuring ,
interpreting and communicating the results of
economic activities”
• It is a systematic process of identifying,
recording, measuring, classifying, verifying,
summarizing, interpreting and communicating
financial information
• Accounting is called the language of business
 Accounting Theory
• A set of assumptions and methodologies used in the study
of accounting.
• It involves review of accounting policies and procedures
and the changes in these procedures with the passage of
time
All theories have some conceptual framework provided by
Financial Accounting Standards Board
• It is a guide for effective accounting and financial reporting
• All financial statements should provide important
information that can be used to make informed business
decisions
 Characteristics of Accounting
Information
• Reliability: Should be prepared in a neutral way,
free from biasness
• Relevancy: Relevant to the needs of users
• Understandability: Easily understandable to
those who have knowledge of business and
economics activates
• Comparability: Should be
Comparable with similar
companies in same industry
 Types of Accounting
• Financial Accounting: Financial accounting involves
recording and classifying business transactions, and
preparing and presenting financial statements to be
used by internal and external users
• Managerial accounting: Managerial or management
accounting focuses on providing information for use
by internal users, the management.
• Cost accounting: It refers to the recording, presentation,
and analysis of manufacturing costs
• Tax accounting: It includes tax
planning by following the rules set
by tax authorities
 Financial Statements
These are the written reports that represent a
formal record of the financial activities of an
entity. There are following four types of financial
statements:
• Balance Sheet
• Income Statement/Profit & Loss Statement
• Statement of Owners Equity
• Statement of Cash Flow
• Why Study Accounting???
• Accounting as Career????
 Financial Statements
1. Balance Sheet: Also called statement of financial
position.
• It shows the financial position of a business at a
particular date
• It presents a company's assets, liabilities, and 
owners equity at a given point in time
2. Income Statement/Profit & Loss Statement: It
presents a company's income, expenses, and 
profits over a period of time. A profit and loss
statement provides information on the operation
of the enterprise
 Financial Statements cont…
3. Statement of Owner’s Equity: It presents the
changes in equity of the company during a
particular time period
4. Cash flow Statement: It presents a company's
cash flow activities, particularly its
operating, investing and financing activities over
a period of time.