ACCOUNTING IN ACTION

brought to you by

Md. Shafiqul Alam LL.B, ACS, FCMA, FCA

Principal and CEO
Shafiqul Alam & Co., Chartered accountants
Council Member
Institute of Chartered Secretaries of Bangladesh (ICSB)
ad.cdc@daffodilvarsity.edu.bd
 history of accounting

“Accountants record transaction”

The core part of the word “Accounting is Count”.

Accountants usually record, classified, summarized, reconcile &
analyze data .

Above rolls started a long time ago & has evolve our development of
society & technology.
 history of accounting

Five major Era’s of development in history of accounting .

They Are:

 The Ancients
 The Merchants
 The Traders
 The Industrialists
 The Techies
 history of accounting
The Ancients:

Accounting record found in Mesopotamia, Assyria, Phoenicia & Egypt. The main view
was to record corps & herds .

About 10 thousand years ago human being gather transaction from the hunter stage to
agriculture.

When we moved to an agricultural

society, hierarchy structure were
introduced and the need for an
accounting & control cycle including
auditing system was born.
 history of accounting

The Merchants:

When merchants depends on book keeping to overseas multiple simultaneous

transaction which finance by bank loan. Luca-Pacioli was the author of the book of
mathematics. It is printed & published in Venice in 1494 which include 27 section of
book keeping.
This is seen as the first known publish
work of the topic of accounting.
It’s including description of double entry,
concepts that are use on to this very day.
Virtually did not necessarily invent
modern accounting but summarized,
formularized and help spread the
accounting practices in use Italy & around
the medetorian.
 history of accounting

The Traders:

Republic to The Netherlands around the year 1600 Dutch were actively trading goods
around the world.

East India Company became the first

company in the history to issue bonds,
share & stock to general public. On other
words, East India Company is officially
first company who publicly traded.
 history of accounting
The Industrialists:

In 1700 industrial revelation starts in Britain.

Steam engine is an important symbol for

the technical development around the
time. As machine is to de central roll in
manufacturing and labor was largely seen
as expandable.

Machine became the asset in the balance

sheet and people/labor cost expense in
the income statement.
 history of accounting

The Techies:

Invention of computer into the second half of 20th century , shaking up and
revolutionizing society to this very day. Parts of the transaction processing cannot be
fully automated . And new ways of building organization emerge.
Accounting framework i.e. GAAP & IFRS
continued to evolved . Adapting to
change the world around us. People
working the accounting profession are
count, record ,classified summarize and
analyze.
FRC:
• IFRS (IFRS-16+ IAS-24)

• IFRS for SME (35)

• IPSAS (International Public Sector

Accounting Standards)
 history of accounting

Communication
Identification Recording

Prepare
accounting reports

Select economic events Record, classify, BIZZ SOLUTIONS

(transactions) and summarize

Analyse and interpret

for users
 The accounting profession

Public Accountants
Individuals in public accounting offer expert service to the
general public, in much the same way that doctors serve
patients and lawyers serve clients. A major portion of public
accounting involves auditing.

Private Accountants
Instead of working in public accounting, you might choose
to be an employee of a for-profit company such as
Starbucks, Google, or PepsiCo.
 The accounting profession

Forensic Accounting
Forensic accounting uses accounting, auditing, and
investigative skills to conduct investigations into theft and
fraud

Not For Profit Accountants

Reporting and control for government units, foundations,
hospitals, hospitals, labor unions, colleges/ Universities,
and charities.
 Why is it important for salespeople to understand
financial results?

 Having financial knowledge will impress your clients.

 The “why” of your sales pitch will be more persuasive.
 You will gain an Advantage over your competitors.
 You are more likely to advance quickly in your career.
 Understanding client financial triggers will make you more
empathetic to a customer’s decision making process.
 You will be better equipped to run your own company.
The accounting process
 QUESTIONS ASKED BY INTERNAL USERS

What is the cost of manufacturing

Is cash sufficient to pay bills? each unit of product?

