Accounting Lecture

Accounting Lecture

It is n information system. It is called the language of business. Accounting is the art of interpreting, measuring, and communicating the results of economic activities. Accounting is an information system of overall financial transactions. It is called the language of business. The American Accounting Association (AAA) defines accounting as “the process of identifying, measuring, and communicating economic information to permit information judgment and decision by the user of the information” Accounting is the systematic recording, reporting and analysis of financial transactions of a business.

The person in charge of accounting is known as an accountant, and this individual is typically required to follow a set of rules and regulations, such as the Generally Accepted Accounting Principles. Accounting allows a company to analyze the financial performance of the business, and look at statistics such as net profit. Development of Accounting Standard Accounting principles have been developed through a historical way. Principles can be acceptable if most professional bodies allow it. These principles can be phrased as GAP which acts as constitution profitable or non-profitable or governmental organization.

Some international bodies have played a vital role in establishing accounting standards. The following merit attention: American Institute of Certified Public Accountants (CPA) American Institute of Certified Public Accountants is the international professional organization of practicing Certified Public Accountants. It is the dominant institution over the establishment of accounting principles and standards. The main two committee of it is – accounting standard committee and auditing standard committee are influential in providing input to the FAST and SEC.

Financial Accounting Standard Board (FAST) Financial Accounting Standard Board (FAST) communicates its performance about establishing principles through various publications, more specifically Statement of Financial Accounting Standard. These statements outline the generally accepted accounting principles. Sec reties Exchange Commission (SEC) under Security Exchange Act, creation of securities exchange & commission (SEC) is a government agency that administers a number of acts dealing with securities.

The SEC has the authority to prescribe accounting and reporting practices for companies under jurisdiction. Governmental Accounting Standards Board (GABS): Governmental Accounting Standards Board (GABS) issues statement on accounting and financial reporting in the governmental area. It is responsible for establishing the new governmental accounting concept and standards. American Accounting Association (AAA): An organization, whose members are primarily accounting academics, which encourages the development of accounting theory by encouraging and sponsoring accounting research.

American Accounting Association (AAA) consists largely of accounting educators. This body aims at encouraging research and study at the basic accounting level and developing accounting practice. They publish three types f journals to serve the purpose namely: ; The Accounting review ; Accounting Horizon & ; Issues in Accounting Education The Accounting Principles Board (APP): The Pap’s official pronouncements issued from 1 959 through 1973 which were intended to be based mainly on research studies and be supported by reasons and analysis.

The Accounting Principles Board (APP) is the former authoritative body of the American Institute of Certified Public Accountants (CPA). It was created by the American Institute of Certified Public Accountants in 1959 and issued pronouncements on accounting principles until 1 973, when it was replaced by he Financial Accounting Standards Board (FAST). Financial Executive Institute (FEE): Financial Executive Institute (FEE) is an organization established in 1931 and its members are primarily financial policy-making executives.

The body consists of slightly more than 13,000 financial officers and 7,000 companies in USA and Canada. The Institute of Management Accountants (IMAM): The Institute of Management Accountants (AMA) is sought to provide members personal and professional development opportunities through education, association with the business professional and certification. The Institute of Internal Auditors (III): The Institute of Internal Auditors (III) is the primary international professional association dedicated to the promotion and development of the practice of internal auditing.

This comprises of more than 70,000 members in 1 29 countries in the world. Purpose of Accounting The primary purpose of accounting is to identify and record all activities that impact the organization financially. All activities, including purchases, sales, the acquisition of capital and interest earned from investments, can be classified in monetary terms and posted to a specified account as an counting record. These transactions typically are recorded in ledgers and journals and are part of the process known as the accounting cycle. The main aim of any business is to earn profits and also to remain solvent, I. . , it should have enough resources to pay its employees, creditors and to carry on with the day-to-day activities of the business. The main purpose of accounting system is to prepare financial statements that will help the various external and internal parties of the business to appraise the profitability as well as the solvency Of the business. The three main financial statements that re prepared for the purpose of accounting information are as follows. Balance Sheet A balance sheet is the most important financial statement of a company.

The balance sheet contains the assets and liabilities of a company as well as the owners equity, which is the difference between these two. Analysis of the balance sheet statement has many benefits such as asset management decisions are based on the balance sheet statement. Also, in order to raise finances for the company, most lenders first analyze the last three years balance sheet statements and take decisions accordingly. Thus, the purpose f accounting is to have a data ready which will be used by such external parties as investors and government organizations to take their decisions.

Statement of Cash Flows Cash flow statement presents both the cash inflows and cash outflows of a company in a given period of time. Cash inflows are the revenues earned by a company in a specified period, cash outflows are the expenses incurred in the production process of the company. Statement of cash flow, thus, represents the liquid position of the company in a given time. Analysis of the cash flow statements is very essential for proper financial management of the organization. Thus, the purpose of accounting is to help the firm in managing its finances in a better way.

Profit and Loss Statement It is also known as the income statement. Profit and loss statement represents the profit of an organization in a given period. It represents the difference between the revenues, gains of the business and the expenses, losses of the business. Thus, the purpose of accounting, through this statement is to present before the investors and the managers, whether the organization has made money or lost money in a given period. Income statement is a major tool for financial planning in a business.

Thus, the purpose of accounting is also to plan, how much and in what areas the company will be putting its available finances. Accountants develop systems and processes to evaluate and analyze different types of transactions. Each transaction that involves the acquisition or sale of goods and services must be reported in the general ledger and posted to relevant accounts. Bookkeeping is the function of accounting that helps maintain these types of transactions as debits and credits; this data can then be used to create accurate and timely financial reports.

