Accounting Principles Lec. 1 _ Mr.Ye7ia _

							      ‫‪Accounting principles‬‬
                               ‫‪1st year‬‬




                          ‫)1( :‪Part‬‬
‫سنتر بداية: محطة الرمل بجوار سينما‬
‫مترو فوق خروب امال‬
               Ch.1...Accounting in action




1) What is accounting and its purposes?
Accounting: is an information system that: identifies, record &
communicating financial information about economic events
(transactions) of an organization (business) to the interested users
using financial statements’ … (so it’s the language of business.)

Purposes: provide useful information to the business interested
users.
             Three Activities Illustration: Accounting process




         The accounting process includes the book keeping function.
  Three activities of accounting:

     a) Identifying: selecting events that are related to a particular
         business & measuring events in terms of ($)
     b) Recording : consist of keeping records of measured events in an
         orderly & systematic manner as well as classifying &
         summarizing those events
     c) Communicating: provide financial information to the interested
         users through a set of reports called : financial statements

  Accounting uses as an information system:




What are the different forms of business?

Sole proprietorship          Partnership             corporations
-a business which is         - a business that is    - a business that is
owned by only one            owned by more than      owned by a very large
person                       one persons (more       number of owners
                             partners)               (investors )
-personally liable for all   -generally unlimited    - limited liability
debts                        personally liability

-Often small service         -often retail and       - Ownership divided
type business                service type business   into shares of stock.
 What are the types of business (activities)?

   Service business            Merchandising               manufacturing
-rendering (providing) a   - purchases goods           - purchasing raw
services for fees          (merchandise) for resale materials and processing
                           to customer                 them into finished
                                                       goods to sell them to
                                                       customers
- like: advertising ,      -like: department stores - like: plastic company
consulting , car rental    whole seller & retailer
telephone agency &
transportation company


   *) Who Uses Accounting Data?

   There are two broad groups of users of financial information:
   internal users and external users.




         Internal user:                          external user:
         - Management                    - investors (owners)
         - Human resources               - potential investors
         - Finance                       - creditors

         - marketing                     - banks & labor union

                                         - Securities &exchange commission
*) What are the financial statements?




**Hint:
Financial statements: a set of reports that should be prepared at
the end of each accounting period (yearly, monthly, quarterly)


GAAP: are a set of accounting rules that indicates how to report
economic events, which is established by the financial accounting
standard board (FASB) & the international accounting standards
committee (IASC).
*) What are the building blocks of accounting ?




  1) How to Building Blocks of Accounting?


                              Financial Statements
                              -Balance Sheet
     Various users            -Income Statement
     need financial           - Owner’s Equity
      information             -Cash Flows




 The accounting
 profession has
                                   Generally accepted
 attempted to develop a
                                  accounting principles
 set of standards that
                                         (GAAP)
 are generally accepted
 and universally practiced
   *) the Basic Accounting Equation:
           Assets (A) = Liabilities (L)   +   Owner’s Equity (O.E)


1) What are the (assets)& its types :
are resources owned by the business, expected to provide future benefits


a)current assets (short term assets) :
which means that asset will be turned into cash either in period one year
or lower like:
- cash : money in safe & at bank
- supplies (papers, pens.)
-inventory: goods held for resale to customers
- Account receivable (AR):(oral promise) to collect
-Notes receivable (NR) : (written promise) to collect


b) fixed assets:
which means long term assets will be used over a long time period more
than one year and will not be quickly turned into cash like:
- land
- cars , trucks
- building
- equipment
- furniture


   Hint:
      - Current asset: is an asset of a period less than one year.
      - Fixed asset (long term asset):is an asset of a period more than
           one year
2) What are the (liabilities) & its types?
Are claims against assets (debts & obligations), creditors party to
whom money owned. They are the right of others against asset
business.

a) Current liabilities (short term liabilities):

Short term liabilities are liabilities will be paid in the next year, like:

-account payable (AP): amounts owed to suppliers from the purchase of
good on account (oral promises)

-Notes payable (NP): amount owed to suppliers or to the bank that are
represented by a formal agreement (written promises)

-Accrued expenses (expenses payable): expenses not paid yet like:

Salaries payable, rent payable.

b) Long term liabilities:

Liabilities that due within a long period of time more than one year like:

-notes payable

- Bank loan

- Bond payable


  Hint:
  - not all bank loans are long term as not all are paid over a
     period greater than a year
3) What are the (owner’s equity)?
Ownership claims on the total assets or residual equity (net asset) ,
where net asset = Asset – liability
a) In the sole proprietor ship:

- Capital of the owners should be




     Increased by:                         decreased by:

- Investment by the owner         - drawings

- Revenues                        - expenses




b) In the corporations:

- Common stock
- Preferred stock
- retained earning


   **Hint:
  - (owner’s equity): are the words used on the balance sheet
     when the company is a sole proprietorship , if the company is
     corporation , the words that used are (stock holder’s equity)
  - Assets (investment) = liabilities (debt of finance) + O.E (capital)
- Revenues: are increases in owner’s equity resulting from business
activities, and also result from the sale of merchandise or
performance services. Like: sales revenue and service revenue

- Investment by owners: Increases owner’s equity, are assets that
the owner puts into the business.

- Expenses: are decreases in the owner’s equity that resulting from
operating the business. They are the cost of assets consumed or
services used in the process of earning revenues such as: (rent
expenses, utilities expenses, salaries expenses, insurance expenses,
advertising expenses, telephone expenses, tax expenses, depreciation
expenses …..)

- Drawings: are decreases in the owner’s equity; also are withdrawals
of cash or other assets from the business by the owner for his
personal use



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                                            .
                                     Exercises.
Q.1: Matching:
 Match the following items and terms
       a) Account payable b) account receivables c) notes payable

   ----- 1.Amount due from customers
   ----- 2.Amount owed to suppliers for goods and services purchased
   ----- 3. Amount owed to bank


           Answer:
       1) B 2) A       3) C

Q.2: classify:
Classify each item assets (A), liabilities (L) or owner’s equity (O.E)


   A (a) Accounts receivable             A        (d) Office supplies
   L (b) Salaries payable               OE        (e) Owner’s investment
   A (c) Equipment                         L      (f) Notes payable
   A (g) cash                              A      (h) land
   O.E (i) Advertising expense




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