Can we afford to give employees Which product line is the most

pay raises this year? profitable?
 QUESTIONS
QUESTIONSASKED BYBY
ASKED EXTERNAL USERS
external USERS

How does the company compare in

Is the company earning
size and profitability with its
satisfactory income?
competitors?

What do we
do if they
catch us?

Will the company be able to pay its debts as they come due?
 ETHICS

Ethics
 Standards of conduct

To Solve 1. Recognize
2. Identify and
3. Identify
situation and alternatives and
Ethical ethical issues
analyse
weigh effects
elements
problem involved on stakeholders
 GAAP

Generally Accepted Accounting Principles

Primarily established by the Canadian Institute of Chartered Accountants

Cost Principle

The cost principle indicates that assets are recorded at their cost.

Cost is the value exchanged at the time something is acquired.

Cost is used because it is both relevant and reliable.

 GAAP

1. Going Concern - assumes organization will continue into

foreseeable future.

2. Monetary Unit - only transaction data that can be expressed in

terms of money is included in the accounting records.

3. Economic Entity - includes any organization or unit in society.

 GAAP

A business owned by one person is generally a

proprietorship

A business owned by two or more persons associated

as partners is a partnership

A business organized as a separate legal entity under

corporation law and having ownership divided into
transferable shares is called a company
 The Basic Accounting Equation

Assets = Liabilities + Owner’s Equity

Expanded accounting equation
 ASSETS AS A BUILDING BLOCK

They are things of value

Assets are resources used in carrying out such
owned by a business. activities as production
and exchange.
 LIABILITIES AS A BUILDING BLOCK

They are existing

Liabilities are claims
debts and
against assets.
obligations.
OWNER’S EQUITY AS A BUILDING BLOCK

Subdivisions of Owner’s Equity:

• Capital
• Drawings
• Revenues
• Expenses
INVESTMENTS BY OWNERS AS A BUILDING BLOCK

 Investments by owner are the assets put into the business

by the owner.
 These investments in the business increase owner’s equity.
 DRAWINGS

 Drawings are withdrawals of cash or other assets by the

owner for personal use.
 Drawings decrease total owner’s equity.
 REVENUES AS A BUILDING BLOCK

• Revenues are the gross increases in owner’s equity

resulting from business activities entered into for the
purpose of earning income.

• Revenues may result from sale of merchandise,

performance of services, rental of property, or lending of
money.

• Revenues usually result in an increase in an asset.

 EXPENSES AS A BUILDING BLOCK

• Expenses are the decreases in owner’s equity that result

from operating the business.

• Expenses are the cost of assets consumed or services used

in the process of earning revenue.

• Examples of expenses include utility expense, rent

expense, and supplies expense.
INCREASES AND DECREASES IN OWNER’S EQUITY

INCREASES DECREASES

Investments Withdrawals
Investments Withdrawalsby
by
by
byOwner
Owner Owner
Owner
Owner’s
Equity
Revenues
Revenues Expenses
Expenses
Transactions identification process
 economic entity assumption

An economic entity may be a company, a governmental

unit, a school district. The economic entity assumption
requires that the activities of the entity be kept separate
and district from the activities of its owner and all other
economic entities
 monetary unit assumption

The Monetary unit assumption requires that companies

include in the accounting records only transaction data that
can be expressed in money terms. This assumption enables
accounting to quantify economic events. The monetary unit
assumption is vital to applying the historical cost principle. This
prevents the inclusion of some relevant information in the
accounting records.
 Bookkeeping and accounting

The accounting process includes the bookkeeping function.

Bookkeeping usually involves only the recordings of economic
events. It is therefore just one part of the accounting process.
In total, accounting involves that entire process of identifying,
recording, and communicating economic events
 TRANSACTION ANALYSIS

Mr. Khan decides to open a computer programming

service.