Accounting is a decision-oriented information science. The very beginning part of accounting is bookkeeping. Bookkeeping records the financial events of the business entity in a systematic manner. For doing so, bookkeeping follows a scientific system called double entry system. Bookkeeping records transactions, in most cases, from source documents I. E. Objectively identification events. For instance, cash memo substantiates the cash sale. Book-keeping keeps the records for future reference also. The task of book- keeping is performed by computers and skilled clerical staffs, not by accountant.

Professional accountants are involved with the interpretations and use of counting information than with its actual preparation. Their work includes evaluating the efficiency Of operations, resolving complex financial issues, forecasting the results of future operations, auditing, tax planning and designing efficient accounting information system. A person might become a proficient bookkeeper in a few weeks or months. To become a professional accountant, however, it is a far greater challenge. It requires years of study, experience and an ongoing commitment to keeping current.

Accounting is a self-sufficient process. It follows several but sequential steps in recording transactions. It is an ongoing process. Accounting process transactions to generate meaningful information and finally communicates with users of diversified interests. It presents financial information to the external users in the form of financial statements. Users can make effective decisions of the basis of such information. Accounting is gradually vesting the responsibility of reporting non-financial information to the users.

Public limited companies operating in Bangladesh is recently focusing on environmental issues, corporate governance and other important social issues along with financial information in the annual report. Accounting inside the organization plays a vital role in managerial decision making. Accounting produces and presents internal reports namely, production report, budget, sales forecasts, projected cash flow statement and so on, to the corporate bodies. Thus accounting aids in managerial decision making.

It is important to clarify the relationship between accounting and bookkeeping to avoid certain misunderstanding about accounting. People often fail to understand the difference beet≡en accounting and book- keeping. That is, book-keeping, which is a process of accounting, is the means of recording transactions and keeping records. Mechanical and respective, book-keeping is only a small, simple part of accounting. On the other hand, goal of accounting is the analysis, interpretation and use of information. The main distinction is: accounting starts where book-keeping ends.

What arithmetic is like to mathematics, book-keeping is like to accounting. If uncial Accounting Vs.. Management Accounting The pivotal role of accounting is to provide information to decision maker inside and outside of the organization. From the decision makers perspective accounting is divided into two major categories: If uncial accounting and managerial accounting. Financial accounting is the part of accounting which is basically external decision maker oriented that is it provides information to the external users for decision making about the organization.

With the help of financial accounting, management basically discharges their accountability to the stakeholders group. On the other hand, managerial accounting is related with communicating information to the internal decision makers who are involved to prepare financial statement. They responsible for effective performance of the organization through providing these statements to the external users. Management accounting is decision oriented. In order for the managers of a company to make the best decisions for a company they need to have specific information prepared.

They use this information for three main management functions: planning, implementation and control. Financial information is used to set budgets, analyze different options on a cost basis, modify plans as the need arises, and control and monitor the work that is being done. Another important distinction can be; financial accounting looks back whereas management accounting looks forward. History of Accounting The origins of accounting are generally attributed to the word of Luck Bacilli, famous Italian Renaissance mathematical.

Bacilli was a close friend and tutor to Leonardo ad Vinci & a contemporary of Christopher Columbus. In his text sums De Arithmetic Geometrical, proportions et proportionality, Bacilli described a system to ensure that financial information was recorded efficiently & accuse irately. With the advent of the industrial age in the nineteenth century & later, the emergence of large corporations, a separation of the owners from the manager of business took place. As a result the need to report the status of the business enterprise took on increasing importance, to ensure that managers acted in accord with owners’ wishes.

In addition, transactions between businesses become more complex, making necessary improved approaches for reporting financial information. Accounting is practiced at different levels and in different institutional contexts, with national accounting, government accounting and business accounting being the main forms today. According to Carter and Davies et al. (2000), government accounting applies to business enterprises and to many nonprofit institutions, with relatively minor differences between the various legal forms of organization and between industries. According to John R.

Alexander, accounting is a little different than most other modern professions. Accounting has a history that is usually discussed in terms of one seminal event- the invention and dissemination of the double entry bookkeeping processes. Paul Garner and Taste Titus (1995) report that the first printed treatise of bookkeeping in the world is the Summary De Arithmetic, Geometrical, Proportion et Proportionality written by Luck Bacilli. The treatise was published in Venice in 1494, and was reprinted at Tuscaloosa in 1523. This work in one of the most important books on mathematics and has had an enormous impact on the field of accounting ever since.

The treatise 1 1 of section 9 of this book-that is, “particulars De Copious et Scriptures,” is a treatise about double entry’ bookkeeping. The system of bookkeeping that Luck Bacilli described first introduced the practice and theory that had developed in commercial cities in Italy, particularly in Venice. Bacilli wrote in the first chapter Of his treatise, “We will here adopt the method employed in Venice which among others is certainly to be recommended, for with it one can carry with any other method. ” Bacilli was born in Borg San Spooler, lived in Venice and became the tutor of three ones of a rich merchant, Antonio De Romains.

It seems that he could have had a chance to see the accounts books of the Venetian merchants and to study the method of double entry bookkeeping in Venice. However, any view of accounting history that begins with Luck Piccolo’s contributions will overlook a long evolution of accounting systems in ancient and medieval times. In attempting to explain why double entry bookkeeping developed in 14th century Italy instead of ancient Greece of Rome, accounting scholar A. C Littleton describes seven “key ingredients” which led to its creation. Ethics stands for “A set of moral principles”.

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