Dr. Mohamed A. Hamada Lecturer of Accounting Information Systems Accounting I BA 104 Lecture 1 Introduction to Accounting Dr. Mohamed A. Hamada Lecturer of Accounting Information Systems

Reference Book Accounting Principles, Weygandt,. Kieso. Kimmel, 8th. Edition, by Wiley.

Assessment Performance will be evaluated according to following criteria: Regular attendance is a prerequisite for passing the course. Continuous Quizzes and Assignments (20%) Mid year Exam (20%) Final written exam (60%)

Main objective of this course 1. Explain what is accounting 2. Identify the users of accounting 3. Explain GAAP and the cost principles 4. Describe the nature and purpose of subsidiary ledger 5. Explain the concept of depreciation 6. Define different method for calculating Account receivables 7. Apply the accounting equation and define assets , liabilities and owner's equity 8. Discover the effects of business transactions on the accounting equation

Main objective of this course- cont,. 9. Calculate financial statements and how they are prepared 10. Calculate debits and credits and explain their usage in their recording process 11. Discover what is ledger and how it helps in the recording process 12. Prepare the general journal 13. Manipulate the general ledger 14. Arrange the trial balance 15. Connect adjusting entries and closing entries 16. Prepare financial statements 

Study Objectives for chapter one Explain what accounting is. Identify the users and uses of accounting. Understand why ethics is a fundamental business concept. Explain generally accepted accounting principles and the cost principle. Explain the monetary unit assumption and the economic entity assumption. State the accounting equation, and define its components. Analyze the effects of business transactions on the accounting equation. Understand the four financial statements and how they are prepared. 1. On the topic, “Challenges Facing Financial Accounting,” what did the AICPA Special Committee on Financial Reporting suggest should be included in future financial statements? Non-financial Measurements (customer satisfaction indexes, backlog information, and reject rates on goods purchases). Forward-looking Information Soft Assets (a company’s know-how, market dominance, marketing setup, well-trained employees, and brand image). Timeliness (no real time financial information)

Introduction to Accounting What is ACCOUNTING - Accounting is the “language of business” Accounting is the information system that Measures business activities Processes that information into reports Communicates the results to decision makers

THE ACCOUNTING SYSTEM: THE FLOW OF INFORMATION 1. People make decisions 2. Business transactions occur 3. Businesses prepare reports to show the results of their operations

Importance of Accounting is a system that Identifies Records information that is Relevant Communicates Identifying business activities requires selecting transactions and events relevant to an organization. Ex. The sale of cosmetics, such as perfume, lipsticks.. by SaSa Recording business activities requires keeping a chronological log of transactions and events measured in dollars and classified and summarized in a useful format. Communicating business activities requires preparing accounting reports such as financial statements. It also requires analyzing and interpreting such reports. The difference between bookkeeping and accounting: bookkeeping is the recording of transactions and events. This is only one part of accounting. Accounting also identifies and communicates information on transactions and events. Reliable to help users make better decisions. Comparable

Main Accounting Activities Identifying Business Activities Recording Business Activities Communicating Business Activities

ACCOUNTING VS. BOOKKEEPING Bookkeeping is the recording on a day-today basis of financial transactions. Transactions include purchases, sales, receipts and payments. It involves organizing and managing all business transactions in a company

What is the relation between accounting and bookkeeping? Bookkeeping is the recording of financial transactions and events, either manually or electronically. Accounting is much more. It includes identifying, measuring, recording, reporting, and analyzing business events and transactions, and helps information users to make economic decisions.

DECISION MAKERS WHO USE ACCOUNTING INFORMATION Individuals Businesses Investors and Creditors Government and Agencies Taxing Authorities Nonprofit Organizations

FINANCIAL ACCOUNTING AND MANAGEMENT ACCOUNTING Financial accounting provides information to managers and people outside the firm Financial accounting information must meet certain standards of relevance and reliability Management accounting generates confidential information for internal decision makers, e.g., Top executives Department heads

TYPES OF BUSINESS ORGANIZATIONS Proprietorships Have a single owner who is generally the manager Are business entities, but not legal entities

TYPES OF BUSINESS ORGANIZATIONS Partnerships Join two or more persons together as co-owners Are business entities, but not legal entities

TYPES OF BUSINESS ORGANIZATIONS Corporations Are owned by stockholders or shareholders Are business entities and legal entities Stockholders have no personal obligation for corporation debts

What is main purpose Accounting? The main purpose of accounting is to: identify, record, and communicate the economic (financial) events of an organization to the interested users.

Three Activities What is Accounting? The accounting process includes Illustration 1-1 Accounting process The accounting process includes the bookkeeping function.

Users of Accounting Information External Users Financial accounting provides external users with financial statements. Internal Users Managerial accounting provides information needs for internal decision makers.

Who Uses Accounting Data? Internal Users IRS Management Investors Human Resources There are two broad groups of users of financial information: internal users and external users. Labor Unions Finance Creditors Marketing SEC Customers External Users IRS is the U.S. government agency responsible for tax collection and tax law enforcement*** SEC Securities and Exchange Commission

Users of Accounting Information-External Lenders: Whether the firm (borrower) can repay the money? Shareholders: whether to buy, hold, or sell stocks? Governments: whether the firm pay all due tax? Customers: whether the firm can exist to provide post-sale services? External Auditors: whether the financial statements are prepared according to GAAP? Etc.

Users of Accounting Information-Internal Marketing managers: target customers, set price, monitor sales. Production managers: monitor cost and ensure quality. Purchasing managers: what, when and where to purchase materials. Human resource managers: employees’ performance and compensation.

What is the difference between a shareholder and a stakeholder? Shareholders are stakeholders in a corporation, but stakeholders are not always shareholders. A shareholder owns part of a company through stock ownership, while a stakeholder is interested in the performance of a company for reasons other than just stock appreciation. Stakeholders could be: Employees who, without the company, would not have jobs Bondholders who would like a solid performance from the company and, therefore, a reduced risk of default Customers who may rely on the company to provide a particular good or service Suppliers who may rely on the company to provide a consistent revenue stream

Who Uses Accounting Data? Common Questions Asked User 1. Can we afford to give our employees a pay raise? Human Resources 2. Did the company earn a satisfactory income? Investors 3. Do we need to borrow in the near future? Management 4. Is cash sufficient to pay dividends to the stockholders? Finance 5. What price for our product will maximize net income? Marketing 6. Will the company be able to pay its short-term debts? Creditors

Who Uses Accounting Data? Discussion Question Q1-1: “Accounting is ingrained in our society and it is vital to our economic system.” Do you agree? Explain. See notes page for discussion Question 1 (textbook) Yes, this is correct. Virtually every organization and person in our society uses accounting information. Businesses, investors, creditors, government agencies, and not-for-profit organizations must use accounting information to operate effectively.

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