BANK

Bizz Solutions
 TRANSACTION ANALYSIS-1

On September 1, he invests BDT 150,000 cash in the business,

which he names Bizz Solutions

Trans. # Assets = Liabilities + Owner's Equity

Accounts Mr. Khan,
Cash Supplies Equipment Payable Capital
(1) 150,000 = 150,000 Investment

There
There isis an
an increase
increase in in the
the asset
asset Cash,
Cash, BDT
BDT 150,000,
150,000, and
and
an
an equal
equal increase
increase in
in the
the owner’s
owner’s equity,
equity, Mr.
Mr. Khan,
Khan, Capital,
Capital,
BDT
BDT 150,000.
150,000.
 TRANSACTION ANALYSIS-2

Bizz Solutions purchases computer equipment for BDT

70,000 cash.

Trans. # Assets = Liabilities + Owner's Equity

Accounts Mr. Khan,
Cash Supplies Equipment Payable Capital
150,000 150,000 Investment
(2) (70,000) 70,000
Balance 80,000 + 70,000 = 150,000

Cash
Cash isis decreased
decreased BDT
BDT 70,000,
70,000, and
and the
the asset
asset
Equipment
Equipment isis increased
increased BDT
BDT 70,000.
70,000.
 TRANSACTION ANALYSIS-3
Bizz Solutions purchases computer paper and supplies expected to
last several months from Star Tech Technology for BDT 16,000 on
account.
Trans. # Assets = Liabilities + Owner's Equity
Accounts Mr. Khan,
Cash Supplies Equipment Payable Capital
Balance 80,000 70,000 150,000
(3) 16,000 16,000
Balance 80,000 + 16,000 + 70,000 = 16,000 + 150,000

The
The asset
asset Supplies
Supplies isis increased
increased BDT
BDT 16,000
16,000 and
and the
the
liability
liability Accounts
Accounts Payable
Payable isis increased
increased by
by the
the same
same
amount.
amount.
 TRANSACTION ANALYSIS-4

Bizz Solutions receives BDT 12,000 cash from customers for

programming services it has provided.

Trans. # Assets = Liabilities + Owner's Equity

Accounts Mr. Khan,
Cash Supplies Equipment Payable Capital
Balance 80,000 16,000 70,000 16,000 150,000
(4) 12,000 12,000 Service Revenue
Balance 92,000 + 16,000 + 70,000 = 16,000 + 162,000

Cash
Cash isis increased
increased BDT
BDT 12,000,
12,000, and
and
Mr.
Mr. Khan,
Khan, Capital
Capital isis increased
increased BDT
BDT 12,000.
12,000.
 TRANSACTION ANALYSIS-5
Bizz Solutions receives a bill for BDT 2,500 for advertising its
business but pays the bill on a later date.

Trans. # Assets = Liabilities + Owner's Equity

Accounts Mr. Khan,
Cash Supplies Equipment Payable Capital
Balance 92,000 + 16,000 + 70,000 = 16,000 + 162,000
(5) 2,500 (2,500) Advertising Expense
Balance 92,000 16,000 70,000 18,500 159,500

Accounts
Accounts Payable
Payable isis increased
increased BDT
BDT 2,500,
2,500, and
and Mr.
Mr.
Khan,
Khan, Capital
Capital isis decreased
decreased BDT
BDT 2,500.
2,500.
 TRANSACTION ANALYSIS-6
Bizz Solutions provides programming services of BDT 35,000
for customers and receives cash of BDT 15,000, with the
balance payable on account.
Trans. # Assets = Liabilities + Owner's Equity
Account Accounts Mr. Khan,
Cash Receivable Supplies Equipment Payable Capital
Balance 92,000 + 0 + 16,000 + 70,000 = 18,500 159,500
(6) 15,000 20,000 35,000 Service Revenue
Balance 107,000 20,000 16,000 70,000 18,500 194,500

Cash
Cashisisincreased
increasedBDT
BDT15,000;
15,000;Accounts
AccountsReceivable
Receivableisis
increased
increased$20,000;
$20,000;and
andMr.
Mr.Khan,
Khan,Capital
Capitalisisincreased
increased
$35,000.
$35,000.
 TRANSACTION ANALYSIS-7
Expenses paid in cash for September are store rent, BDT 6,000,
salaries of employees, BDT 9,000, and utilities, BDT 2,000.

Trans. # Assets = Liabilities + Owner's Equity

Account Accounts Mr. Khan,
Cash Receivable Supplies Equipment Payable Capital
Balance 107,000 20,000 16,000 70,000 18,500 194,500
(7) (6,000) (6,000) Rent Exp.
(9,000) (9,000) Salaries Exp.
(2,000) (2,000) Utilities Exp.
Balance 90,000 + 20,000 + 16,000 + 70,000 = 18,500 + 177,500

Cash
Cashisisdecreased
decreased$17,000
$17,000and
andMr.
Mr.Khan,
Khan,
Capital
Capitalisisdecreased
decreasedthe
thesame
sameamount.
amount.
 TRANSACTION ANALYSIS-8

Bizz Solutions pays its advertising bill of BDT 2,500 in cash.

Trans. # Assets = Liabilities + Owner's Equity

Account Accounts Mr. Khan,
Cash Receivable Supplies Equipment Payable Capital
Balance 90,000 20,000 16,000 70,000 18,500 177,500
(8) (2,500) (2,500)
Balance 87,500 + 20,000 + 16,000 + 70,000 = 16,000 + 177,500

Cash
Cashisisdecreased
decreasedBDT
BDT2,500
2,500and
andAccounts
Accounts
Payable
Payableisisdecreased
decreasedthe
thesame
sameamount.
amount.
 TRANSACTION ANALYSIS-9

The sum of BDT 6,000 in cash is received from customers who

have previously been billed for services in Transaction 6.

Trans. # Assets = Liabilities + Owner's Equity

Account Accounts Mr. Khan,
Cash Receivable Supplies Equipment Payable Capital
Balance 87,500 20,000 16,000 70,000 16,000 177,500
(9) 6,000 (6,000)
Balance 93,500 + 14,000 + 16,000 + 70,000 = 16,000 + 177,500

Cash
Cashisisincreased
increasedBDT
BDT6,000
6,000and
andAccounts
Accounts
Receivable
Receivableisisdecreased
decreasedby
bythe
thesame
sameamount.
amount.
 TRANSACTION ANALYSIS-10

Mr. Khan withdraws BDT 13,000 in cash from the business

for his personal use.

Trans. # Assets = Liabilities + Owner's Equity

Account Accounts Mr. Khan,
Cash Receivable Supplies Equipment Payable Capital
Balance 93,500 14,000 16,000 70,000 16,000 177,500
(10) (13,000) (13,000) Doucet, Drawings
Balance 80,500 + 14,000 + 16,000 + 70,000 = 16,000 + 164,500

Cash
Cashisisdecreased
decreasedBDT
BDT13,000
13,000and
andMr.
Mr.Khan,
Khan,
Capital
Capitalisisdecreased
decreasedby
bythe
thesame
sameamount.
amount.
 FINANCIAL STATEMENTS

After transactions are identified, recorded, and summarized, four

financial statements are prepared from the summarized accounting
data:

1. An income statement presents the revenues

and expenses and resulting net income or net
loss of a company for a specific period of time.

2. A statement of owner’s equity summarizes the

changes in owner’s equity for a specific period of time.
 FINANCIAL STATEMENTS

In addition to the income statement and statement of owner’s equity,

two additional statements are prepared:
3. A balance sheet reports the assets, liabilities, and owner’s
equity of a business enterprise at a specific date.
4. A cash flow statement summarizes information concerning
the cash inflows (receipts) and outflows (payments) for a specific period
of time.
***The notes are an integral part of the financial statements.***
 ILLUSTRATION 1-10
FINANCIAL STATEMENTS AND THEIR INTERRELATIONSHIPS

Bizz Solutions
Statement of Profit or Loss and other comprehensive Income
For the Month Ended June 30, 2018
Revenues
Service revenue BDT 47,000.00
Expenses
Salaries expense BDT 9,000
Rent expense 6,000
Advertising expense 2,500
Utilities expense 2,000
Total expenses 19,500
Net income BDT 27,500

Net income of BDT 27,500 shown on the income statement is added to the
beginning balance of owner’s capital in the statement of owner’s equity .
 ILLUSTRATION 1-10
FINANCIAL STATEMENTS AND THEIR INTERRELATIONSHIPS
Bizz Solutions
Statement of Owner's Equity
For the Month Ended June 30, 2018

M. Doucet, Capital, September 1 BDT 0.00

Add: Investments BDT 150,000
Net income 27,500 177,500
BDT 177,500
Less: Drawings 13,000
M. Doucet, Capital September 30 BDT 164,500

Net income of BDT 27,500 is carried forward from the income statement to the
statement of owner’s equity. The owner’s capital of BDT 164,500 at the end of the
reporting period is shown as the final total of the owner’s equity column of the
Summary of Transactions (Illustration 1-9 in text).
 ILLUSTRATION 1-10
FINANCIAL STATEMENTS AND THEIR INTERRELATIONSHIPS
Bizz Solutions
Statement of Financial Posotion
June 30, 2018
Assets Owner’s capital of
Cash BDT 80,500 BDT 16,450 at the
Accounts receivable 14,000 end of the reporting
Supplies 16,000 period – shown in the
Equipment 70,000 statement of owner’s
Total assets BDT 180,500 equity – is also
shown on the balance
Liabilities and Owner's Equity sheet. Cash of BDT
Liabilities 8,050 on the balance
Accounts payable BDT 16,000 sheet is reported on
the cash flow
Owner's Equity
statement.
M. Doucet, Capital 164,500
Total liabilities and owner's equity BDT 180,500
 ILLUSTRATION 1-10
FINANCIAL STATEMENTS AND THEIR INTERRELATIONSHIPS
Bizz Solutions
Statement Cash Flows
For the Month Ended June 30, 2018
Cash of BDT
Cash flows from operating activities 80,500 on the
Cash receipts from customers BDT 33,000 balance sheet
Cash payments to suppliers and employees (19,500) BDT 13,500 and cash flow
Net cash provided by operating activities statement is
Cash flows from investing activities
Purchase of equipment (BDT 70,000)
shown as the
Net cash used by investing activities (70,000) final total of
Cash flows from financing activities the cash
Investments by owner BDT 150,000 column of the
Drawings by owner (13,000) Summary of
Net cash provided by financing activities 137,000
Transactions
Net increase in cash BDT 80,500
Cash, September 1 - (Illustration
Cash, September 30 BDT 80,500 1-9 in text).
 Listed companies
FINANCIAL STATEMENTS
Common Financial Statement Terms
 EBITDA – Earnings before interest, taxes, depreciation
and amortization
 Working Capital – Current assets – Current liabilties
 Accrued Liabilities – Liabilities that are due but not yet
paid
 Depreciation – A non-cash item that reflects the wear and tear
on equipment and provides for a deduction on an annual basis
Balance Sheet vs. Income Statement
• Balance sheet is a snapshot of what assets and liabilities have
accumulated from the inception of the company
• Assets = Liabilities + Owner’s Equity

• Income statement shows revenue, COGS and other expenses

• Revenue – COGS = Gross Profit
• Gross Profit – Operating Expenses = Net Income
 Profit vs. Cash
Flow
Cash flow is NOT the same as profit/net income
• Accrual vs. cash based accounting
• Collection of accounts receivable
• Investment in inventory
• Investment in fixed assets
• Loan borrowings/repayments
Md. Shafiqul Alam LLB, ACS, FCA, FCMA
https://www.youtube.com/channel/UCFMCpQF19HFeFB
hnIDm9VMQ

Shafiqul Alam
https://www.facebook.com/md.shafiqul.alam

Md. Shafiqul Alam, ACS, FCMA, FCA

https://www.linkedin.com/in/md-shafiqul-alam-acs-f
cma-fca-81373132/

shafiq.cfobd@gmail.com
Thanks